Step 1:  Evaluate the end-user

Before you can sell to someone, you need to have a good understanding of what it is they want and how they want to go about buying it.

This comes down to conducting a little market research.

I won’t get into that much here, but start by asking yourself questions such as these:

1. Does the end user need personalized service? If so, who is the best person to provide that service to them?
2. Is the end user more likely to purchase this product online or at a physical store?
3. How much will you need to educate the end user on your product? Who is in the best position to help you educate the end user?

Once you’ve evaluated the end user, start working your way backwards in the distribution model.

Keep in mind that, if you plan to have distribution partners, you’ll need to evaluate their needs as well.

Step 2: Identify potential marketing intermediaries

Once you have a clear understanding of your end user, it’s time to start crunching the numbers and laying out a game plan.

To help us speed things up, I created a spreadsheet. Feel free to make a copy and use it yourself.

The first thing we’ll need to do is to identify potential marketing intermediaries.

Generally speaking, there are only two ways for you to sell product to the end user:

1. Directly – you can sell directly to the end user through a sales force.
2. Indirectly – or you can sell indirectly to the end user through marketing intermediaries.

Marketing intermediaries, in short, help you sell your product to the end user.

You can typically group potential marketing intermediaries into a couple different categories:

1. Agents and Brokers – Agents and brokers are marketing intermediaries that act, essentially, like an outsourced sales force. The main difference here is that agents and brokers don’t typically buy the product from you. Instead, they sell it for you and make a fee or commission.
2. Wholesalers and Distributors – Wholesalers and distributors are marketing intermediaries who purchase product in bulk from the manufacturer and store it until they can sell it to retailers or contractors at a profit.
3. Retailers – Retailers typically purchase products from wholesalers/distributors and resell it to contractors and end users.
4. Value Added Resellers – And lastly, value added resellers such as contractors typically purchase products, bundle them within their service, and sell it to the end user.

Take a few minutes to brainstorm potential marketing intermediaries and enter them into the spreadsheet along with the additional information needed.

Under the “revenue projections” tab, you should see that the revenue projections were automatically calculated for you. This information will be important for measuring your progress.

Step 3: Research potential marketing intermediares

Once you’ve identified several marketing intermediaries that you think you could possibly partner with, start doing your research to see what you can find.

If you can, reach out to these potential distribution partners and offer to buy them a cup of coffee.

Get to know them and consider what type of business relationship the partnership could turn into.

The point here is to make sure that you really get to know them…more than just what’s written on paper.

Use the “research intermediares” tab to keep track of these potential partners.

Here are a few questions that you may want to consider asking:

1. What are some ways that you think we may be able to partner?
2. What are some of your weaknesses that we could potentially address?
3. What are some of your strengths that we may be able to take advantage of?
4. Who would you sell to and at what markup?

Step 4: Narrow in on the profitable distribution channels

Now that we have a good idea of who would make for a good distribution partner, we now need to find which types of distribution channels are available and then narrow in on the most profitable distribution channels.

Remember, as with anything, your distribution program is going to cost you money so the idea is to find distribution channels that generate the best return on your investment.

Distribution channels are, essentially, paths that you push your products through. In most cases, it’s common to have multiple channels of distribution that you manage. Different channels of distribution may have different sets of marketing intermediaries who help you move your product.

Distribution can typically be grouped into three primary categories:

1. Intensive distribution – intensive distribution means there are a lot of intermediaries. An example of intensive distribution may be snack foods; one product may be stocked in many stores and may have many different channels of distribution.
2. Selective distribution – selective distribution  means there are a few intermediaries. An example of selective distribution might be a particular type of fruit that is only sold within a certain geographical area.
3. Exclusive distribution – exclusive distribution means only a few intermediaries and those intermediaries have to carry only their products. An example of exclusive distribution might be high end fashion products that are only sold in very specific stores.

The types of distribution channels you will be able to utilize will differ slightly depending on where you are in the distribution model and who you are trying to sell to.

For example, if your end user is the typical consumer, the types of distribution channels available may look something like this..

If you sell to business users, the types of distribution channels may be slightly different…

And lastly, if you provide a service, the types of distribution channels would probably resemble something like this…

By now you should, at least, have an idea of which distribution channels are likely to have the most potential.

To back up those assumptions with proof,  go into the “channel pricing” tab and enter in the markups of your distribution partners.

Next, enter in how much it cost you to make the product and your desired profit margin.

Once you have those details figured out, it’s time to negotiate the numbers with your distribution partners.

Keep in mind that your distribution partners are, essentially, you’re customers. Of course, in this case, your customer’s goal is to make money. That means that you need to work with them to come up with a mutually beneficial agreement so you can both make money.

Step 5: Manage your channels of distribution

As with any investment, you’re going to need to manage your channels of distribution to make sure that you are maximizing your return on investment.

Make sure that you track the progress of each distribution channel against the goals that you laid out in the previous steps.

If a distribution channel starts to under perform, meet with your distribution partners and figure out where the leak is in your distribution model.

More importantly, determine how you can get things back on track and optimize each channel of distribution.

You need to predictably be able to make progress.

Conclusion

As I  mentioned earlier, laying out your company’s distribution strategy won’t be the sexiest thing you’ve ever done as a business person.

The truth is, however, sometimes putting funds into improving your distribution strategy is a better investment than simply throwing more money at promotion.

That means that we’ll need to take a minute to crunch the numbers.

Hopefully this post has helped with that.

What are some ways you can improve your distribution strategy?

Good business leaders understand that laying out a sound billing cycle process can drastically impact their ability to achieve desired business outcomes which can, ultimately, make a big difference on their overall financial position.

With that being said, here are a few insights I’ve picked up along that way that will hopefully help you bypass some of the headaches I’ve experienced in the past.

Let’s dig in.

What is a billing cycle?

Before we dig into the details, let’s start from the beginning.

What exactly is a billing cycle?

By definition, a billing cycle is the time between billings.

For example, let’s say you have a cleaning service and you get repeat business by providing clients a monthly cleaning service. If you invoice your customers at the end of each month for your services, your billing cycle would be around 30 days.

In some instances, billing terms can be negotiated between the two parties. However, in most cases, the party who does the billing often sets the billing terms.

Here are a two additional terms that surround the concept of the billing cycle. Let’s familiarize ourselves with these terms as well before we move on.

1. Payment terms –  the payment terms of a contract will, essentially, lay out how fast you will get paid. Before you agree to a business deal, you need to make sure that you completely understand the payment terms you’re agreeing to. Should you demand payments be “due on receipt” or will payment terms of “net 30” work?
2. Delinquent accounts – delinquent accounts are, essentially, accounts that owe you money after a certain period of time. It’s up to you to determine the exact definition of what delinquent accounts look like. Either way, the idea is to minimize the amount of delinquent debt owed to you.

As we move forward, consider this; what type of impact would not getting paid on time have on your company’s overall financial position?

The impact on business outcomes

When I first started out in business, my collection process was way to relaxed.

And guess what? …it did more than just have an impact on my company’s business outcomes, it nearly put me out of business all together.

The reason for this is because, when you first bootstrap a business, more than likely you’ll be selling to people you know. Chances are, you’ll be tempted to let that person slide if they are late on a payment.

Don’t do that.

If you want stay in business and reached your desired business outcomes, you need to get paid on time. …it’s as simple as that.

In most cases, the businesses I witness spiraling out of control often experience a sequence something like this:

1. They start by having a billing cycle that is way to relaxed.
2. Many times their invoicing process is late to send out invoices to customers.
3. As a result they have a spike in the number of delinquent accounts and delinquent debt owed to them.
4. This often results in a negative cash flow and makes it incredibly difficult for them to pay their bills.
5. They are not even close to meeting desired business outcomes.
6. The compounding problem places them in a terrible financial position.

A good way to help prevent your business from running out of cash is to create what’s known as a cash flow plan.

The ideal invoicing process

The ideal invoicing process happens automatically and results in you getting paid before you even provide the service.

Of course, this isn’t always possible. In reality, you’ll need to gear your invoicing process to your specific industry.

Either way, consider starting with an invoicing process like the one below and adapting it to fit your needs.

Start with a web based accounting system like Quickbooks Online or Freshbooks.

There are certainly a lot of different options out there; these are just the two that I am familiar with.

Next, make sure that your invoices are setup to be sent out automatically on a certain day each month.

Side Note: If you charge a monthly service fee, consider setting up your invoicing process to charge for that service at the beginning of the month rather than at the end. This way you are getting money before you actually provide the service.

If you offer products or one time services in addition to your normal monthly service, consider setting up your invoicing process to automatically include any additional invoices.

Ideally you’ll want to get paid for these additional charges as soon as you deliver them. However, this will ensure that you don’t forget to send out the invoices.

The ideal collection process

As with the invoicing process, your collection process will need to be specific to your circumstances.

However, the overall idea is to get paid as quickly as you can without any hassles.

Start with something like this and adapt it to your business.

Here’s the main point; if you can, you really need to try to accept only credit cards.

If you can, setup your process so that an automatic withdrawal takes places and you are automatically paid each month.

Ultimately, an automatic withdrawal setup may cause you to lose a few potential customers at first. However, when you are bootstrapping a business you simply can’t afford for someone to pay you 60 or 90 days late.

As your business gains some stability, then you can consider accepting different forms of payment.

Side Note: In my experience, most people actually prefer to setup an automatic withdrawal. It’s simply a hassle to print out an invoice and mail in a check these days. The trick is to get them setup this way from the very beginning, though. If you try to get them to switch over later you are in for an up-hill battle.

Of course, not everyone is going to be okay with an automatic withdrawal type setup.

In either scenario, it’s typically good practice to map out your collection process so you know exactly what to do next. Below is an outline of a very general collection process.

Start here and expand as you see fit.

1. Friendly Collection Letter – Typically, when an invoice is 30 days past due, you’ll want to send the client a friendly collection letter reminding them that their balance is due. If you can, configure your accounting system to automatically send your clients this friendly collection letter when appropriate. It’s important that the friendly collection letter, in friendly language, layout the consequences of what will happen if they don’t pay. In most cases, people simple forgot, so be nice at this point. At this point, it’s typically a good opportunity to offer to help them setup automatic withdrawal so they don’t have to worry about this again.
2. Past Due Letter – If the client doesn’t respond to your friendly collection letter, your accounting system should be configured to send another past due letter at 60 days past due. This past due letter should be friendly but should express urgency in getting the balance paid off. Make sure that your past due letter reminds the client that you will have to suspend their account if the balance is not paid off before 90 days. If it’s still appropriate, offer to help them setup automatic withdrawal to simplify things a bit.
3. Demand Letter – At 90 days, if your client hasn’t responded to the friendly collection letter or the second past due letter, your accounting system needs to send them a third “demand letter“. While the demand letter can still be friendly, it needs to inform them that their account has been placed on “temporary hold” due to the account balance being more than 90 days past due. Make sure that your demand letter stats the fact that you are willing to do whatever you can to help them pay the balance. I’ve typically found it more useful to tell them it’s my goal to set their account back up as early as possible rather than simply telling them to “pay me or else”.

*Keep in mind that you want to minimize the number of demand letters you have to send and, ultimately, the amount of delinquent debt owed to you. That means that you’ll need to experiment with this process to figure out ways to get people to pay you faster.

Conclusion

As you can see, the ultimate goal here is to reduce the number of delinquent accounts and the amount of delinquent debt owed to you.

Failing to do so could lead to negative cash flow and, ultimately, a poor financial position for your company.

The good news is, the opposite is easily true as well; you can better your financial position by simply implementing sound processes and closely aligning them with your overall customer service process.

For those of you with experience in this area, what are some insights that you have?