As readers of my blog will know, I'm a strong advocate for information technology and its role in helping achieve profitable sales growth in a local market. I'm an advocate because I don't think it's realistic for an independent office products or equipment reseller to improve its value proposition or develop the web traffic volume necessary to build sufficient awareness without information technology.
Over the last 10-15 years, there have been many failures by small to medium size resellers as they've tried to develop online traffic and e-commerce. Despite this, many continue to try, apparently thinking random e-commerce is the path to growth and success when the real opportunity, their local market, sits on the doorstep!
My objective in this blog is to explain the local market as a viable growth opportunity by developing the following concepts:
- The office products and supplies market is plenty big enough for a small to medium size reseller to achieve growth in a local market without running up against unrealistic market share barriers.
- We are leveraging a local presence in a local market, alongside information technology, to win new customers, achieve profitable revenue growth, and gradually expand the footprint of the local market covered.
The first step I need to explain is the size and distribution of the overall market and then divide up the overall market into three separate categories of "local" markets; high-density urban, average urban, and rural.
The overall market in the United States for office supplies (ink and toner) is $25B in retail spend per year. I will now deconstruct some of the critical data in the table below.
|Start||+ 4 years||Change|
|Market size ($M/Mth.)||$2,100,000||$1,852,000||-12%|
|Total U.S. Population||323,996,000||334,503,000||+3%|
|Avg. per capita spend per month||$6.43||$5.54||-15%|
|Avg. Local Market Size Pop||350,000||560,000||+60%|
|Local Market Size ($)||$2,250,000||$3,100,000||+38%|
|Sales Target per Mth.||$55,000||$90,000||+63%|
|Projected Market Share||2.4%||2.9%||+20%|
The average monthly spend on ink and toner in the United States is $2.1 billion, and the current U.S. population is just over 320 million. This means the average monthly spend on ink and toner per capita is $6.43. It is assuming a local market of 350,000, that "local" market has an average spend of $2.25M monthly. For an office products reseller with sales of $55,000 per month, its share of that local market is 2.4%.
Now, let's look out four years into the future. We know the market is shrinking, so the forecast spending will drop to $1.85 billion monthly. It should be evident that for a reseller to avoid shrinking at least at the same rate as the overall market, its market must be expanded, or its share of its existing demand increased. Of course, a combination of both would be ideal!
The U.S. population is forecast to increase to around 335 million over the next four years, which means the per capita spending will decrease by nearly 15% to $5.54 per month. However, in our example, we show the reseller to have expanded its footprint from the initial 350,000 population coverage to 560,000 - representing a 60% increase in "territory" size. This may sound ambitious but keep in mind our assumptions that all the other requirements and capabilities required for expansion are already in place, a strong value proposition, a world-class website, and sophisticated digital marketing. Suddenly, the notion of a 60% territory expansion becomes more realistic and infinitely more viable than an unrealistic ambition to expand successfully into the national "territory" of 335 million persons. Keep it local!
So, with this expansion in the targeted territory, you can see that despite the overall shrink in the market, the relevant local market has grown from $2.25 million to $3.1 million per month - a nearly 40% increase. We plan to increase sales from $55,000 to $90,000 per month, equating to a projected 2.9% share of the expanded market.
If a reseller doesn't expand its local market, then, to achieve the revenue goal of $90,000 per month, it will have to develop a 4.6% share of its existing market - more than a 90% increase from its current share! While this may be possible, I think it should be clear that it's desirable to expand the footprint to achieve significant revenue growth in a shrinking market.
Now let's look at the theoretical size of a territory that's required to achieve these sales targets based on the average business density in the United States.
|Business Segment by Density||Per Sq. Mile||Territory Size||Square Miles||# of Firms|
|Maximum U.S. Business Density||80||15 x 15||225||18,000|
|Average U.S. Urban Business Density||25||25 x 25||625||15,625|
|Average U.S. Business Density||7||50 x 50||2,500||17,500|
The average population density in the United States is 90 persons per square mile. Of course, the thickness varies greatly depending on whether the local area includes a large city - i.e., Los Angeles, New York, a medium size city, or a rural area.
High-density areas such as Los Angeles have over 7,000 residents per square mile. The total urban population of the United States is 80% or 250 million, with an average density of around 2,500 per square mile. The average thickness of 20% (or 64 million) living in rural areas is only 17 persons per square mile.
Focusing on the average urban business density in the table above, we can see over 15,000 businesses in a 625 (25 x 25) square mile territory. That same metropolitan area, at 2,500 persons per square mile, would include a total population of 1.5 million. Assuming an average per capita spend of $6.43 per month, the whole market size in retail dollars would be just over $10 million per month.
The takeaway is that, for the typical average urban density environment, there's easily a large enough market in terms of demand and the number of potential business prospects to support multiple office products and supply resellers.
If we stay with this example, we've determined the market is $10M monthly or $120M yearly. We know the OEMs have an 80% share or $96M; we know high-end remanufactured cartridges (through big-box distribution such as Staples & DepotMax) have at least 10% or $12M; we know the mid-level aftermarket products already sold by the typical small to medium size independent resellers, probably have around 5% or $6M, and the 5% balance (also $6M annually) is made up of Amazon and other internet resellers.
We've blogged previously about market pricing for office supplies, typically an OEM cartridge sold at $100 would result in a high-end aftermarket cartridge through big-box distribution at $75 - $80, a mid-level aftermarket cartridge at $50 - $60, and then a low-end Amazon cartridge at $10 - $20.
|OEM Cartridge||Big-Box A/M||Mid-Tier A/M||Internet|
So, where's the market segment for a reseller to focus on? The low-end internet sale at $20, or the high-end OEM and aftermarket products sold through big-box retailers? It should be evident that in a $10 million per month local market, 80% or $8 million is $100 per cartridge, and 10% or $1 million is $75 per cartridge. Forget the 5% at $20, and focus on the $9 million monthly growth opportunity! For a small to medium size reseller offering an average sell price of $60, the consumer saves between 40% (on an OEM conversion) and 20% on a high-end aftermarket conversion.
Now, for a small to medium-size reseller to successfully convert customers from OEM and high-end aftermarket cartridges to the same (or equivalent) high-quality aftermarket cartridges, thereby enabling consumers to bypass the big-box retailers and the fat margins they keep on their aftermarket cartridge sales, the reseller must be able to build trust and confidence in his proposition, as well as to effectively communicate the incredible value he's able to provide to his targeted audience.
Achieving this goal underlies the intent of a sophisticated inbound digital marketing and social media engagement strategy. To build the trust and confidence of an increasingly large audience, create more leads, and convert higher percentages of those leads into customers. Effective use of these strategies over time means the independent reseller will expand its territory and profitably increase its sales by taking market share from the high-end, not the low-end, market.