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How To Sell Your Product To Costco – 11 Crucial Steps!

Making the decision to do business with one of the nation’s most successful retailers isn’t one of those quick ideas that comes over coffee and a bagel at your local Starbucks. I’m sure you’ve been up at night dreaming of your product prominently displayed at Costco with thousands of members clamoring to grab the last item before they’re gone. You’ve no doubt rehearsed your response to Costco’s frantic phone call asking for more products, offering anything to get one more shipment. Calm and undisturbed, he pauses before letting them know that he will see what he can do and, at the same time, asks for better conditions.

Fortunately this has happened and it could happen to you. You may never get invited to Jim Sinegal’s house for Christmas dinner, but that doesn’t mean you’ll never be successful selling your wares to Costco if you’re prepared.

Thousands of companies like yours have become Costco and have successfully sold their products for years. What makes the difference between companies that are inside and those that are outside? Successful companies had the following in common:

  • They were prepared: They did their homework and had a plan. They knew what they were getting into and had already made the necessary adjustments for success.
  • They hired a company or person who had experience selling Costco to fill in the gaps in their plan and advise them through the process.
  • They understood Costco’s business model and that Costco would not change their rules even for them.
  • They were in the right place at the right time with the right item.

Will your product be the next big item at Costco? Only time and preparation will tell. To get you started, I’ve outlined the first 11 steps that are crucial to preparing for a meeting with Costco.

  1. Product Selection – Determine whether to offer a single product or multiple products. Sometimes, to create the value needed to meet Costco’s standards, you may need to bundle products. Product bundling can also help with your distribution network as you have created a unique and different item number.
  2. Pricing: Research your distribution network to determine the lowest selling prices in the market for the products you’d like to offer Costco. Be sure to check all prices and products offered for sale. If you don’t, rest assured Costco will. They will do their research, which means you should too. Create a possible pricing structure taking into account the prices that are currently offered.
  3. Distribution Effect – Determine how selling products to Costco at reduced prices or value added will affect your current distribution network. Distributors and dealers can sometimes get tough if they think you’re undercutting them by offering the same products to Costco.
  4. Packaging: Determine what type of packaging you will offer to Costco. Costco is very specific in its packaging requirements. They typically require a single display deck. Get quotes from a couple of different companies on graphics and packaging.
  5. Logistics: Take a look at your current logistics capacity to determine if you can serve a large customer like Costco. Knowing your capacity will help you understand what your sales expectations will be. Review Costco’s routing guide to make sure you’re including all the necessary aspects when discussing logistics.
  6. Other costs: Review and take into account these additional costs.
    1. Customer service support: Do you have the phone support required to handle the influx of customers or will you have to hire a company to handle this aspect?
    2. Costco EDI (Electronic Data Interchange): quote EDI to include in your financials.
    3. Promotional costs: Will you want to participate in a promotion? The various promotions at Costco are where the sales really explode and should be planned accordingly.
    4. Shipping: Costco will require a shipping cost to their warehouses. You must calculate the average cost and include it in your cost structure.
    5. Returns and defects: How you will manage the return part and defects. This can be expensive and needs to be carefully evaluated.
  7. Potential Sale Through Quantities: Based on the Costco divisions you’re looking at, create a few scenarios that show potential quantity sales. Costco has 3 divisions in the US and one international division:
    has. Costco Wholesale,
    b. costco.com,
    against Costco Roadshow,
    d. Costco Canada,
    me. Costco.com Canada,
    F. Costco Mexico,
    gram. Costco UK,
    H.Costco Taiwan,
    I.Costco Japan,
    d. Costco Korea.
  8. P&L: Create an item P&L using the information above to determine program feasibility. You never want to do this after the deal has been done. Going into a program and finding out after you’re successful that you’re losing money will be devastating.
  9. Costco: Decide which division to contact first. Make initial contact with the buyer and gauge interest. You’ll probably need help here, as communicating with Costco shoppers can be very difficult, if not impossible. If there is enough interest, set up a kickoff meeting at the Costco headquarters in Seattle WA.
  10. Pre-Meeting: Final decision on at least two, no more than three packaging options. Determine your options, since you’ll only have about 30 minutes or less to present your idea to Costco and you’ll want time to discuss next steps. Make your final decision on the cost price to include in the presentation. Create your presentation and print more copies than you think you’ll need. Confirm your meeting a week before the date.
  11. Meeting: In your presentation, be thorough, but don’t overdo it. Keep your pitch smart and to the point. Be prepared for Costco to have some questions, not only about your product, but also about you and your company. Know your competition and your market. They will test you. Be sure to outline next steps and follow up before leaving the meeting.

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