Crap. More business stuff. Gunna get screwed?
 

Awhile back, in conjuction with another guy, I developed a product that basically took the guitar forum world by storm in a short time.
He basically requested that I make something very specific for him, then he selected one of the components based on it's specs.
Things went crazy after that when other people got wind of them, and it's become my hottest seller, making up around 80-90% of my sales since around October.
This all started around July though...but really picked up around October.

I order large quantities of the parts, get them shipped to him, and he sorts and selects the ones with the specs he's looking for. I pay him for his time spent, which raises the cost of that part about 1000%.

Now, he wants exclusive distributorship. And control of the name they've come to be known as.
This poses a problem. He wants a slice of my pie - a VERY large slice. For basically doing very little. I work my ass off to keep up with the orders, while he just selects the one component. And does a little "promo" work.
If I wholesale them to him for exclusive distributorship, I loose about 50% of the income on these. More, if you consider the component cost.
Figure component cost to be around $20 because of the increased price of the component. Figure wholesale cost at $65 or so. $65-$20 = a scant $45 each I would make on these, while dipping heavily into production time for other models.
I would go from making $100+ to making about $45 on each piece. Rough math.
Now I have to subtract the time it takes my assembly guy to assemble them..he can do about 10-12 in a 6 hour day. $8/hr.

Going From $1300+ days to $650 days? (average, depending on how many we turn out) I don't think so...



Any thoughs on this?

Does this individual represent Guitar Center?

Why can't you cut him out of the cycle?
Is his selection of the pieces so critical?

Or just turn down his offer and stay as you are.

No. If he did, it would be a simple choice.


His selection is fairly critical, yes. I could start doing my own selection, but it would cut deeply into my production time.
He also wants to take control of the name they have made for themselves, which has become almost a household name.

If I turn down his offer and end the model, my production/orders gets cut by at least 80%. And the few hundred sets I have made so far start selling for crazy money.
I'm G*ddamn tempted to start buying back the ones that are out there, end production, and then see what demand does.

I have another option: start having my supplier do the selection based on the specs, pay through the nose for them to do it in-house, and rename the model "Formerly known as"

I want to revise my above statement about "critical"

The effect of his component selection makes a subtle difference in my product. It's not a glaringly obvious difference, such as adding 100HP more to your car would be. It's more like adding 10HP to your car. You don't really notice it, but you know it's there.
But, that subtleness makes all the difference in the world.

I guess I need to order a couple of more sets :)

It sounds as if you need him as much as he needs you!

If you are not being allowed to maintain the status quo I would suggest calculating a new price per piece favourable to you and offering him exclusive rights tied to guaranteed minimum monthly orders for at least 12 months and renewable annually for two further years subject to agreement by both sides. Whilst all the yabbadabbadoing (technical term for negotiating and talking about it;) ) is going on, which will drag on for a while and even during the first year - find an alternate distributor or three and a satisfactory selection method.

That's the theory - the practicalities I leave as a technical excercise for the student;)

Re: Crap. More business stuff. Gunna get screwed?
 

My initial thought is that your profit margins are grotesquely huge either way! Good for you, but watch your back when you're cutting a fat hog in the ass like that.

I would call a lawyer asap, you are dealing with a complex problem with huge $ consequences. You need to know how strong your legal pimp hand is if it gets that far...and to keep you from doing anything stupid you may regret. Good luck!

Why not come back with a reasonable counter-offer? That may be what he is expecting. The first offer usually has quite a bit of wiggle room.

Time to call a lawyer, a CPA and perhaps a mediator.......

Does he have any skin in the game? Tell him you'd love to let him invest and become a partner.

Re: Re: Crap. More business stuff. Gunna get screwed?
 

Could be, Shuie.
I've emailed Seymour about this, and I'm going to send him several sets of the magnets when I get the next batch. Seymour will test them and let me know exactly what we're looking at here. I do have a digital gaussmeter, but it's very sensitive and I haven't been able to make a good fixture for it yet to get stable readings.
He may even be able to do selection/calibration for me.
Seymour is a guy I trust - implicitly - despite him being competition.


I'm working on a counter offer now.


There has been no cash outlay toward me this on his part. He's put some time into it, and a little "promo" work if you could call it that.

Counting only component cost, you could say that. Time, aggrivation, stress, takes a toll though. If I lose my retail end sales though, I'll take a ginormous hit. I'd much rather put an end to the line than take a 50% paycut. I could raise prices dramatically to offset the paycut, but don't want to do that.

agreed. if negotiation ain't your strong suit - find one. you should be able to work out something to your mutual satisfaction. the negotiator will facilitate that.