Dear Dakota: As a New Interior Designer, Do I Need To Source Trade And Get A Receiving Warehouse?
I received a question that I think will resonate with interior designers who have a new business or are just getting started taking on clients.
Dear Dakota,
I'm a new designer, do I need to source trade and get a receiving warehouse?
When a designer begins a new business, it takes time to establish accounts with vendors and showrooms that sell products to the trade, an arrangement where only qualified design professionals are allowed to purchase at pricing that is significantly below the Manufacturer’s Suggested Retail Price (MSRP), or “list” price.
And, a designer’s ability to easily shop with to-the-trade vendors is greatly impacted by whether or not there is a Design Center (a collection of vendor to-the-trade showrooms all in one building or in very close proximity) in or near their geographic area. If there is, an interior designer can simply go to those showrooms, shop for products and furnishings, and set up an account with the showrooms to be able to make purchases. Typically what is required is proof of owning or working at an interior design business and a sales tax exemption certificate from your state.
You’ll then need to track sales tax collected from clients and then remit sales tax to the state as required. Plus, you’ll likely need a receiver (unless your design center/showroom offers that service for you - some do).
If there isn’t a design center in your area, you can still work with the vendors represented in these showrooms, you will just not be able to easily visit the showrooms and look at, feel, and touch the products personally. But you can use online catalogs to shop with these to-the-trade vendors and utilize a source such as Material Bank to order finish samples. If there is a to-the-trade vendor you are interested in working with, locate your local sales rep (there is usually a “Rep Locator” tool on vendor websites) and contact them. They will be HAPPY to speak with you and assist you with selections, samples, and purchases.
However, if you just are not yet up-and-operating with to-the-trade vendor accounts yet and you aren’t ready to collect, track, and remit sales tax, or work with a receiving warehouse and bill clients for that service, then yes, I do think you can source products for your clients from brick-and-mortar retail stores and online retailers. This is a great first step in suggesting products to clients.
Here are my tips for sourcing retail so it is profitable.
01 | If you are using retail sources to make selections for a client project, let the client make the purchases themselves, as well as manage payments and delivery details.
You would still make the recommendations, draw the plans, and put together color and material palettes—but the client would do their own buying. You would then bill the client for your time and expertise for creating the design using either hourly billing or a flat fee. But you would be removed from the ordering, tracking, claims, and delivery coordination process. ← time and energy are definitely not covered if you’re only making 20% on retail items.
Online retailers such as Pottery Barn or West Elm extend trade pricing to designers—much the same way as to-the-trade vendors—so that designers can generate revenue by selling at retail price and then making the difference. Look for a link at the bottom of websites that says something like “Trade account” to set up this kind of purchasing ability.
The problem with to-the-trade pricing at major retailers is that it’s often just 10% or 20% and doesn’t apply to sales prices. So, the designer pricing is often not that great. And, even if you — as a designer — can purchase products below customer pricing, the discounts are typically not large enough to compensate for the time managing purchase and delivery details (and any claims) would take.
That is why I always suggest when sourcing retail to let clients manage their own purchasing and delivery. That’s the only way to keep it profitable (by staying out of it!).
Don’t even get me started with clients who say, “Can you purchase it for me with my credit card so I get the points AND your designer discount?” or “Can you buy it for me and use this coupon?”.
No ma’am. You can purchase and manage it on your own; thank you very much.
02 | Some designers will charge a procurement fee on top of the retail price (while also receiving the 10-20% price difference, so they are then making 30-40% on the retail item).
You can certainly do this when sourcing retail, but I find that when designers source retail and manage the orders, it opens up a whole can of worms, and clients have a hard time understanding why they would pay MORE than retail for an item they could order on their own (okay fine then, Client, YOU place 137 orders from 29 different retailers and deal with all the different tracking and delivery coordination details and claims and inspections. Oh, and not to mention, Client, you’ll need to be home during those 137 delivery windows to receive all those items…oh, and be sure to inspect your items right away and then email the retailer if there are any issues asap.)
Remember, ordering is a service that is SO much more than just adding to cart and checking out. You want to make sure you are compensated for any items you are taking full responsibility for. Plus, when you order retail, you’ll be managing and coordinating all those retail deliveries in addition to the delivery by your regular receiver, so items will be arriving at the client in advance of your scheduled installation day, which means the client will see individual pieces out of context of the whole design and may have concerns or regrets.
03 | When you source retail, you don’t need a receiver.
Retailers have their own receivers (sometimes the same one you use!) that receive the items, inspect them, and then coordinate with the client to schedule delivery. Retailers call this “White Glove Delivery.” So, your client is already paying for delivery when they purchase from the retailer. You would not have the retailer's receiver deliver to your receiver, thus resulting in the client paying receiving and delivery fees twice.
And, if you do manage retail orders for clients, now you’re dealing with a bunch of receiving and delivery companies to coordinate delivery for your installation, rather than just your one tried-and-true receiver you use for all your trade purchases.
Imagine keeping track of that for a full house install? No thanks!
04 | If you source retail, you may not have to deal with sales tax (but you might..keep reading).
If you’ve read this and are like, I’m still going to source retail, okay, go for it.
But, keep these three sales tax items in mind (PS: I’m not an accountant or financial advisor, so confirm this information with a professional in your state).
Mini Sales Tax Lesson
→ If you are sourcing retail and not marking up the price above your designer price, you can indicate at checkout that you will not be using your sales tax exemption on this purchase. This means the retailer will charge YOU sales tax and THEY will remit to the state. Then, when you charge your client, you charge them the exact amount you were charged and do not collect additional sales tax on it.
Quick breakdown - Retail item is $1000. Your trade price is $800. You are going to share the discount (someone help me) with your client and only charge them $800. You could choose to not use your sales tax exemption here, and simply pay the retailer the $800 + $80 in sales tax. Then, when you bill your client, rather than bill them in your product management software for $800, allowing your software to auto add and calculate sales tax (thus collecting it and recording it so you then have to remit it to the state), you would charge the client $880, add a note “Sales tax paid at time of purchase” and turn off the sales tax on that line item. (Otherwise, you would essentially be paying sales tax twice).
→ If you are sourcing retail and are charging the client the full retail price and you’re “making” the 10-20% savings, then you would use the sales tax exemption at checkout.
Quick breakdown - Retail item is $1000. Your trade price is $800. You are going to charge the client $1000 for this item so you can make markup. Woo hoo! When you checkout, you would apply your sales tax exemption so you would NOT pay sales tax to the retailer when you check out (because your client will be paying it when they “checkout” from you). Then, when you bill your client, you bill them for $1000 and let your product management software calculate sales tax. Then, you collect that sales tax and remit it to the state with your sales tax filing.
One more fun brain twister for you:
→ If you are sourcing from a retailer where you don’t have a trade account and are marking up the price above what you paid, this is typical when sourcing vintage, antique, or one-of-a-kind mom-and-pop shop type retailers, you would pay sales to the retailer and then also collect sales tax on the markup up price you sell the item to your client for (but you wouldn’t charge them additional sales tax if you DIDN’T mark up the item).
You with me?
Quick breakdown - You find a great vintage piece at an antique store. You obviously don’t have trade there, so you pay the price and the antique shop charges you sales tax. Let’s say the item is $1000 and sales tax is $100. You pay them $1100.
You know this item is AMAZING and you turn around and sell it to your client for $2000. You would charge the client $2000 and then you would also collect sales tax on the full $2000 which you would remit to the state.
If on the other hand you are going to just pass that entire expense to the client and not mark it up, on your invoice you would say “Vintage Item, sales tax paid at time of purchase” and then you would charge the client a flat $1100 and you would NOT collect sales tax on that particular line item.
Sales tax lesson over!
Where to Start With Trade Accounts When You’re New
But now, let’s skip back to talking about sourcing through to-the-trade vendors. If you are just beginning to do that, don’t feel the need to have 100 accounts. You can start easy by establishing a few accounts with key vendors you want to work with that are easy to order from (think lighting, ready-made furniture, fabric, etc.). If you focus on easy accounts that don’t require you to manually send purchase orders or specify tons of details for each item, it will be a nice baby step into ordering trade that will feel very much like placing an order at an online retailer.
Once you begin sourcing through to-the-trade vendors, you will need to obtain a “receiver” for larger furniture pieces — a warehouse and delivery service that will receive the ordered item from the manufacturer’s freight carrier and provide white glove delivery to your client’s home. In fact, you’ll need the receiver info at the time you place your order, so you can add the SHIP TO info to your order.
Setting up an account with a receiver is easy; the hard part, depending on your area, may be finding a good one. Once you find a good one, you can set up an account at any time, then, only utilize that service once you make a to-the-trade furniture purchase with a vendor or showroom.
