Drop Ship Articles To Help Your e-Biz Grow
"The Wholesale Misconception"
One thing that’s constantly misunderstood by people trying to run a home business on the Internet is the word “Wholesale”.
Some people think that working with a real Wholesale Supplier means that they will magically be able to sell products for less than anybody else on the planet, for ever and ever. They’ll be the only one who ever gets such good prices, and they’ll earn millions because no competition can touch them. They’re retire happily in a couple of months, and buy a big house in Beverly Hills, complete with a butler, a private chef, and a little satin doggie bed in every room for the casual use of the family Basset Hound, Duke.
Then they find that they may actually have to compete with companies who have more buying power and get better price breaks, and suddenly the honeymoon is over. They run around screaming that the supplier is not a real Wholesale Supplier, and is cheating them. The sky is falling, and it’s time to get Duke to the storm cellar because all their dreams are being blown away by bad, BAD people who claimed to be Wholesale Supplier, and really are NOT!
The truth is that they’ve simply been confronted with a perfectly normal aspect of retail sales that they had not anticipated, and need to be educated about.
Even when using genuine Wholesale Supplier, you're going to find some stores selling products at a "retail" price that is lower than your Suppliers’ "wholesale" price. There are VERY good reasons why you'll see this happen, and it's extremely important to understand why it happens and what to do about it in order to sell successfully on the Internet or anywhere else.
As I said, it happens for a variety of reasons; the most common of which is that the retailer with the "lower than wholesale" price is a large retail operation that bought THOUSANDS of the product at a dirt-cheap quantity price break, and also qualified for huge manufacturer's wholesaler rebates. You can't compete against that with a home business; no one can.
The term "wholesale" is relative, no matter who your distributor is or how you find them. What you're getting as a small business is a Wholesale Supplier's genuine "first level" wholesale price.
For example, one factory-direct Wholesale Supplier we work with has an initial wholesale price for 1 to 36 dart boards. Then the second price level is reached, and there's a lower price for 36 to 72 boards, for example, then a lower price for the next higher quantity level, etc. When dealing with single item orders in your home business, you are obviously going to be getting the "first level" wholesale price.
Again, wholesale is a relative term. Yes, genuine Wholesale Supplier DO sell at significant discounts below Manufacturer's Suggested Retail Price. However, you have to watch what you sell. Electronics, for example, are a very tough market, because EVERYBODY is trying to sell electronics on the 'Net right now. All these people are so busy trying to undercut each other that they have driven the "market price" of these items down so low as to make it very difficult to make a profit, even at wholesale.
For example, if the Manufacturer's Suggested Retail Price (MSRP) for a VCR is $149, and it is available at "wholesale" for $69.00, that's a 54% discount off MSRP. That's a pretty good profit, right? However, with everybody getting roughly the same price break, there are a lot of people out there who are ruining the market for everyone else by selling that product for, say, $79, thinking they will undercut everyone else and make money by selling volume. Pretty soon, everyone else sees this, and tries the same thing. Eventually, the Internet "market price" for this VCR BECOMES $79, and everyone is flooding the market with it at that price. That's only a 13% percent profit margin, and that product is no longer worth the effort for anybody.
So, even though the product IS available initially at a great wholesale price, its market value is ruined by those who (wrongly) assume that the only way to sell is to have the absolute lowest price anywhere.
Sales is much more of an art than that. If selling something were simply a matter of the absolute lowest prices, Wal-Mart would be the only store on the face of the Earth.
Without going into too much detail, sales is a mixture of choosing the right product, or combination of products, for your web site. It's presenting a clean, attractive, focused site. It's giving the customer some little value-added bonus at your site. It's providing the absolute best customer service that you can. All these things help a customer to trust you, and when they trust you they are willing to spend a little more to buy from you.
One of our retail sites is www.ElectronicDartShop.com. We sell Arachnid Electronic Dart Boards there. We sell ONLY those products on that site; just 14 of them. Our site is clean and attractive. We have a page listing all the rules for all the dart games that can be played on those boards. We pay very careful attention to customer service. And guess what? We are NOT the lowest priced store for those dart boards, by any means. Yet we are one of the highest-volume Internet dealers of the products around, according to the factory. Why? Our customers trust us, and are willing to pay a little more because they feel they will get more value from us than they will from some guy who just throws up a cheap-looking site full of all kinds of unrelated products and only pays attention to price-cutting.
In fact, a few days ago, I went online and bought a couple of SmartMedia memory cards for my digital camera. I could have gotten them for a very cheap price that I found on the 'Net, but I chose to pay $5 more each for them because the cut-rate site looked cheesy, and I was not sure I could trust them. I was more than happy to pay the extra ten bucks total when I found the same products at a higher priced site. The site was well-built, easy to navigate, and went out of it's way to explain it's customer service policies to me. I'd rather spend an extra ten bucks and be confident that the cards would show up at my door than lose thirty bucks plus shipping to a site I didn't feel I could trust.
As a small business owner, you should remember to choose comparison areas very carefully. Too many people simply go to the big search engines and look for the absolute lowest price on earth, and then give up on selling that item if they can't beat it. That's the wrong approach, as I've mentioned above. You need to be comparing prices against sites that will be seen in the same places that your site will be seen, and even if your prices are higher, you can bring in sales by building a clean, focused site. Alternatively, you can simply sell the models that others are NOT selling. After you begin to earn some profit, you can then start to buy and stock the better sellers in quantity, lowering your price, if you really want to.
Even then, you're going to run into stores that stock a lot of merchandise, and are getting price breaks on greater quantities. This allows them to sell at a lower price.
Go around them. Sell models that they don't, from the same brand names. You don’t have to purposely go head-to-head with the big superstores. They don’t carry every product ever made on earth. Sell something in the same general brand and product lines that they DON’T have the shelf space for!
Besides the reasons mentioned above, there are also too many people who buy entire pallet loads of last year's closeouts, liquidations, and refurbished goods, and claim that they are NEW. They get that junk at "rock bottom" prices, and of course, sell them dirt-cheap, fooling the customer (and other Internet retailers) into thinking that they have the corner on the best wholesale prices around, when they DON'T.
The important thing is to work effectively within the framework of available products and prices, and work around those who have millions of dollars available to stock inventory. That's what THEY did in order to EARN those millions in the first place. You can do it too. I know it's frustrating to be just starting out, and thinking that you can't succeed because of competition from large stores. That's just not true. We're succeeding at it, and so are thousands of others. You just have to be willing to be flexible, and to make serious decisions for the good of your business. You may have to give up selling certain products that you personally like, in order to make money on other products whether you like them or not. You’re in business to make money, not to satisfy your personal taste.
One thing I tell people all the time is that it’s very important to “jump through the hoops” and form a LEGAL business. It’s the right thing to do, and it’s the ONLY way to work with GENUINE wholesale suppliers.
However, anyone in business will tell you that the hoops never end; not for home businesses, and not for big businesses either. Even the big guys spend much of their time "hoop-jumping" in order to be successful.
Imagine how the purchasing agents at CompUSA feel when they spend a million dollars on 19" monitors so they can sell them for $329, and a week later, they find that Best Buy spent three million buying up the same monitor at a better price break, and is now advertising them for $298. Suddenly CompUSA can't compete.
Should they throw a tantrum, and berate the Wholesale Supplier for simply performing the normal function of a Wholesale Supplier?
Of course not. They can simply stop advertising that monitor by itself, and bundle it with an entire computer system that has it's own serious price breaks, and move the monitors that way. Adapt and improvise.
There are no magic bullets, even though there are plenty of people who will tell you that there ARE. Don’t believe them! When you’re in business you will always have to compete. It's all part of sales, on the Internet or anywhere else.
Chris Malta
"Get Legal, or Get Cheated!"
Are you an Ecommerce business owner, or do you just seem to be one? There is a difference, and that difference will hurt your business.
When you sell products on the Internet, just like anyplace else, you need to be buying those products from a direct Wholesale Supplier. Either the factory itself, or a factory authorized distributor. If you’re not, you’re paying middleman markups that chip away at your profits until you’re barely making enough to pay your hosting fees. Sometimes I think that there are more middlemen on the Internet than there are ECommerce sites, and they’re all targeting YOU!
Here’s a scenario:
John Doe wants to open an Internet store, and make lots of money. He can’t believe all the news items about new Internet millionaires. He’s seen pictures of these people in the news and on the ‘Net, and lots of them look like they’re one beer short of a six-pack.
“If they can do it, so can I!” he thinks, and starts to search around the ‘Net for information on starting a business. He finds boatloads of hosting companies willing to put his site out there for just a few dollars a month. He finds that many of them offer free shopping carts, so that he can take his customers’ orders. He finds services that let him accept credit card payments without even applying for a merchant account.
Only one thing left…what to sell?
John looks around the Internet for Wholesale Suppliers. He comes across a wholesaler of name brand products that he knows are very popular. He contacts them, and they say, “Certainly! We will “drop ship” products directly to your customer for you, one at a time, at wholesale. All you need to do is fill out some paperwork about your business, and supply us with your Tax ID number.”
“Paperwork?” thinks John. “Tax ID number?” Yechh! That sounds like work. Worse, it sounds like LEGAL work. That’s a scary thing to most people, and John is one of them!
A little more searching, and John finds a web site called “Stuff R Us”. Stuff R Us is screaming at him: “Thousands of wholesale products you can sell on your website! NO investment for inventory! We send each item right to your customer! No shipping, no handling products, no minimums! Sign up with us and we handle everything! This is your road to Internet Riches!”
Well, that’s the road John was looking for, by golly, so he happily sends his name and address to Stuff R Us along with his sign-up fee. Suddenly he can put all kinds of products on his web site, and all he has to do is email his orders to Stuff R Us, and they handle the rest. No paperwork, no hassles.
John is creating a new Internet millionaire, all right. No doubt about it. Unfortunately, it’s not him. It’s Stuff R Us.
Stuff R Us is a middleman. They sit between John and the REAL Wholesale Supplier. Every time John places an order with Stuff R Us, they turn around and place that same order with the REAL Wholesale Supplier, who sends it to John’s customer. John never knows this is happening.
Stuff R Us is marking up the real wholesale price to John. John will piddle along selling the same over-marketed imports as thousands of other Stuff R Us clients, at over-inflated wholesale prices.
Stuff R Us thinks this is great, and they’re laughing all the way to the bank.
So, where did John go wrong? What did he do to unwittingly get stuck in ECommerce’s biggest trap, the “middleman rut”?
It’s simple. He took the easy way out when searching for a Wholesale Supplier. Stuff R Us said, “we’ll handle everything”, and John said, “Hmmm, that sounds easy!” So, instead of bothering to do some simple legal paperwork for his business, John let Stuff R Us cheat him out of most of his profit, because it was easy.
Please remember the following two statements:
1.) You MUST work with REAL Wholesale Supplier to be truly successful in ECommerce.
2.) You cannot buy from a REAL Wholesale Supplier if you are not a LEGAL business.
Let me repeat that last one, for those who may have their Real Jukebox software turned up too loud:
YOU CANNOT BUY FROM A REAL WHOLESALE SUPPLIER IF YOU ARE NOT A LEGAL BUSINESS!
ANYONE who allows you to purchase wholesale products for resale without legal business paperwork is NOT a real wholesaler, and is taking profit that should be yours.
In our business, we publish two very thorough Directories that help people like John find and contact real Wholesale Suppliers that will work with his Home-based Internet Business. Every once in a while, we get a request for a refund on one of our Directories from someone who says, “I don’t have to go through all this legal stuff to use the Wholesale Suppliers in your Directories. I can just go to Stuff R Us and do it the easy way!”
I have no doubt that Stuff R Us finds this absolutely hilarious.
Getting legal is not that hard. Don’t listen to the people who tell you that you don’t have to do it. Here are the basics (in the US):
1.) File a DBA (Doing Business under an Assumed name), or a Corporation. You can do it yourself for surprisingly little. As far as I know, all states in the US have web sites where you can read instructions and file your papers online. We did it for about $80 here in Florida.
2.) If required in your state, file for a local business license. Here, we paid $35 for this. Many states do not even require it.
3.) Contact your State IRS office (NOT Federal!) and file for a “Sales and Use Tax ID” or “Resale Certificate.” This is what a real wholesaler needs to see in order to do business with you. They use it to justify the fact that they are not charging you sales tax on the products you purchase and resell to your customers. Here in Florida, we got this for $5, and it took about 15 minutes.
Getting legal is not hard, and the benefits are tremendous. Don’t make money for a middleman…make it for yourself!
Chris Malta
WorldWide Brands, Inc.
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