Pitfalls to Avoid When Adding a New Product

You’re strolling along at that trade show when you see their booths. Gutter Monkey. Bath Beauty. Solar Sizzle. You wonder: Is it time for new product? If you manage it right, a new product can add 25 or 35 percent to your volume in a year or two. It’s easy money.

Here’s another scenario: A guy shows up at the office wanting to give you information about his new company’s product. He wows you with a video presentation on his iPad and offers an exclusive—if you sign now—on something he knows you can sell at 65 percent gross margin. Who could resist? 

Strategy and Tactics

I suggest you resist at all costs. If you add a new product on impulse, either because you saw it at a trade show or got snowed by a rep, you’re asking for trouble. It may be a good thing, but before committing to sell it you need facts.

Adding a new product is not something you’re going to succeed if you do it on the fly. We’re in the throes of adding solar (but not Solar Sizzle) right now, and I can tell you that it’s a strategic decision.

Like every strategic decision, it requires a ton of research, lots of discussion at the management level, feedback from sales and from the field, and maybe some legwork talking to previous customers. At a minimum, you need to carefully consider several questions.

1) Is there demand for it in your market? Whether it’s Solar Soil or Gutter Grinch, do your demographic homework and calculate down to the household how many people might want to buy what you’ll be selling. Study the key demographics to ensure your market matches. Don’t delude yourself.

Also, what do you need to know to sell it? Say the demand does exist—as with solar, for instance. When we sell a roof, we sell the quality of our installation. Installation isn’t the critical issue in solar—there are a whole lot of technical issues (regulatory, electrical, etc.) that you have to be familiar with to be in the solar market.

2) Who’s going to sell it? Reps love something new. So you explain it all to your sales force, put the leads out there, and the product starts to sell. Now all the reps want are leads for your new product, and the rest of your mix starts to suffer. 

Or, say you offer your siding rep, and only your siding rep, the chance to sell this new product. You start him off with a five or six leads a week. Suddenly your siding sales are in free fall because he’s blowing off siding appointments. 

Soon you’re watching sales of your traditional products drop, even while sales of your Brand New Thing are climbing. The net result for all that time and effort? A washout. (Solution? Dedicated salesperson.)
  
3) Can your current workforce install it? If you’re installers have been doing roofing or siding jobs for years, how will they adjust if you suddenly take on a bath liner product. You’re taking people who aren’t used to being around the customer—they’re on scaffolding or up on the roof—and putting them in the most intimate space in the house. No one goes up on a roof after you’ve installed it, but now the homeowner’s going to be all over you, all day long.

Or, what if you take on a product such as cabinet re-facing? You’re going to need crews of skilled carpenters to pull that one off. The installation standard requires not a nailhead exposed and every corner mitered to perfection.
 
4) What’s the competition look like? What kind of ocean are you swimming in? How red are those waters? If you’ve got a bunch of low-ball guys pushing this product and advertising it everywhere, how are you going to be able to get the necessary margin? If you have to drop your margin on this product to move it, then you’re lowering your company’s overall GP, even if you do add volume. If you feel you can sell at the margin you need, that’s great, but you have to look seriously at the competition to know what you’re up against. 

Also, be aware of the local zoning and permitting situation. With roofing and siding, permitting is a simple process, and there’s one inspection at the end. With an inside-the-house product, you’ll be dealing with multiple inspections. Homeowners are not going to come up with any extra money for an inspection that fails. That flows down into your job and can tie up your schedule and your cash flow.
 
5) How will you market it? Will you market the product under your own flag? Will you put it on your website as one more service, or will you set it up as a separate division or even a separate LLC, with its own website? If you market it as part of your product offering and the product doesn’t take off, you’re left with a tarnished brand. (Think of those sunroom companies who scrambled to be window dealers during the recession.) 

Actual Additional Business

When you’ve figured all this out, write it all down. What’s the goal? Are you going to replace the volume you have, or actually expand that volume? What kind of infrastructure will you need, from permits to contracts, and how do you put that in place? What state laws are involved? What additional overhead will you acquire?

Another crucial question to ask is what the supplier will do to help you launch the product. Are they going to feed you low-cost (or free) leads from their website to help offset your marketing costs? Will they schedule time at their factory or training facility to certify your installers in proper installation? Will they send a tech to the jobsite when needed to help spot problems before they happen or solve them after they occur? 

All of that matters because if you’re really looking for additional business, not just swapping dollars from product to product, then the manufacturer is going to have to be a real partner on some level. Having done it a few times, I no longer wish to deal with the manufacturer who says: “Here’s your sample. Go get’em, pal.”