What should you do if a large competitor says, “Sell to us or we will crush you!”
Now is time of the year where large companies are looking for ways to “Maximize” Profits. Sometimes the executives and lower management flunkies have no clue on how to increase revenues… Until… some bright person says, “Hey, I saw this website that is selling products online to our top demographic. Should I contact them to see if they want to sell to us.”
That’s what happened to me. Been There ….. Done That…. I have the scares to prove it.
Anyone that wants your product want’s it for 2 Reason and 2 Reasons Only… well actually 3 so here we go.
Reason 1. You have a product that will help them make more money.
I actually had an exclusive deal to import a product from Spain. The Landed Cost of this product allowed me to undersell my competitors. My landed cost was $30 per unit and End Users Paid $210 + Shipping. My Distributors Paid $130 + Shipping. The Number 2 Ranked Company in my industry sold a similar product but paid almost double of what I was paying. They wanted that Product to increase there profits.
Reason 2: They get your Customer Data Base Cheap
I build a Distributor and Customer data base of over 10,000 buyers. Since the products I sold used special paper, they would buy their paper from me when they would run out.
By Purchasing my Company they got Access to my Overseas Suppliers and Contracts that increased profits and access to my 10,000 Plus active customer database. This is why Cost of Customer Acquisition & Lifetime Revenue is so important to know.
It cost me $7.00 to acquire a new end user that was good for about $2300 in lifetime revenue. My database consisted of about 8000 customers at a cost of $56,000 to acquire and $1.84 Million. Distributors cost even less at $3.00 and I had about 2000 Active Distributors who were good for about $10,000 a Year on the low end. That a lifetime of about $2 Million in revenue.
After my 5th year in business I was at about $750,000 in Total sales almost 25% of the way to my customers lifetime revenue.
The Number 2 Company offered me a Salary of $40,000 a year plus 35% of the Profit for each sale I made. I was also able to keep my home office and they would pay my rent and all utilities plus my healthcare. My Pay Package was almost $60,000 a year.
In Return I would give them my customer database and company website and name. I would give them access to all overseas contacts and contracts. In exchange I would sign a 3 year Non-Compete. My wife didn’t like me working on my own, it was feast or famine, so I took the deal. It lasted a total of 6 Weeks before the owner of the Number 2 Company fired me. Almost overnight I had lost everything and even worse I was out of the industry for 3 years.
After the 3 years I did come back but never gained the steam I had in the past.
They played me like a fiddle. I gave them almost 3 Million in revenue for $6000
Reason 3: To avoid a lawsuit.
You have something that they want to use and claim it as their own. In order to use your information and data they buy you. Why would Microsoft Buy Skype or Linkin? To gain access to their customer base for more customers to offer their product to.
What would I have done batter?
Looking back I would have asked for more. I would have asked for an initial payment of 3 Years of salary (Matching the Non-Compete Time Span). At my rate of $40,000 a year they would have had to pay me $120,000 up front.
Using my yearly sales totals I would calculate the 35% commission and divide that number by the Big Companies Yearly Sales to get a Percentage. I would then doubled that number to give me some negotiation room. Let’s say that number is 4%. I would ask to receive 4 Percent of Gross Revenue Quarterly. This company did over 12 Million a year in sales and my cut would be $480,000 a year so even at 1/4 of a Percent that would be over $7500 per quarter.
I would offer to work as an Independent Sales Consultant that would go to customers on Big Deals and help them close the sales for 3% of the total sale.
Prior to working for this company I ran 3 large national sales thru them. Each sale was close to 1 Million Dollars. It took them over 8 months to pay me my commission since the CEO has a rule that no commission could be higher than his weekly paycheck.
In Conclusion: Flattery will get you nowhere.
I was flattered that a company as big as that big company would be interested in little ole me. They wine and dined me and kissed my ass just enough to take my company. It was like taking candy from a baby. I let me guard down since I had a long history of making money for this company.
If you get an offer then take this advise into consideration:
Don’t fall in love with your business but fall in love with what you do.
Protect yourself if they want you to sign a Non-Compete Agreement by making your selling price equivalent to that length of the Non-Compete.
Position yourself into getting paid a percentage for Gross Revenue Quarterly.
Success is not easy. Just offer a solution and people will find you.
I hope this article will help you in the future.
Christopher D. Sciullo