The mantra of every successful entrepreneur who sells products is the same--buy low and sell high. Your ability to buy cheap is of paramount importance; after all, it makes up 50 percent of the success equation.
If you plan to buy and sell new products, your buying sources will include manufacturers, sales agents, craftspeople, wholesalers, importers, distributors and liquidators. Deciding whom you will buy from will be largely based on criteria relative to your specific needs, and revolve around product price, supplier reliability, product quality, product and supplier guarantee, supplier terms, and supplier fulfillment. For instance, if you are short on storage space and adequate transportation, then suppliers who drop-ship orders directly to your paying customers will be a far more attractive supply source, even if their unit costs are higher than suppliers who do not offer drop-shipping options.
Buying previously owned items for resale is an entirely different ball game because the product sources are much different. There are no wholesalers, manufacturers and sales agents to supply you with cheap products for resale. Instead, you have to rely on your detective abilities and negotiation skills to track down the best items to purchase cheaply. These sources will include private sellers, auctions, flea markets, online marketplaces, garage sales, and thrift shops.
Traditional channels of distribution have greatly changed. At one time, all levels of distribution served an important function in the marketplace. Importers scoured the globe, visiting manufacturers for specific products, which they bought in large quantities and imported to their own countries. National wholesalers would then sell to local distributors, who sold to dealers or retailers, who in turn sold directly to businesses or consumers. It was not uncommon for a product to pass through four or five levels of distribution on its way from factory to end consumer, with each level adding a markup to cover expenses and profit.
Today, distribution roles are somewhat blurred, and there is overlap among wholesaler, distributor, importer and liquidator. But the end game of each is the same--sell products in volume to resellers at less than retail, enabling the resellers to sell to consumers and businesses for a profit. The information below focuses on three wholesale buying sources: wholesalers, liquidators, and importers. I must stress, however, that when you buy from these sources, you are not buying wholesale, but rather from a discount retailer, if they do not require a sales tax ID number. I mention this because recently there has been an increase in online businesses claiming to sell wholesale, when in fact they are discount retailers advertising as wholesalers. So always remember that if you are not asked for your sales tax ID number, you are not buying from a legitimate wholesale source. True wholesalers do not sell to the general public--only dealers, retailers, and resellers--and are referred to as business-to-business (B2B) wholesale sources.
- Wholesalers. Your first option for buying new products at less than retail is from wholesalers, who generally offer a broader range of merchandise than importers and manufacturers. General-merchandise wholesalers are the most common, and they stock and sell a vast range of household products. The next type of wholesaler is industry-specific, such as food wholesalers, tools and equipment wholesalers, or clothing and textile wholesalers.
There are really no tricks to buying from wholesalers as the process is pretty straightforward--find one who carries the type of merchandise you want to sell, open an account, and start buying wholesale. It is always a good idea to open accounts with more than one so you can shop for lowest price, take advantage of the specials each offers, and ensure that you always have a reliable supply in case one runs out.
- Liquidators. Next to factory direct, buying merchandise from liquidators will generally be your cheapest wholesale source of new products. Liquidators differ from wholesalers, distributors, and importers in that they do not carry a steady supply of the same items all the time. They purchase many types of merchandise from various sources, including retailers trying to unload out-of-season goods, returns, and slow-moving inventory; manufacturers selling seconds and end-of-run; insurance companies disposing of damaged and recovered merchandise; and inventory of all sorts from bankrupt retailers, wholesalers, distributors, and manufacturers. The variety of products that can be purchased from liquidators knows no limits--clothing, electronics, dollar-store items, sporting goods, kitchen and bath accessories, toys, books, and the list goes on. However, all merchandise is new, though it may be slightly damaged, seconds, store returns, out-of-season, or discontinued.
- Importers. Importers are another source of new merchandise at wholesale prices. As a rule of thumb, however, importers are usually product- or industry-specific. There are general merchandise importers, but they are not common. Most deal in specific products and sometimes very highly specialized products such as surgical rubber hose, or in specific subsections of industries such as hand tools. Buying from importers is the same as buying from wholesalers, distributors, or manufacturers. Source one or more and open a buying account. However, don't be surprised if more than one importer refuses to supply you. This is because some importers only work with large-volume clients. In time and with a little legwork, you will find an importer who will sell you the type of product you want to buy and sell. You will, of course, also want to consider factors such as price, quality, and reliability before choosing an importer.
Buying From Manufacturers
Another buying source for new products is manufacturers, who also include farmers, producers, craftspeople, growers, and sales or manufacturers' agents. But I have chosen to concentrate on buying factory direct, manufacturers' agents, and craftspeople because they are the most likely buying sources. When buying from manufacturers, the inevitable questions arise: Should you buy from local or domestic manufacturing sources and support your own economy, or should you shop overseas manufacturers in hopes of lower prices? The answer is that each person will have to make that decision individually, but there is a strong argument for supporting your own economy, especially in light of labor laws and practices in some foreign countries. It is no mystery that products generally cost less from foreign manufacturing sources than domestic sources. On the other hand, domestically manufactured and produced goods are generally of much higher quality. Ultimately, your target audience will play a large role in determining where you buy.
- Buying factory direct. The first option is to purchase directly from the factory--no middlemen, agents, distributors, importers, or wholesalers of any kind. Buying factory direct for the small operator was not an easy or very accessible option as recently as five to ten years ago. What once took days, weeks, and even months and considerable expense to track down can now be accomplished in a few hours or less online, and all with the simple click of a mouse. With the aid of the Internet, you can source product manufacturers from around the globe and buy direct.
Even with the assistance of the internet, however, the fact remains that you often have to buy in large quantities, especially from overseas manufacturers who need to sell by the container load to justify expenses and their competitive pricing. The Internet has not changed this. Still, there are thousands, perhaps hundreds of thousands, of manufacturers nationally and internationally who welcome new customers with open arms, regardless of their current buying power. It will just require a little more homework by you to flush them out.
Still, you do need certain things for the relationship with the manufacturer to be successful, especially when starting out, including:
- Fair pricing. You need the ability to buy from manufacturers at a price level that enables you to resell competitively while still retaining the ability to profit. Never assume manufacturers will not negotiate on their list or catalog pricing. All manufacturers will negotiate to a certain degree. They are like any other businesspeople, and need paying customers to remain viable.
- Quality products. You need quality products, within reason, to sell. They do not have to be the best, but they must be able to stand up to consumer scrutiny. A super-low price is of no benefit to you if the product quality is so poor people won't buy.
- Reliability. You need a reliable buying source. The manufacturer(s) you choose to work with must be able to supply the products you need when you need them, and in a timely fashion. Buying and selling is very much a now, or impulse, business. You cannot ask customers to wait days or weeks for products.
- Terms. You need manufacturers who will offer you payment terms on purchases. Initially, in most cases you will have to apply for and be approved for credit or establish a payment record by paying in full for your first few orders. However, beyond this you should expect manufacturers to extend 30-, 60-, and even 90-day payment terms. The longer the better, from your perspective. Payment terms enable you to resell inventory and pay suppliers with your customer's money, not your own.
- Manufacturers' agents. Many manufacturers, especially small ones, enlist the services of sales agents, otherwise known as manufacturers' agents, to find new customers for their product(s) in new geographic markets, nationally, and internationally. This is especially true of manufacturers who do not have the financial resources or people inhouse to undertake establishing distributorships in far-flung locations, or who currently have a limited product line, too small to grab the interest or attention of major wholesalers and distributors. The job of the agent is to prospect for new business for the manufacturer, often establishing accounts with retailers to buy products on a frequent basis. Buying through a manufacturer's agent generally means you will be paying slightly more for the product on a per-unit basis, but over time, as your buying volumes increase, incremental discounts will reduce unit costs. The best way to source manufacturers' agents is to harness the power of the Internet and search manufacturers' agents directories, or to contact manufacturers' agents associations.
- Craftspeople. Talented craftspeople across North America make everything from custom furniture to woodcraft decorations, garden ornaments, stained-glass items, and everything imaginable in between. According to the Craft Organization Directors Association (CODA), the crafts industry generates $14 billion in sales annually. Needless to say, crafts are very big business in America. But how do craftspeople distribute their goods? Once again, according to CODA, approximately 60 percent of them retail their goods directly to consumers through craft shows, mail order, and online marketplaces. A further 10 percent place their products on consignment with retailers, such as gift shops, furniture stores, and fashion retailers. And the remaining 30 percent wholesale their crafts to retailers and resellers of all sizes. This 30 percent wholesale market adds up to a whopping $4 billion-plus worth of wholesale crafts up for grabs every year for resale!
Keep in mind that most craftspeople who do retail direct to consumers are the first to admit they are not the best marketers of their own goods, and miss out on a lot of profit because of their lack of sales and marketing skills. Therefore, persuading them to sell to you wholesale should not prove difficult. Start by talking with craftspeople right in your own area to inquire about the goods they make and their wholesaling policies. You can also contact craft guilds and associations to track down people who make specific products you would like to buy and sell. And rather than buy crafts wholesale for cash, consider working out a revenue split arrangement for all goods sold. This way, you'll to minimize the amount of start-up investment needed to get rolling. They supply, you sell, and both of you profit.
eBay and Other Online Auction Sites
Most people think of eBay as a great place to buy products for personal use or a great place to sell products, not necessarily as a venue to buy new products for resale purposes. But eBay provides great opportunities to buy new products wholesale at a discount.
New products in bulk are listed under the Wholesale link in the navigation bar on the eBay home page. The wholesale lots page is segmented into numerous product categories, including electronics, home furnishings, jewelry and watches, clothing, health and beauty, and sporting goods, each with its own subcategories of products. Via the wholesale lots page you can purchase new products, liquidated merchandise, seconds, pallet lots, remainders, and returns posted by wholesalers, liquidators, and manufacturers. Some products are available by way of no-reserve and reserve-bid auctions, while others have volume pricing through individual eBay stores.
Excerpted from 202 Things You Can Buy and Sell for Big Profitsfrom Entrepreneur Press