Start a Business Creating Custom PCs Despite a mature market, there's still room for smart startups in the custom PC industry.

Want to cash in on your passion for building computers? Before plunging in to start a custom PC business, realize that this is now a very mature market. To survive and turn a profit, you must be well educated on the shifting business climate, leverage some critical, additional skills and forge the right professional alliances.

"[Because of] the Dells and Hewlett Packards of the world, there's no margin in Custom PC work, unless you can do it in large volume," says Todd Klein, president of Total Data Solutions Inc. in Canton, Georgia. "For a decent margin, we'd have to ship at least 150 units per month, but our customer base isn't large enough. With our limited size and labor pool, six years ago, we turned to reselling computers--that's 15 percent of our business now--at a price point that allows us to remain competitive and to make money."

Today, although he has a limited number of clients, they're high-margin ones. "We make our revenue in services and labor, not by making commissions on hardware," Klein says. "We specialize in network security and infrastructure security, installing and designing computer networks, and maintaining them"

Still interested in grabbing your share of the custom PC market? Read on for tips on how to create a winning business model.

1. Niche and grow rich. If you can penetrate a niche market (for instance, gamers, accountants, lawyers, doctors or government and educational institutions), you can develop a very loyal customer base. "There are gamers out there willing to pay $3,000 for a system with their exact specifications, " says Tarun Bhakta, CEO of Vision Computers, one of the largest custom PC retailers in the southern part of the U.S. "And there are plenty of physicians who may not be able to afford to hire a full-time IT employee for their office but will pay $1,200 to $1,800 a month in service contracts to a one- or two-person operation who can cater to them." If you can get yourself seven or eight such accounts, you can make a fairly decent living. But realize that you'll need to be an enthusiast of your chosen niche and have your pulse on what the latest and greatest software or video cards are to deliver to such markets.

2. Partner up. By teaming up with another solution provider who can offer a variety of complimentary services to your professional palette, you'll increase your chance for success. For instance, if you can build a computer plus load a particular type of software, then team up with another solution provider who can provide certain skills that you don't possess, you bring more to the table when trying to land a client. Being able to offer an array of services will be more attractive to smaller business clients that have two to 50 computers per office.

3. Find a reputable distributor. Why waste your time buying component parts, assembling and testing machines, loading operating systems and then delivering them to customers (which can take several hours that customers aren't going to be willing to pay for, especially when they can opt to buy an off-the-shelf model instead)? Instead, use a virtual fulfillment center like NextDayPC.com, which enables you to offer customers a made-to-order unit and frees you up to tackle more profitable lines of business, including maintenance, set-up and support. Such distributors ship thousands of pre-configured units comprised of brand-name technology products each month. Rather than get stuck with tens of thousands of dollars in inventory, you can forgo the expensive overhead of warehousing and shift your focus to break/fix-related services and consulting work.

"A respectable, reliable reseller program will also handle payment processing and returns," says Arthur Smaal, COO of NextDayPC.com. "We also provide our resellers with a 'virtual storefront,' so if he or she has a customer who wants to purchase office products, this is an outlet for additional income."

4. Shop around. When searching for distributors to buy from, price is the name of the game. "The commodities are basically the same: Microsoft for operating systems, Intel for processors and motherboards, and Western Digital for hardware," says Bhakta. "But you can save 5 percent [on mark-up] by bargaining with and purchasing from the right outfitter."

And since the warranty and defective merchandise return process you offer your clients can only be as good as the product manufacturer's, choose wisely whom you form a strategic deal with. "I can afford to offer a three-year warranty, including parts and labor, on all my systems because my manufacturers will back me up," Bhakta claims. But be forewarned. When starting out, says Bhakta, "It's hard for a manufacturer to trust a small guy. You're a credit risk."

5. Don't overstock. Never buy more parts then you need to fill an order, advises Morris Rosenthal, author of Start Your Own Computer Business. "The shelf life for items like hard drives and memory is similar to that of fresh produce in the super market," says Rosenthal. "Computer parts suffer from a type of spoilage I'd characterize as premature obsolescence. New hardware is being released every month, and even if your customers don't push you for the latest thing, the emergence of new products causes the prices of older products to fall as vendors who bought in quantity to get discounts try to unload them."

6. Keep it clean. Your facility that is. If you aspire to have your own custom PC assembly area, showroom and storefront, a state-of-the-art complex should be dust-free and house a powerful humidifier. "Static electricity is the biggest killer of computer components," advises Bhakta. "A heater can blow up or damage circuit boards."

7. Make your business model a customer-centric one. "Our goal is to find out to make our customer's life better with our unit," Bhakta says. "We load special software on our machines that can back up and support your system from a remote login. If you don't know how to burn a DVD, you can log on to our website, and we'll automatically take over your computer and do it for you." Quick tech support is also a plus. "If someone has to wait an hour and a half on the phone for tech support, he's never going to call back again," claims Bhakta.

To ensure his workers are knowledgeable and committed, Bhakta says, "We pay a lot of money for psychological testing and evaluation software." "We look for salespeople who are persistent, self-reliant and very customer-service oriented. In customer service, we look for honesty and friendliness and people who'll go out of their way to help a customer."

8. Follow the law. If you purchase parts from out of state, you won't be charged sales tax, but when you purchase parts within the state where your business is run, you'll need to register with the state and get a reseller tax ID. Contact the SBA (www.sba.gov/starting) for more information on the legal requirements of your particular state.

9. Respect your vendors' return policies. Returning merchandise for any reason to a vendor requires that you first obtain a return merchandise authorization (RMA), claims Rosenthal. "You have to adapt yourself to the process of the vendor to obtain the RMA, usually through exchanging faxes or going online," he says. "Once you have the RMA, you can ship the product out to the address they give you. If you have a good relationship with the vendor, you might ask for a cross-shipment, in which they send you a replacement part based on your word that you're sending the defective part out to them simultaneously.

"Vendors are usually pretty generous in granting RMAs, but that doesn't mean you should abuse the process by sending back parts at random when you're not really sure whether or not they're bad," Rosenthal adds. "If you do, you'll not only use up your goodwill in a hurry, you'll also run up a pretty hefty shipping bill."

10. Watch your advertising dollars. The best investment for your advertising dollars, particularly if you want to sell PC services and training to retail customers, is in copy shop fliers, says Rosenthal. "This super inexpensive approach is ideally fitted to the small-scale computer business. Make up a flier on an 8.5" x 11" paper that lists your services and prices, tells how friendly and responsive you are, and has 10 or 12 separate tabs on the bottom with your name and phone number that can be torn off," Rosenthal suggests. "The most common places to post them are message boards in laundromats, university hallways, and any other inside spaces that already include message boards."

"Direct mail can also be highly effective," adds Rosenthal, "providing you create a good mailing piece and you send it to the right people. By designing the mailer as a postcard with a discount coupon on one side, you can better your odds of attracting the attention of the recipient."

Erika Welz Prafder is a New York-based freelance writer and the author of Keep Your Paycheck, Live Your Passion: How to Fulfill Your Dream Without Having to Quit Your Day Job (Adams Media).Regarded as an expert on career and small business topics, she is a popular talk-show guest on such TV and radio programs as Fortune Small Business, The Dolans and Fox & Friends.