By Chris Malta & Robin Cowie
When you decide to sell products online, you have to find reliable sources for those products. Generally, that means working with wholesalers and wholesale manufacturers. Years working in wholesale and ecommerce have taught me a lot about avoiding middlemen and finding legitimate wholesalers who’ll work with home business and online merchants.
Here are my top 10 wholesale tips to help you avoid costly mistakes in your e-business and navigate the world of buying wholesale products with relative ease:
1. You must be a legal business to work with real wholesalers.
One of the biggest reasons to make your ecommerce business legal is that doing so allows you to work with genuine wholesalers. Real wholesalers only work with legitimate retailers. They’ll require your sales tax ID to give you an account; and to acquire your sales tax ID, you must be a legal business.
Any wholesaler that doesn’t require a sales tax ID to sell, to you at wholesale prices, is most likely a middleman. While real wholesalers don’t advertise in the search engines, wholesale scammers are all over the search engines. They position themselves between you and the real wholesaler, mark up your prices, and leave you little profit. That’s why you should look very closely at any ‘wholesalers’ you locate through a search engine.
It’s not difficult or expensive to make your e-business legal, but it
is
the difference between getting ripped off and earning real profits. A little paperwork is a small price to pay for being able to work with real wholesale sources.
2. Not every wholesale supplier will work with Internet merchants.
There are valid reasons that real wholesalers don’t market to online merchants and why they’re not always willing to deal with them:
Wholesalers make their money by selling large volumes of product. Online merchants tend to purchase in smaller volumes and with less frequency than their larger counterparts. So wholesalers would generally rather put their time and efforts into working with big chain stores that place huge orders regularly. From some wholesalers’ point of view, working with home business is simply not worth the effort.
Also, some manufacturers don’t allow their products to be sold online, other than by their licensed dealers. Their goal is to protect their products’ perceived market value. Online sellers can often afford to undercut brick-and-mortar retailers and make it hard for them to compete.
If brick-and-mortar stores stop carrying a product, wholesalers lose their largest accounts. If the wholesalers lose those accounts, they no longer place the same large volume orders with the manufacturer. Some manufacturers guard against this possibility by prohibiting anyone from selling their products online.
That doesn’t mean that no wholesalers will deal with Internet sellers. If that were the case, there wouldn’t be so many successful ecommerce sites around. There are, however, a few things you can do to prepare to contact a wholesaler for an account:
— Make your business legal
before
you contact them.
— Use your business name when you introduce yourself, and have your sales tax ID handy.
— Be polite and professional; and get to the point.
Being prepared won’t guarantee you an account, but it will help you make the right first impression and greatly improve your chances.
3. Don’t share your suppliers with your competitors.
You might be surprised to realize how many online sellers make it easy for their competition to locate their product sources. You may even be doing it yourself without realizing it.
If you use your wholesaler’s model number as the model number on your website, you’re leaking valuable info to your competition. With a quick Internet search using that number, they can track down your manufacturer or wholesaler. You can easily stop them by changing the model number that you display in your store. Rather than 56789, for example, you might re-label an item Blue Rug 123. Your competitors can search all day for that term, but it will never give away your supplier.
(This strategy is highly effective for niche products and specialty lines. I don’t recommend it for well-known goods that an online shopper is likely to search for using a product model number.)
4. Wholesale price lists are confidential.
You may have noticed that you can’t see a supplier’s pricing without setting up an account. Wholesalers actually keep their pricing confidential to protect you. If consumers could simply go to a website and see a wholesaler’s price for any product, they would not want be very willing to pay your retail mark-ups. Of course, retail mark-ups are what allow you to operate your business and make a profit. So wholesalers only allow their retailer customers to see their true wholesale costs.
5. The more you buy, the less you pay.
Because wholesalers make their profits by selling in volume, the higher the volume that you order, the better the price-per-piece that they can afford to give you. That’s why retailers who buy in small quantities sometimes find that their competition is selling the same product for a retail price that is lower than their own wholesale price. Nine times out of ten, the reason is that their competition is a much larger retailer purchasing in much larger volumes and getting lower per-piece pricing.
If you find that you can’t afford to sell a product for the lowest price around and still make a profit, don’t panic. Even though many online sellers seem to think so, you don’t have to undercut everyone else’s prices to successfully sell a product. You have to add value, which means creating customer confidence and making shoppers feel comfortable and at ease on your site. Generally, a buyer will pay a little bit more to get their product from a retailer they trust, rather than the guy with the bargain-basement price.
6. Some suppliers will require a refundable deposit.
Although legitimate wholesalers will never require account set up fees or monthly account maintenance fees, there are some genuine wholesalers who will require a small refundable deposit to set up an account. The deposit will be credited to you against your first product order of at least that amount. It’s important that the deposit be refundable; if not, you’re probably dealing with a scammer.
The purpose of refundable deposits is to filter out retailers who are simply ‘window shopping’. Too many internet merchants set up free accounts with all kinds of wholesalers before even deciding what they will sell. They then disappear, and the wholesalers have wasted time and money setting up useless accounts. So some wholesalers use refundable deposits as a litmus test to determine whether a seller is serious about retailing their products.
7. Don’t rush a supplier that you’re asking to give you an account.
Setting up an account with a wholesale supplier takes time. If you contact a supplier to request an account, don’t get impatient if you don’t hear back from them the same day. Wholesalers receive many, many account requests just like yours, and they get to them as quickly as they can.
But setting up an account for you entails more than you might think: the wholesaler has to collect, verify, and process your information; determine whether your e-business is a good match for their product line; and fill out and file all the paperwork to make it happen. So it may take them several days, or even weeks, depending on how busy they are.
Regardless of whether a supplier is responding as quickly as you would like, it’s important not to become angry or rude. If you want a supplier to work with you, you need to be patient. It’s all right to remind them from time to time, but do so
nicely
. You’ll get your account sooner or later.
8. Your profit is your retail price less your COGS.
Make sure that when you figure out your profit margins, you subtract your total Cost of Goods Sold (a.k.a. your COGS) from your retail price. That includes your marketing costs, your website hosting costs, or your auction listing fees, etc. – all the expenses involved in
selling
those products. Any expenses you forget to include will come straight out of your profits.
You need to understand the total cost of selling a product, so you know
in advance
what your actual margin will be and whether or not a product will be profitable for you.
9. If your wholesale supplier has a retail site – it’s okay.
As you work with different wholesale suppliers, you may come across some who have their own retail websites, in addition to their wholesale site. If you’re like most internet sellers, you might find this news disturbing. You might think that your wholesaler can easily undercut your prices, making it impossible for you to compete. However, this is not the case.
Your wholesaler has no desire to steal your business. Retailers are their main customers and make up the majority of their business. If they put their retailers out of business, they’re putting themselves out of business as well. Generally, your wholesaler will sell you their products for about a thirty percent discount off their end-user prices. This allows you to effectively compete with them, which is in their best interests too.
10. Drop shipping is a great starting point, but not your total solution.
Drop shipping is a popular wholesale method that lets you sell products online with very little investment or risk. Here’s how it works: You set up an account with your drop shipper and list their products on your website or in your auctions. Your customers order those products from you, and you collect the retail price. You email those orders to your drop shipper and pay them the wholesale price. Your drop shipper sends the product straight to your buyer’s house. You don’t invest in products you might not sell, or worry about stocking or shipping your wares.
However, drop shipping is not the be-all and end-all solution for your online retail business. Your drop ship wholesale prices will be higher than if you were purchasing in volume, because they’re wholesale prices on
one
item. And since your wholesaler is doing most of the work and incurring the extra expenses of storing, picking, packing, and shipping your products out one-by-one, they’ll usually offset that cost by charging a drop ship fee, in addition to your wholesale price. So your profits with drop shipping won’t be as high as with other methods of wholesaling.
Although you will find some wholesalers who are willing to drop ship their products, many are not set up to sell their goods individually. A genuine wholesaler who provides drop shipping service takes real time and effort to locate. By far, most drop shipping suppliers you’ll find in the search engines are middlemen and scammers.
If you’re new to internet selling, drop shipping is an easy, low-cost way to get started. And throughout the life of your business, it’s a great way to test new products without investing in untried inventory. When drop shipping identifies products you can do well with, you can begin buying those products in bulk to increase your profits. This method has proven effective for many successful ecommerce sellers and you will find it just as effective for you.
So there you have it – my top ten wholesale tips. I spent years in the wholesale trenches, learning these lessons by trial and sometimes-costly error. But you don’t have to make those same errors – if you follow these tips in your own e-business, you can save yourself a lot of time and money. You can watch my entire video series of free wholesale tips (they go into a lot more detail) at http://www.worldwidebrands.com/r/?r=72.
About the Author: Product Sourcing Radio is created by Chris Malta and Robin Cowie of
WorldwideBrands.com
, Home of the Internet’s Largest Source of Genuine, Factory-Direct Wholesalers for online sellers.
Click Here
to see our FREE wholesale tips video series!
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