Since becoming an entrepreneur, and through my journey of selling goods, I have made some business mistakes and avoided others by talking to other founders. If you are in the retail or e-commerce industry, here’s a look at costly land mines to look out for — and how to handle them:
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Chargebacks from customers and retailers.
A chargeback occurs when a customer disputes a charge on his or her own credit card bill, usually after their card has been used fraudulently or if they never received the merchandise they paid for. Chargebacks can be a huge headache for business owners and can lead to fees and lost inventory.
Thankfully, you can minimize chargebacks if you take these preemptive steps: a) Always accurately describe your goods; unrealistic expectations can make for unhappy customers; b) Use a delivery service with tracking capabilities so claims of undelivered goods can be confirmed or discounted; c) Clearly state your return policy to minimize misunderstandings; and d) Make contact information, such as your customer service toll-free number or email address, easy for customers to find.
Chargebacks can apply to your retail customers as well. Occasionally, if you do not package products correctly or based on the agreement you signed with a distributor, you may receive a chargeback. It’s important to read any agreement you sign very carefully and make sure you are crystal clear on requirements.
For example, a chargeback detail related to freight are issued for two reasons. a) Freight Agreement: “We have a Freight Agreement on file for your vendor number or the PO specifies that the vendor will pay some or all of the freight charges.” or b) Purchase Order or Routing Guide violations: “To discuss your chargeback, please contact the distribution center to which merchandise was shipped.”
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Over-promising lead times.
What can you do if you’re faced with an unforeseen shipping delay or your product sells out and isn’t available to a customer who just ordered it? If you over-promised on your timeline and aren’t able to deliver the goods, you could end up damaging your relationship. That’s why it is so important to remember: under-promise and over-deliver.
Under-promising lead times does not mean you should set the bar low. Rather, it is a smart way of managing expectations and efficiently delivering on promises. Set realistic deadlines and take into account potential obstacles or setbacks that could prevent your customers’ expectations from being met (i.e., under-promise). Then your customer will be thrilled if they receive their package early, get great customer service, or receive an exciting extra like free stickers or your innovative packaging (i.e., over-deliver).
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Delayed payment from retailers.
Sometimes, it is just as difficult to get paid by a store as it is to secure an order. For example, at one point we grew sales to over 30 stores in less than a year. In working with other sales representatives, it became increasingly difficult to manage all of the outstanding invoices – especially from stores that refused to pay or delayed payment. This can be the case even when you are working large retailers.
Here are some receivables lessons I learned that will ensure you get paid: a) Establish terms: When you’re starting out, it’s easy to overlook the very important step of establishing payment terms. However, a well-written contract that confirms when and how you would like to be paid can save you a lot of hardship. b) Don’t hesitate to bill the store: Send invoices ASAP! Also, ensure invoices includes all of information a retailer needs to reach you with billing questions. Specify an accounts payable contact. And lastly, c) Be persistent: Despite your best efforts, stores still might not pay you for your goods. If this happens, it is critical to be persistent in payment collection. Send emails and call your contact directly until they make good on their payment.
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Spreading inventory too thin.
If you are just starting out, it might be a good idea to test the market with consignment, but carrying too many stores can be time consuming–and end in a huge loss if you distribute inventory in the wrong places.
A good way to avoid spreading your time and inventory too thin is to visit consignment shops beforehand. Check out other brands the store is carrying. Does your product seem like a good fit with the rest of the merchandise in their shop? Are their customers your target customers? Do you feel the store’s rate of consignment is fair? If so, great – get to selling! If not, reconsider doing consignment deals with that store. It is much more cost-effective in terms of time and money to find a handful of shops that are a great fit, rather than putting your product in too many stores at once.
This article has been edited and condensed.
Tanya Menendez is the COO and Co-Founder of Maker’s Row, is a Brooklyn-based online marketplace for American manufacturers with a network of over 5,000 manufacturers and 45,000 designers and brands looking to create products in the USA. Before Maker’s Row, Tanya managed operations within Google, Goldman Sachs and a leather goods line, The Brooklyn Bakery. Connect with @makertanya on Twitter.
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