Cost information for a company to have a Representative Office or Distribution Warehouse in the U.S.A.
A supplier (or producer) of any product or service must determine how to maximize their sales and profit. And though there is great potential to expand business in today's global marketplace, careful consideration must be given to the most beneficial way to expand it.
Much depends on the competition in the marketplace, and how they are selling. For instance, if a supplier's competitors are selling more directly into a favorable marketplace, that supplier must consider doing the same. Otherwise, that supplier will find themselves in a disadvantaged position.
Suppliers must always focus on keeping their prices competitive. And, with a reputation for having low prices, they can indeed attract buyers to come to them. But, those suppliers must recognize that eventually there will be others offering lower prices, or better sales terms and conditions - and, the buyers will no longer be coming to them.
During the past decade, we have seen changes on the global economy that demonstrate the importance of this. Most significant has been the shift of both product production and services to low-wage countries. And though the suppliers in these low-wage countries saw their businesses greatly grow in the earlier years of this shift, they are now confronted with the problem of how to continue business growth.
The Internet and telephone communications do offer some opportunities to develop new business. But, experienced sellers realize that it takes much more to expand business - especially when selling products and services to other businesses.
And though many large companies often have their own buyers or agents searching and buying in source countries, this way of doing business can be a disadvantage to the suppliers (especially factories). Primarily because the suppliers have to rely on these buyers to continue purchasing from them. And, as we have seen in the past decade, large buyers easily shift their business from one place to another.
Thus, for their own well-being in the long-term, suppliers should also be focusing their sales activities on the target marketplaces - taking the opportunity of selling to the maximum number of buyers in those marketplaces. And, this is often best accomplished with a presence in the target marketplace(s).
A supplier’s presence in a target marketplace can be in the form of having a selling agent, their own sales office, or a sales office and distribution warehouse.
In this article, I will focus on the potential costs of having a sales office or a warehouse/distribution center here in the U.S.A. (For information about working with sales agents, you can refer to the separate article that I wrote on this subject).
Why Have a Sales Office or Warehouse in a Target Marketplace?
The primary benefit is because the selling company will have more opportunities. With
their own representatives in a target marketplace, there will be easier and better communications with the buyers. And, most importantly, with buyers from all economic levels - large, medium and small sized companies.This will result in a larger number and more diversified types of buyers. And, this is always a better business situation for a supplier.
From the perspective of the buyers in that country (the target marketplace), this is a great convenience. They have better access to product and service information, get prompter responses, and (if there is a warehouse/distribution center) they will get faster delivery of products.
Costs and Analysis
For comparison, I am including costs for 3 possible geographic locations:
- Large Major Cities - Such as New York City, Chicago, Houston and Los Angeles
- Medium Sized Cities - Such as Charlotte (North Carolina) and Cleveland (Ohio)
- Industrial Areas - Located away from cities
I point out that the costs are approximate, and can be adjusted according to a company's particular needs.
Costs and Analysis of a Sales Office
This analysis is for a sales office with an experienced sales manager and an experienced assistant.
Each analysis is for a 3 room office of approximately 700 square feet (63 m2) with the office located in a nice, fairly modern building.
The costs include:
- Rent
- Salaries and benefits
- Insurance
- Telephone/Fax/Internet
- Parking (in major cities)
- Advertising in industry journals
- Promotional activities
- Memberships and subscriptions - with trade associations/organizations
- Office supplies
- Postage and courier services
- Taxes and fees
The approximate total costs would be:
- Large Major Cities - From US$ $230,000/year
- Medium Sized Cities - US$200,000/year
- Industrial Areas - $175,000/year
The differences are primarily due to the differences in office rents and salaries appropriate to the areas.
To these costs should be added the separate expenses of travel for the sales manager:
- If the sales manager would cover a regional area (within 1,000 miles from the office location), the travel costs could be approximately $34,000/year
- If they are to cover the entire U.S.A., the travel costs could be approximately $55,000/year.
These travel costs assume that the sales manager would be traveling about 8 - 10 business day/month, and include all expenses such as:
- Air Fare
- Car Rentals and Gasoline
- Hotels
- Meals and Entertainment for Clients
