U.S. Customs, or, How to Get Screwed and Pay for the Privilege

Thinking about having goods made overseas? You may want to consider the cost of shipping and customs before you set price points for your merchandise. I budgeted my costs based on a quote from my customs agent, and still came up about $500 short. Here’s a basic list of what you’ll need:

Freight: getting your cargo where it needs to go. If you have small or perishable items, you can use air freight. For bigger stuff, like a whole container’s worth of meat-shaped plush toys, you can use ocean or rail freight, depending on whether the country you’re importing from is connected to you by land or sea.

A customs broker: this guy gets your stuff off the dock and onto a truck. Unfortunately, many of these folks operate like bad movers — they claim zero responsibility for what happens to your stuff and sometimes hold it for ransom. The Dept. of Homeland Security requirement that a customs broker be “of good moral character” is clearly not enforced. Finding a trustworthy customs broker is like finding the holy grail. If you’re in the market for one of these guys, here are some charges to get in a quote:

  • “Door-to-door” freight: this is really dock-to-door freight, since most manufacturers will charge F.O.B. (freight on board) prices for your products, meaning that what you pay for manufacturing includes what it costs to box up your merchandise and get it onto a boat/plane/etc. I was quoted $1,717 for ocean freight from Hong Kong to Oakland, with door delivery in San Francisco. This was for a full 20 ft. container. Transporting less than a container load (LCL) was quoted at $125/cubic meter of cargo. This is because there is a lot more labor involved in separating, moving and accounting for your merchandise when it is mixed up with other people’s stuff. A full container load (FCL) doesn’t need to be opened at all between the overseas factory and your warehouse in the States. When my warehouse turned out to be in Fairfield rather than San Francisco (an extra 30 minutes away from the dock, but in another “zone”), my delivery cost went up $200. If gas prices rise between your quotation and shipment, expect to pay for that as well (an additional $50 in my case).
  • Customer Power of Attorney: allows your broker to conduct Customs business on your behalf (i.e. pay for your inspections to move your cargo through quicker, take your container off the dock, etc. I was quoted $0.35-$0.55 per $100 of merchandise value for this.
  • Insurance: this was included in my freight quote, but you NEED to make sure you have it. Containers fall off those barges on choppy seas all the time, and the last thing you want is to have your entire business end up at the bottom of the ocean.

Money for U.S. Customs fees: here’s the list:

  • Merchandise Processing Fee: 0.21% of Commercial Invoice., Min. USD25 and Max. USD485. $25 for me.
  • Harbor Maintenance Fee: 0.125% of Commercial Invoice. $8.85 for me.
  • Single Transaction Bond: a one-time $50 fee per import. If you import more than 10 times a year, you can use a $500/year bond instead.
  • Customs Clearance: $115.
  • C-TPAT security fee: protects the docks against terrorists. $7.50 per shipment.
  • Document turn-over fee: $55
  • Inspection: this is my personal favorite. Not all containers get inspected, but if you’re a new importer, yours will be. If they inspect by x-ray, you pay an additional $160. If they decide to do a FULL inspection, however, in which they open and rifle through every single box, they will charge you for the labor, which is more like $400-$500.

In the end, just getting my merchandise to the Fairfield warehouse cost almost a third of what it cost to manufacture it. That means I had to figure in a 33% mark-up in my prices, not including the cost of warehousing. If I could have had my plush toys made in the U.S., I would have, and it makes me seriously re-consider what my next product line will be.

**Tip: if you arrange for your freight early enough, you can sometimes “lock in” a rate for local delivery from the dock to your warehouse that won’t go up when your cargo arrives. Get this in writing.

US Customs FAQ on Duty Rates

your shipment of fail has arrived

Image courtesy of the Fail Blog at http://failblog.wordpress.com/2008/01/29/shipments-in

Finding Someone Who Fulfills Your Needs (Part 2)

Choosing a fulfillment house was no small feat. First I asked my uncle, who’s been in the wholesale business a long time. He suggested GFS in Dallas, TX, which he uses because they have reasonable rates, good service and are centrally located (nationally) right near a major airport hub. Most of my orders are local, however, so a Bay Area warehouse seemed like a better choice. The shorter the distance my products need to travel, the less it would cost my customers and the better it would be for the environment. Plus, I really wanted to be able to pick up a carload of Sweet Meats for local deliveries and design fairs. Of course, a warehouse in the Bay Area is going to be more expensive than a warehouse in Dallas, but I figured the money I save by not shipping or driving my cargo out there would even things out somewhat.

Next I called my logistics guy over at Schenker. Sometimes they can warehouse things themselves, but they’re very often full and this month is no exception. They know a lot of people at a lot of warehouses, though, so I gave him my parameters and my budget and he said he’d see what he could find. In the end he couldn’t really find anything I could afford (he works mostly with warehouses that store perishable or expensive items like electronics), so I was on my own.

A brief tangent: Eleanor at The Present Group pointed me toward Noonaco, but they are so new they don’t have a warehouse yet and couldn’t store an entire container’s worth of merchandise. Oh yeah — I had since found out that my “less-than-container-load” was only shy by two boxes, so I ordered a whopping 24 more meats and filled it up. LCLs are charged per cubic meter to ship, but FCLs are just a flat fee,because they never need to be opened or sorted before they reach their final destination. If I hadn’t ordered two more boxes, it would have doubled the cost of my ocean freight.

Having exhausted all of the human resources I could find, I turned to the Internet. I started just by googling the term “fulfillment house” to try to get a general idea of terms and prices before I narrowed my search to within an hour of my house. I used a combination of Google, ThomasNet and directories like the Yellow Pages and came up with a short list:

After calling each of these places, it became apparent that it was going to be extremely difficult to comparison shop. Every company has their own complicated fee structure and no two are alike. For example, the one-time cost of unloading my truck into the warehouse might be calculated based on number of pallets, cubic footage of the cargo, or man-hours. Similarly, the cost to fill an order might be a flat fee per order, based on the number of boxes, or based on the number of individual items being sent. Combine this with possible minimums and the fact that some warehouse’s prices change the longer your stuff sits in storage, and my head was about ready to explode.

So I made a spreadsheet. Assuming I sold half my merchandise retail and the other half wholesale, and it took me six months to sell out completely (really big “ifs,” but they seemed to represent reasonable averages), I totaled what it would cost me to store and ship the entire container. Then, assuming the average wholesale order is 12 pieces and the average retail order is one piece, I totaled what it would cost my customers in shipping.

Using this very imprecise system, I was immediately able to knock out IPS and PRISM as unaffordable. I then called the other three companies back and asked about things like minimums and insurance coverage in the warehouse (very important!). The guy at GoodSource was sort of hard to reach and he quoted me a lot of numbers that seemed too good to be true. I just got a bad feeling in my gut about reliability, and I’ve learned to always listen to my gut when it says “no,” so I eliminated them, too.

That left R&L and PRIDE Industries, who are comparably priced. R&L scored big points for location and being a small, Bay Area business, and PRIDE won for customer service and the fact that they’re a non-profit that employs people with disabilities. In the end, I chose PRIDE for a lot of little reasons, like their really simple pricing structure and the fact that I could always reach my customer rep when I needed something, rather than waiting for a callback. At the very worst, if something goes wrong, I have a well-researched runner-up to turn to for my next shipment.

Finding Somone Who Fulfills Your Needs (Part 1)

When I first started thinking about contracting out the sewing of my Sweet Meats, I had it all planned out in my head. I would rent a large truck for the day, pick up my cargo at the Oakland docks, and bring it all home. At first, there would be a lot of boxes in the living room, but the orders from Bay Area stores would put a serious dent in my inventory when I delivered them all the next day. Then, slowly but surely, the living room would empty out as I sold out of all my stock within the next two months. Sure, it would take some time to fill all those orders myself, but since I would be getting paid for the “handling,” it was ultimately a smart move financially.

These daydreams of mine were not based on any real estimates of time, space or money, however, so they quickly evaporated when the hard numbers came in.

First I tried to find out how much space my cargo would actually take up. All along, I had been hearing that it made up less than a full container. I guessed that that meant it took up about half of the 20ft. container they were due to ship in. Assuming the container is also 10’ high and 10’ wide, this meant boxes of plush meats would take up our entire living room — not an option, according to my fiancé. Okay, so keeping them in the apartment was out, but I could presumably fit my boxes in a 10’x10’ storage unit, which rents around here for $150-200/month — not too bad, plus it would be kind of nice to have a dedicated shipping center outside of the house. Again, I assumed several boxes would go out immediately, which would leave some maneuvering room.

But wait. How was I going to fill these orders in a storage unit? Would there be a way I could connect to the Internet to print out shipping labels? Would the postal service pick them up from such a place? Was I going to have to order a really large, expensive scale? A new printer? Cartons of boxes in tons of different sizes? Was I willing to drive 10-15 minutes each direction several times a week and drive my orders to the post office? How much would that cost in gasoline? Would I have time for anything else on those days? I suddenly started feeling overwhelmed by the possibilities I could see and could not yet see. It was time to consider a fulfillment house.

A fulfillment house is a warehouse that holds your goods and ships them to customers. Most of them also offer special packaging and design services, but the advantage to hiring a fulfillment house lies mainly in not having to worry about supplies and logistics. For example, they have accounts with all of the major shipping companies and usually get much better rates than your average business due to volume. Fulfillment houses also have computerized systems in place for weighing and addressing your packages, and for keeping track of inventory. They have all of the packing materials already on hand, which they will usually offer at cost + 10-15%. All of the fulfillment houses I spoke to were also willing to let me use leftover packaging they already had on hand for free.

It was difficult at first for me to get used to the idea of letting someone else take over the shipping and handling of my products. After all, it is a crucial part of customer service and accounting, and if it were handled badly I could have some really big problems — angry or lost customers, incorrect inventory, or damaged or missing merchandise. But part of being a successful business owner is knowing how to prioritize your two biggest resources — time and money. I didn’t start a business to become a shipping clerk, so I’m comfortable with my decision to let someone else take that over for me so I can focus on more lucrative, long-term things like product development and opening new accounts.

What's green, warm and fuzzy all over?

The feeling you get by giving a gift, getting a tax deduction and helping someone start their new business all at the same time.

This week I was introduced to Kiva, a non-profit that allows you to contribute funds to start-up loans for individuals in developing countries. Unlike many of us, who start businesses to have more creative freedom or to be our own bosses, the entrepreneurs in Kiva are mostly starting businesses to get themselves out of poverty.

There are many ways to contribute to Kiva. You can loan money to an entrepreneur directly, donate funds towards Kiva’s operating costs, or purchase a gift certificate for someone else. If you choose to lend funds directly, you can read through the profiles of all of the entrepreneurs and choose the person or group you feel most connected to. Once they have received all the start-up capital they need (usually less than $1000 altogether), you’ll receive updates via their journal entries about how things are going. If the business is a success, you’ll receive your loan payment back.

I think this is a fantastic organization to work with. It’s great karma, fulfills the highest level of “tzedakah,” and makes a thoughtful, tax-deductible gift, which is especially great for colleagues in your small business world.

Portland and Seattle d*s Biz Lady Meet-ups

Portland and Seattle ladies! Whether you have a successful design business already or are just thinking about making your craft hobby a full-time gig, you have to go to the design*sponge Biz Lady Meet-up.  This is one of the most useful informational events you will ever attend, not to mention one of the best networking opportunities available.  The San Francisco meet-up is what inspired me to start this blog in the first place, so GO GO GO!

The Portland meet-up is tomorrow, February 26th from 7-9pm at Design Within Reach Portland and the Seattle event is on Thursday, February 28th from 7-9 pm at Design Within Reach Seattle.

You’re supposed to RSVP but at this point, the ever gracious Ms. Grace Bonney is letting folks in anyway.  The event is free, but it is polite to bring a snack or drink to share with the group.

The meet-up is structured as a round-robin.  There are four speakers, who will speak about business financials, press and marketing, retail/wholesale, and successfully balancing life and work.  Everyone divides into smaller groups of four and spends about 20 minutes with each speaker before rotating to the next.  Bring a notebook and a lot of business cards with you and get ready to meet a lot of other very cool, like-minded BizMisses.  I met the super funny and very talented Christine Schmidt of Yellow Owl Workshop at the SF event.

I cannot stress the awesomeness of this event enough.  If can go, go.  I promise, you’ll thank me for it.

Finding Stores to Sell Your Stuff

Okay, so you’ve got a brilliant, well-designed product. You’ve gotten the ball rolling on getting it made, and you’ve done all of your promotional work. After all this, you have a dozen orders to show for it. So what do you do now?

All of the press you get and marketing you do will only cover half of your sales — the half in which stores come to you. Despite all work that goes into creating marketing materials, sending press kits and exhibiting at trade shows, this is the easy half of selling, because any buyer who approaches you is 10 times more likely (in my personal experience) to place an order than a buyer you approach yourself. On the other hand, there are at least 10 times more buyers out there who don’t know you exist than those who do.

So how do you find good sales leads? You don’t just want to look names up in the phone book. Casting that wide a net will surely not be worth the time. Here are a few tips for finding stores that really fit your style:

  1. Go door to door. If you haven’t visited all the shopping districts in your area yet, this is a good place to start. You can take a good look around prospective stores and ask up front who does the buying. Usually it will be the store owner, who may be amenable to arranging an appointment to see your products. Store owners are also more likely to take a chance on a new product if it’s designed by someone local. One note, however: many stores will not want you to sell to more than one other store in the same neighborhood, so go for the big fish first (e.g. stores with additional locations in other towns).
  2. Shop online. Using links from a favorite blog or just searching for products similar to your overall aesthetic, you can find a ton of stores around the world that might be a good fit.
  3. Travel online. Starting with the cities closest to you, visit chamber of commerce or tourism web sites for links to stores in that area. AAA also has a huge online archive of articles from Via, their travel magazine, like this round-up of bookstores in the Western U.S.
  4. christopher jagminTrade! This is by far my favorite way to get info about stores. Contact an artist or designer you know in another city, or find a sympatico design buddy through a favorite web site or message board, such as Etsy or Craftster. Give them the names of stores in your area that might carry their products and receive some names in exchange. Last month in L.A., for example, I met a really nice designer named Christopher Jagmin who’s also releasing his first line. I sent him some stores to contact here in San Francisco, and he sent me some in Boston and Phoenix. Luckily, we’ve both seen each other’s products in person, so it’s easier to tell where we can really “see” those products being sold. If you and your design buddy don’t have this advantage, send each other a sample.

No matter what happens, be patient and keep at it. Many store owners are extremely busy, so it might take weeks or even months for them to place orders (or respond to your e-mail at all). That said, you should always follow up after giving them some time to look things over. It takes me an average of four to five conversations with any buyer before actually making a sale.

Business Credit Cards

When I signed up for my WaMu business credit card, I regretted it. It’s got a pretty high interest rate and gives me no rewards of any kind. I just signed up for it because I was already at the bank and my accounting seminar instructor said it’s much easier to keep track of your finances with a credit card than with a debit card (this is true — especially if you use Quickbooks).

This week I got an offer in the mail from Citibank, so I figured it was time to switch. They wanted me to apply for their CitiBusiness Card with Thank You Network. It seemed like a pretty good deal. When you wade through the point nonsense, you essentially get 3% back on “qualified business purchases,” which they define as “purchases at certain office supply merchants, and on professional services,” and 1% on everything else you buy. You can also transfer your balance from another credit card and get 0% APR on it until May. Still, I thought I might be able to do better.

I did most of my research at CreditCards.com. This site is basically just a list of rewards cards. They don’t provide much specific information about any of them. For that you need to visit the card provider’s web site and read the terms and conditions. You really need to read the fine print carefully, because there is some weird stuff in there. For example, I got pretty excited about the Chase Business Cash Rewards Card, because it advertises in HUGE type that you can get 5% cash back with every business purchase. When you read the fine print, however, you discover that this only happens when you spend exactly between $2,000 and $2,500 every month. This is clearly a rule that was written just to screw the undiscerning applicant, since there is no logical reason whatsoever to encourage people to spend within that precise $500 range. The American Express Blue card has similar bizarre restrictions.

Other hidden rules have to with sliding rewards scales.  You can theoretically earn 3-5% cash back on lots of cards, but if you spend, say, less than $1,500 a month, you’ll only get 0.25% back. This makes more sense from a business perspective (after all, the more you borrow, the more interest you might have to pay), but it’s still kind of sleazy.

In the end, it came down to the CitiBusiness Visa and the Amex SimplyCash.  The CitiBusiness Visa was tempting because of the huge signing bonus (10,000 frequent flyer miles when you first enter the site, 15,000 when you’re trying to leave it), but Citibank web sites are extremely slow and unreliable on my computer.  I’ve also heard some not nice things about Citicorp as a company.  So I went with the Amex, because the rewards were simple, high (5% on business purchases, 1% on everything else), and never expire.  As an added bonus, Amex will also give you discounts at lots of major companies through their “Open” business network, like Delta, Hertz and FedEx Kinkos.  The discounts average 3-5% and it’s automatically deducted from your credit card statement, so you don’t have to remember to show or mention anything at checkout.

If I were just starting out, I might sign up for both cards, since some retailers don’t accept American Express.  I’m just going to keep my WaMu business Visa for now, though.  It may not give me any rewards or cash back, but it has an awesome online module to track my credit profile (including free FICO score tracking!).  WaMu websites are the best in banking, in my opinion.  They’re simple, fast and provide all of the information I need in a format that makes sense.

And what have we learned?

In case you haven’t been paying attention to the news this week, the economy has been on some kind of bizarre roller coaster ride. The stock market has made huge gains and losses from day to day, the Fed cut their short-term interest rate by a staggering 0.75%, one of Europe’s largest banks was defrauded out of billions of dollars, and the President and the House have settled on a bipartisan “economic stimulus package.” All this comes on the heels of rising unemployment and the sub-prime mortgage crisis, not to mention during the World Economic Forum in Switzerland.

So what does all this economic craziness translate to? In short, making things hard for the small wholesaler like me. I’ll go into the details of my recent sales experiences in a minute, but let me just put some general advice out there first. If you are thinking of releasing a line of design goods for wholesale:

  • Make sure you have a back-up source of income.
  • Take a bookkeeping class and price exactly how much your line will cost to produce, ship, store and market, so that you know exactly how much money you will need to raise, save or borrow to pay for your entire first shipment.
  • Start with something small. Smaller, less expensive items are easier and cheaper to ship, to store, and to find buyers for, because it means less investment in cost of goods and store space for owners.
  • Start early in the year. The whole process, from pricing manufacturers to receiving your first shipment can easily take six months and stores begin buying for the holidays in July and August. You will definitely want to ride that wave your first time around.
  • Set up a website where you can sell your goods retail, in addition to wholesaling them. You may sell fewer items at a time this way, but you’ll make a much higher profit off of each one.

These pieces of advice are ones I wish I had received before starting out on my Sweet Meats venture. It turns out that releasing a line of plush toys is a royal pain in the ass. Not that I regret doing it, or that I will give up anytime soon, but it is an expensive way to learn through trial and error.

Last week I exhibited at the California Gift Show in Los Angeles. The show ran from the 18th-21st, and while many people expressed interest in my products, none were really buying. I got the same response from everyone when asked if they would like to place an order: “Let me talk to my sister/wife/partner/boss about it and we’ll let you know.” This is exactly what buyers say here, too, when I visit their stores. I find this especially frustrating with buyers who already know my products. A few have mentioned seeing them sell out at craft fairs and one even owns a Sweet Meat already. What gives?

I have a few theories about the lack of sales to store buyers — all of them, I think, equally likely and valid:

  1. It’s after the holidays. Business is slow, and the last thing store owners want to do is buy more items that will just end up sitting around.
  2. The economy is not great and people are much more cautious in their spending in general, but specifically don’t want to invest in anything new and untested.
  3. I’m not a good salesperson yet.
  4. My price points are wrong.
  5. I’m waiting until March (when I can sell these retail, as well) to send out press releases.

I’m going to give door-to-door visits a couple of more weeks to work out. At least this way, if people don’t order from me, I can ask them why, face-to-face. Then hopefully I can fix whatever I’m doing wrong and get back on track. Either way it works out, I’ll keep you posted.

Getting an EIN: the Easiest Part of Starting a Business

If you’re a sole proprietorship, you need an EIN.  Well, legally you don’t need one, but in a world full of identity thieves, isn’t it nice to be able to keep you social security number to yourself?  As a new business owner, an enormous number of people are asking for it these days. I find it really disconcerting to have to write it on every bank, credit, shipping and merchant service application I fill out.

An EIN, or Employer Identification Number, otherwise known as a Federal Tax ID, does not actually require you to employ anyone to get it. In fact, it’s so easy to get, you’d be a fool not to do it right now.  All you have to do is visit the EIN page on the IRS’s website.  You can apply in five minutes online (though only during certain hours — I have no idea why), and be instantly approved.  You just print your identification page at the end of the process and you can start using it immediately for almost anything (you have to wait two weeks before using it to file your taxes).  The best part?  It doesn’t cost a dime.

One small note: an EIN is not what will allow you buy things wholesale, at least not in the state of California.  For that you need a seller’s permit, which is a whole other kettle of fish, and is the same document that you need to collect sales tax.  This requires more time and money than getting an EIN.