TRADE SHOWS PART 6—THINKING ABOUT YOUR BOOTH

Our booth for buyer shows is entirely different than what I normally look like at my weekly street market outings. I will post pics of both booths later on, when I actually have a picture of the “corporate” booth (we did not take one yet), and I will provide costs for all materials as well as sources for those materials, as well as why we chose what we did. Suffice it to say that for now, you want to consider some of the following when thinking about booth design:

1. The clutter factor. Make sure that people are not overwhelmed by the stuff in your booth and that they can move freely and quickly around it. Buyers know what they are looking for and it does not take them long to cruise the wares. Make sure that they can cruise yours quickly and efficiently—it leaves a good impression.

2. The color factor. Our mentor told us to add color color color! You don’t have to go overboard, but tasteful use of much color catches the eye of passersby quite well. If you are in the middle of an aisle, as we are the more eye catching you can do, the better. We made up royal blue sidewalls for our booth, which makes our signage and products pop!

3. The labor factor. Can you and at most one other person set up and break down your booth? The labor fees the show coordinators charge for booth setup and breakdown are outrageous! I would think of a booth design that can be transported in a canopied pickup or a rented van and that can be set up with you and at most one other cheap helper. We accomplish structure very cheaply and efficiently, and I will be putting this info in the blog with the booth pics. We also use lots of fabric and “soft” items that roll and fold and fit compactly into boxes.

4. The cost factor. You can put together a very successful booth for less than $1,000. We routinely get offers to rent booth setups for $2000 and up per show. We can’t even consider that kind of money right now, nor would we ever. Our booth is designed specifically to show off our products. No rental booth can do that for us.

TRADE SHOWS PART 5

As I mentioned earlier, we are participating in several buyer shows this year, all of them in different markets—gift, home & housewares, hardware/housewares, and pets.

Our first ever buyer show, the Seattle Gift Show, ended on February 5. All in all, it was a good experience for us, although not in instant sales. Be forewarned: our industry mentors have informed us that the buyer shows are not for orders, but for contacts. So, go into them with the mindset of making as many contacts of various kinds as you can, rather than racking up as many orders as you can.

But, you say, these shows cost lots of money! If I don’t get a monetary return, what good is doing the show? That is a question everyone will have to answer for themselves. For us, the Seattle Gift Show was rather quiet. Too quiet for my taste, actually, but Mr. Sales and Marketing was satisfied. We gained the following: 1) possibly a new manufacturer who will bring our necessary up-front costs way down and allow us a great deal more flexibility in our overseas manufacturing, 2) exposure exposure exposure; and 3) face time with press people who stopped by and were only too willing to hand over their cards. This will all pay off in the long run, as other earlier efforts seem to be paying off for us this winter.

All of our show expenditures get charged to our advertising expenses, because in reality that’s what they are—a face-to-face advertising/networking opportunity (notice that two out of three mentioned in the previous paragraph are all about advertising). We have found word of mouth and face to face to be our most effective and certainly cheapest forms of advertising in the long run, and this is just one more networking avenue. What is nice about these shows is that you can choose your target audience, so you might think of the cost as the price to pay for accessing your most desirable demographic if your model is about business to business sales.

I will blog more about the specifics of our booth, moving in, moving out, and what we do to bring down the costs of transportation, food and lodging for these shows at the end of March when I have pics to post as visual aids. We can’t do these shows without the help of family and friends, so if you are hesitant to ask for help, now is the time to get over it.

Our next show is the International Home and Housewares Show in Chicago March 16-18. This is the global home and housewares event of the year, and so we expect the show to be huge and hectic. Wish us luck! I will bring back all the details, as well as start talking about show specifics.

CREDIT CARD PROCESSING PART 3 - THE OTHER STUFF

Here is a list of questions we have learned to ask when shopping for credit card processing:

1. Who are the gateway and processing companies?

2. What are the setup fees?

3. What is the monthly fee?

4. What is the statement fee and does it increase with low volume?

5. What is the discount rate?

6. What is the fee per transaction?

7. What is the monthly minimum?

8. What are the contract term and the early termination fee?

7. How long does it take the for the funds to appear in my bank account after approval? (Usually 48 hours. However, some processors only deposit funds every 14 days!)

8. Whom do I contact when I have questions or problems?

The PayPal Model

PayPal, ProPay, and 2checkout are third-party processing services. These companies accept online credit card orders on behalf of you or your company. Like processors, they charge small setup fee, a per-transaction fee, and a discount rate per transaction. Unlike processors, you do not have to open a merchant account and you pay no gateway fees, monthly fees, or statement fees. If you are just starting out and you only do credit card sales online, you might check out these services to see if they meet your needs until online sales take off.

We have a relatively low volume of credit card transactions overall. However, because we accept credit cards from direct retail sales and from our wholesale customers as well as online through our shopping cart, we cannot use PayPal. These services are intended for online shopping cart sales only.

CREDIT CARD PROCESSING PART 2 - THE MONEY

The Reseller

Resellers make their money from software you probably don’t need, monthly software “maintenance” fees, card processing supplies, card processing machines, and probably commissions from the gateway and processing companies they represent.

Most resellers charge a “setup” fee. I don’t know if this is a reseller charge, a gateway charge or a processor charge. I think it all depends on the underlying agreements between the reseller, gateway and processor.

Some resellers can also help you install a shopping cart. We build and maintain our own websites. We had no shopping cart experience, and one of the benefits of going with our first reseller, Merchant Express, was that they provided a shopping cart and installed it for us for a nominal fee. When we switched processors, we were able to do the necessary recoding of the shopping cart ourselves in a few minutes.

The Gateway

That “monthly fee” that is quoted when shopping for credit card services is the gateway company’s fee. They do not make their money any other way. As I mentioned previously, it may be possible to negotiate directly with gateway for a lower rate. This fee is usually $15 to $20 per month.

If you work directly with AuthorizeNet, they charge a setup fee. Because we had an existing account (we had to close that one due once again to Pipeline Data Processing’s terms), we could open a new one at a steep discount.

The Processor

The processor sets your per-transaction fee. This fee is usually a set amount per transaction (e.g., 10 cents per transaction) plus a “discount rate”. The discount rate includes the fee the credit card companies charge and a bit on top of that for the processor. The discount rate varies according to the number of transactions processed per month. From what I can gather, it appears that the transaction fees vary not because of the amount the credit card companies charge, but because of the amount the processor charges on top of that.

Many processors have a monthly minimum. So, if you have a very low volume of transactions, you will most likely pay the monthly minimum instead of an amount per transaction. You need to do some math to determine whether you will get hosed by the monthly minimum requirement versus having enough transactions to get the regular per-transaction free and discount rate. If you only take credit cards online, not in person, the way out of the minimum monthly trap is to use a service such as PayPal that does not require you to open a merchant account with a processor. I will talk more about the PayPal model in part 3.

Credit card companies and processors also charge different fees for different types of credit cards. I have never delved into this matter and I don’t intend to any time soon. Apparently, for a very high-risk, unsecured card, the fee per transaction can be around $10. I have asked around, and I have found no vendors who had incurred such a fee, so it’s probably pretty rare.

Another fee the processor charges is the “statement fee.” I don’t know why you are charged to receive your statement every month. We no longer pay a statement fee with our new processor, Nova. Our old statement fee through Pipeline Data Processing worked out to $19.99 per month, which is astronomically high. I don’t recommend Pipeline Data Processing for a number of reasons, mostly having to do with money. Statement fees tend to run from $8 to $12 per month.

Still another fee the processor charges is the dreaded early termination fee, same as your cell phone provider. Before you sign up for services, it is important to know what the contract term is and what the early termination fee is. We were recently hosed by Pipeline Data Processing (3 years and $300), but most are not this drastic. Our current agreement is 2 years and a $95 early termination fee.

CREDIT CARD PROCESSING PART 1 – THE PLAYERS

In the world of wholesale and retail, there is an alternate universe. This is where credit card processing resides. Right alongside cell phone service. We just recently switched our processing services. It was ugly. I resolved to finally demystify credit card processing for ourselves, and vowed to share the information with everyone I could as a public service.

I am sure some of you had this system down pat within 10 minutes, understand it intuitively and wonder what all the fuss is about and why I am devoting blog space to credit card processing. Some others of you will worship the ground I walk on after this little series. I will update credit card processing on the blog as I learn more, but I think I now have the basics down.

I have posted the separate blog entries at the same time so that you don’t have to wait for the information. This first part will introduce you to all of the players involved in processing a credit card transaction. The second part will cover fees, and the third part will cover the questions we have learned to ask when shopping for credit card processing, The PayPal system, and anything else that might be helpful.

Processing a credit card transaction involves five to six different entities:

1. The reseller

2. The gateway

3. The processor, and possibly a separate billing company

4. The credit card companies

5. Your bank

I will now attempt to explain each of these entities, in order of their importance, not as listed above.

The Processor

This is where it’s at. This is the company that receives your credit card transaction request from the gateway and then passes the transaction along to the Credit Card Interchange (a network of financial entities that communicate to manage the processing, clearing, and settlement of credit card transactions) for approval and payment, receives the approval, and then transmits approval information back through the gateway to your terminal or computer. The part up through receiving all approvals takes about three to six seconds. Getting it into your bank account takes from 48 hours to 14 days, depending on the processor. Go figure.

The Gateway

Just as you sign up with AOL or Comcast or some other company to access the Internet, so you sign up with a gateway company such as AuthorizeNet or LinkPoint to access the credit card processing “Internet”. These companies take your transaction information and forward it to the nether regions for processing. They do not process anything or take a fee per transaction; they just receive your transaction information and pass it along to your processing company.

The gateway company also sends confirmation emails to the customer (you can customize them) and emails confirming the transaction to the merchant. Your shopping cart is hooked up to the gateway so that when a customer enters financial information on your website, it is automatically sent to the gateway and on to the processor, the merchant receives an email notice of the transaction from the gateway, and the customer receives a customized email confirmation.

There are several gateway companies and some processing companies have their own gateways. It seems that most resellers utilize AuthorizeNet. If you know of any others, please add a comment to share your information with others.

Because of our low volume, when selling retail we use a manual credit card imprinter and then enter the transactions on the computer later. To enter the transaction, we go directly to the gateway (AuthorizeNet), sign in and then enter the information directly to AuthorizeNet’s system via Virtual Terminal on their website. The transaction then goes into the system and to our processor, Nova, for the actual processing. More information regarding software and entering transactions is below in the Reseller section.

The Reseller

This is the company that packages credit card processing and gateway services and sells you those along with all of the other retail kitsch that comes with processing credit cards.

Instead of having to look for a separate gateway and processor on your own, the reseller does that for you. Most resellers represent a certain gateway/processor combo. The reseller takes your information, opens accounts with the gateway and processing companies on your behalf, sells you software you most likely don’t need, sells or leases you machines of various kinds, supplies those little Visa/Mastercard signs and stickers, supplies credit slips and other supplies, and handles your questions, problems and complaints. As far as I can tell, the reseller usually only represents one gateway/processor company combination.

It is important to note that the reseller usually does not set the fees for credit card processing, nor does it actually collect them. Resellers typically have deals with the processors and they can offer special fees or deals to you, the merchant, based on these underlying relationships. The reseller makes its money on things like processing machine sales and leasing, software for entering the transactions, monthly fees for software maintenance and upgrades, shopping cart services, and miscellaneous other fees and services.

A word about software. If you enter your transactions manually online, I am going to discourage buying software to enter your transactions from your reseller. Why? Because it’s expensive and unnecessary in most cases. The software a reseller sells does exactly the same thing that AuthorizeNet’s Virtual Terminal does--sends the information into the gateway--and Virtual Terminal is a free, web-based application (see previous information). Resellers have quoted us $149 to $230 for the software and most want a monthly “maintenance” fee of $8 to $20. Once your account is set up through AuthorizeNet (you can create an account directly with them or through a reseller), you should be able to access Virtual Terminal and use it. I don’t know if other gateways have similar systems available.

Merchant Express and Costco are the two resellers with which we have experience. Resellers are all over the web. This is a commission-driven business, so beware of the person on the other end of the phone. You will most likely end up with someone who resembles the stereotype of the used car salesman. Many banks are now contracting with resellers and their associated gateway/processor. That way, they can still offer credit card processing to their business customers without having to maintain their own complex, expensive processing/gatway apparatus.

Purchasing Services Separately

We just discovered that you can put together your own package of gateway and processor, if you dare. I was recently able to go directly to AuthorizeNet, set up a new account and then because of our low volume, get a monthly fee quote directly from AuthorizeNet that was $5 per month lower than what the reseller was quoting. I then had to get a couple of codes and numbers from the processor and enter them into my account information on the AuthorizeNet website to allow the processor and AuthorizeNet to talk to each other, and it was relatively easy to do. I probably won’t be purchasing services separately anytime soon, but I mention it for those of you who might want to try to do it.

Now that I have succeeded in giving you a mother of a headache, I will end with a quick summary of what actually happens when you swipe a card or enter a transaction on your computer:

1. Card is swiped and information is transferred to the gateway company. Alternatively, information is entered directly into the gateway.

2. Transaction information is sent to the processor.

3. The processor sends the information on to the Credit Card Interchange.

4. The approval/rejection information goes back to the processor.

5. The information then goes from the processor back to the gateway.

6. Acceptance/rejection information is transmitted from the gateway to the merchant.

The above all happens in about 3 seconds.

7. After about 48 hours to 14 days, money is deposited into the merchant’s bank account.

For a graphic representation, here is a website that you might find helpful:

www.authorize.net/resources/howitworksdiagram

TRADE SHOWS - PART 4

Ah, Christmas/holiday shows! They sound great. Lots of sales opportunity. Lots of public exposure. We took a look at the finances and how much we could afford to lose, and we signed up for a couple of local ones. These were large (650 and 450 vendors) regional shows, somewhat expensive ($850 and $675, respectively, and the $850 gave us better ratios than the $675 show), and lots of time on one’s feet. We don’t know if we will ever do another one.

The event coordinators of these larger shows cruise the summer fairs looking for suitable vendors, which is how we got into these shows in the first place. We now think, though, that if a large show coordinator is still trying to fill slots for a late October or November Christmas show in July or August, beware. It harkens back to the point about vendor turnover. Large turnover or lack of interest from previous vendors means these companies have to be out diligently cruising for a new crop of suckers like ourselves. This is when getting information about vendor turnover, public turnout, and advertising avenues is more important than ever before committing financial resources. You might even get last year’s exhibitor list and call a few of them to learn about their previous show experiences. Experiences can vary widely between vendors depending on what they sell, but you can still get a very good idea of the overall trends by talking to a few of them.

We got lucky and broke even only because one show’s gains covered the other show’s losses. Once again, we did not follow our own advice about researching the shows (we had not yet devised our own advice at that time). However, given what other veteran vendors were saying at these shows, I don’t think our research would have done us much good. 2007 has not been a good year for most vendors, regardless of their successes in 2006, and most of them indicated they did quite well in 2006.

Our big learning experience was that attendee entry fees are an effective barrier to public purchasing. One show’s entry fee jumped from $7 in 2006 to $12 in 2007. The second, smaller show charged $14 per person. We heard from many attendees that this dampened their buying enthusiasm. So, the combination of economic downturn, a dour public and ridiculous entry fees did not bode well for our 2007 experiences.

Our second lesson was that our previous market research was reflected in these shows. When researching future shows, we will take a look at the typical attendee and see whether it fits our target demographic. Restated in English, we will take a look at whether the types of people attending the show are those who would normally be interested in our product. Despite the fact that these shows draw a lot of people, the show’s location, where and how the show is advertised, and other factors influence the type of attendee. What’s good for one vendor may not be good for another.

With that, best wishes this holiday season and I hope you all go charging into a new year of great successes!

TRADE SHOWS - PART 3

Our resolve to do no more public shows lasted until July, when I participated in the West Seattle Summerfest, part of our local community festival. It sounded fun, it would be downright economical for the exposure we got, and I wanted to get out and do something other than what I was dealing with in the office. What fun! Long, sunny days, chatting with friends and acquaintances who happened by, being part of the local community, all in all, a very good time. The show cost $345 and about 15,000 people attended, so the ratio of attendees to cost was great. We made a little money and the show had no associated travel costs, so no financial losses to worry about. Even though we love what we do, the day-to-day grind can take its toll. I found this show to be a great antidote to the grind and a good way to recharge my batteries. I am looking forward to participating again this summer.

Even though we did not make a lot of money, this show had repercussions later on in November and December, when people would stop by the booth at other shows and remember us. We love hearing this. It is said that it takes seeing or hearing about a product seven times before a person thinks about buying it. For now, I am thrilled with two times!

For larger shows, the applications can be found online and submitted usually 11 months in advance (for some very popular shows, you need to apply this early), and fees are due for many at least six months in advance. For a startup, it is difficult to gauge what will happen a week from now, let alone 11 months from now. Most street fair applications are not available until January (I will start collecting and processing online applications the first week of January this year). All monies are due usually only a month or two before the show. Besides the fun in the sun, the fees are lower, the time frame is more startup-friendly, and there are numerous street fairs to choose from in the summer months. In addition to your booth display, most of these shows require you to supply your own canopy.

So, if you are thinking about a relatively low-risk way to economically introduce your product to the buying public, do lots of convenient market research, and practice your sales techniques, you might take a look at summer fairs in your area.