dropshippers - Tips for Finding and Working with Wholesalers
by Chris Malta
These are my top ten tips to help you avoid costly mistakes in your online business and navigate the sometimes-confusing world of buying wholesale products with relative ease:
You can't work with wholesalers without a sales tax ID.
Buying wholesale products means you have a consistent stream of quality products at prices that let you make a profit. However, real wholesalers only work with legitimate retailers. They will require your sales tax ID to give you an account; to acquire your sales tax ID, you must be a legal business. So one of the biggest reasons to make your ecommerce business legal is that doing so will allow you to work with genuine wholesalers.
Any wholesaler that does not require a sales tax ID, in order to sell to you at wholesale prices, is most likely a middleman, not a genuine wholesale supplier. Real wholesalers rarely appear in the search engine results. Middlemen and fake wholesalers, on the other hand, are all over the search engines, claiming to be authentic wholesale suppliers. They position themselves between you and the real wholesale supplier, mark up your prices, and leave you little, if any, 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 online business legal, but it is the difference between getting ripped off and earning real profits.
A little bit of simple paperwork is a small price to pay for being able to work with real wholesale sources of products for your online business.
Some wholesalers will not work with online retailers at all.
Contrary to popular opinion, wholesale suppliers are not always excited, or even willing, to work with every retailer that wants to carry their products. You might think that they would be happy to have any extra distribution outlets, but that's not always the case. In fact, there are a number of reasons that real wholesale suppliers are not marketing to the online merchant or home business, and why they may not be willing to deal with them – even if they are a legal business.
Wholesalers have thin profit margins – they make their money by selling products in large volumes. Unfortunately, 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 regularly place enormous orders that online retailers cannot afford. From some wholesale suppliers' point of view, working with home business is not always worth the effort.
The same is true for the wholesaler reps who take care of their retailers. For the most part, these reps work on a commission basis; so to them, small e-tailer accounts represent a lot of work for not a lot of profit.
Lastly, some manufacturers actually do not allow wholesalers to sell their products to anyone who sells on the Internet, other than their specially licensed dealers. The main reason for this limitation (although not the only reason) is to protect their products' perceived value in the marketplace. Online sellers can often afford to sell a product for less than a brick-and-mortar retailer, simply because they don't have the same overhead.
When new e-tailers try to compete by undercutting their competition and charging rock-bottom prices for a product, it lowers the value that consumers place on that product.
If brick-and-mortar stores stop carrying a product because they can no longer compete, wholesalers lose their largest accounts. If the wholesalers lose those accounts, they no longer place the same large volume orders with the manufacturer. So manufacturers sometimes guard against this possibility by prohibiting online sellers from carrying their products all together.
That doesn't mean that no wholesalers will ever deal with any Internet sellers. It doesn't mean that some wholesalers can't be convinced to 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. These steps won't guarantee you success, but they will greatly improve your chances.
• As mentioned earlier, 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. Tell
them you're a retailer who would like to carry their
• Don't assail them with a lot of questions about what
they can do for you. They won't want to work with you
if they think you're going to be a demanding customer.
Find out what they need from you to set up an account,
and thank them.
Your real goal here is just to get an account. Being prepared when you contact them will help you make the right first impression, and give you a much better chance of getting a 'Yes' from the supplier.
You should hide your wholesale sources from your competition.
This might seem like an obvious statement, but you would be surprised to realize how many online sellers make it easy for their competition to locate their product sources. This is especially damaging to sellers in small niche product markets (which usually sell very successfully online).
By using your wholesaler or manufacturer's Model Number as the Model Number on your ecommerce website, you are helping your competition track down your most valuable asset – your suppliers. If your wholesaler's Model Number for a product is 56789 and you list that product as Model Number 56789 in your store, your competitors can find your manufacturer or wholesaler with a quick Internet search using that number.
There is a very simple solution to nip your competition's efforts in the bud. Just change the Model Number that you display in your store in a way makes sense to you. Rather than 56789, for example, you might re-label it Blue Rug 123. Your competitors can search all day for that term, but they'll never turn up your supplier with it.
(This strategy is highly effective for niche product lines. It's not recommended, however, for well-known goods like consumer electronics.
If you sell products that an online shopper is likely to search for with the product model number, then this trick isn't for you.)
You can't see a wholesaler's price list until you set up an account with them.
If you've ever gone to a wholesaler's site, you may have noticed that you can't see their price list before you have an account with them. Wholesalers don't make their pricing public for two reasons. The first is that it would be more difficult for them to compete with other wholesalers if they publicized their pricing.
Wholesalers are also protecting their retailers by keeping their pricing confidential. 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 the retail mark-ups. Of course, retail mark-ups are what allow retailers to operate their stores and make a profit. So wholesalers only allow their retailers to see their true wholesale costs.
Wholesalers give price breaks as you increase your order volume.
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.
Drop shipping and light bulk wholesale are a great way to get started selling on the Internet. As you identify products that sell well for you, you can invest your profits into purchasing those products in larger volumes to cash in on your suppliers' volume price breaks. This is an effective strategy for growing your online sales at your own speed.
Some wholesale suppliers charge a refundable deposit to establish an account.
Legitimate wholesalers will never require account set up fees or monthly account maintenance fees. If a supplier tries to charge you either of these fees, you can feel confident that you are talking to a fake supplier.
There are, however, some genuine wholesale suppliers 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 are probably dealing with a scammer.
The purpose of refundable deposits isn't to make extra money, but 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 are never heard from again, and the wholesalers have wasted time and money setting up useless accounts. So some wholesalers use refundable deposits as a sort of litmus test to determine whether a seller is serious about retailing their products.
Setting up a wholesale account takes time.
In business, everybody is always in a hurry. This is no less true online. But you can't expect to set up a few auctions or an ecommerce store today, and be raking in riches tomorrow morning. When you're setting up your business, some things simply take time. One of those things is getting set up with a wholesale supplier.
If you contact a supplier to request an account, don't get angry or impatient if you don't hear back from them the same day. It's important to understand that wholesalers are busy too. And they receive many, many account requests just like yours. They get to these requests as quickly as they can, but it may take several days, or even several weeks, depending on how busy they are.
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.
The time of year that you contact a wholesaler will affect the length of time it takes you to get a response. The holiday season is the wholesaler's busiest time of year; and for a wholesaler, the holiday season begins in July. So you'll find that suppliers take longer to respond to your requests during this stretch of time. You will likely get a quicker response during the spring or early summertime, as these are slow seasons for the majority of wholesale suppliers. Most wholesalers close down for a week or so in early January, to bring in their stock for the next year. So you may find longer delays during this time period as well.
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 will get your account sooner or later.
You can't expect to make a fixed profit on every product.
There's no such thing as a fixed percentage that should be your profit margin on every wholesale product you source. A good profit margin varies depending on the type of product, the level of demand, the particular market, and several other elements.
You can also expect your profit margins to be impacted by the volume of product that you purchase. As discussed above, you won't receive the kind of wholesale price breaks that Wal-Mart or Target does because you're not buying the same massive quantities. So naturally, you aren't going to be able to make the same kind of profit margins on your products that they can.
For the most part, if you can't earn at least a fifteen percent profit on an item, it's not worth selling. And for the most part, a thirty to forty percent profit margin is very good. But these numbers are general guidelines, not rigid rules.
Make sure that when you figure out your profit margins, you look at your total Cost of Goods Sold (a.k.a. your COGS). For example, if you order wholesale products for five dollars apiece and sell them for ten dollars apiece, plus the cost of shipping and handling, you do not have a fifty percent margin. You also have to subtract 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.
Remember, you're not looking for a set percentage in your margins. It will vary from item to item. What's important is 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.
Some wholesalers also retail their own product lines.
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. So 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.
Start with drop shipping, but don't stop there.
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 then email those orders to your drop shipper, and pay the wholesale price. Your drop shipper sends the product from their wholesale warehouse straight to your buyer's house. So you don't invest any money in products you might not sell, or worry about stocking or shipping your wares.
That's not to imply that drop shipping is the be-all and end-all solution for your online retail business. Your wholesale prices are going to 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 will usually offset that cost by charging a drop ship fee, either per-piece or per-address. 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, and to offer products that would be challenging to physically stock. When you discover what products you can do well with, using drop shipping, you can begin buying those products in bulk to increase your profits and grow your business. This method has proven effective for many highly 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 online business, you can save yourself a lot of time and money. You can watch my entire video series of free wholesale tips (and get even more detailed info) at http://www.WorldwideBrands.com/r/?r=72.