EcommerceBytes-NewsFlash, Number 1447 - January 08, 2007     2 of 2

eBay Sellers' Guide to Product Sourcing (Vendor Monday)

By Chris Malta

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In today's AuctionBytes "Vendor Monday" column, Worldwide Brands cofounder and CEO Chris Malta shares in-depth lessons on product sourcing for eBay sellers. Each week, runs an article submitted by a vendor or marketplace in the online-auction industry about a topic helpful to online sellers. Story submissions are welcome by emailing the editor.

There are two key aspects to successfully selling online - knowing what products to sell, and knowing where to get them. The first aspect - knowing what to sell - is discovered through the process of Market Research. This just means examining the current marketplace to see what products you can be profitable with.

To understand whether or not you can compete with a product, you have to know whether or not there is a demand for that product. You need to know how many online shoppers are searching for it. There are numerous keyword counting tools available that can help you determine how many people, in a set time period, are looking for your product on the major search engines.

Additionally, you need to understand your competition, which is anyone selling the product you're thinking of selling. You can find them the same way online buyers do: by typing your product into the search engines and sorting through the results. Competition can provide you with a lot of useful information. You can see what your successful and unsuccessful competitors are doing and how they're advertising, so you can get an idea of what works and what doesn't.

Having some competition isn't necessarily a bad thing; but you need to realize that, no matter how much demand there is for a product, you can't compete in a saturated market. Certain products, like electronics, gaming systems, and designer clothes, are among the worst an online retailer can try to sell simply because there's not enough room in those markets to make any real profit.

You will also find certain products that you can't compete with because the real wholesalers require order minimums that are beyond your means. For example, Apple requires its retailers to purchase order minimums that typically only big chain stores can afford, so selling iPods is not realistic for most home-based eBiz owners. You are not trying to compete with retail chains - you're looking for niche areas where the big retailers don't dominate.

As you research your market, look for products that have a steady, solid demand, and enough room in the market to let you charge competitive prices and still be profitable. Once you've determined a good market niche, you can move on to the second aspect of online retail - locating a supply of those products to sell, also called Product Sourcing.

Product Sourcing is the staple of any online retail business. Successful online sales require a dependable product source, and prices that let you be competitive. That means getting as close as possible to the source of the product. New online sellers often assume that means working with the product manufacturers, but 99.9% of the time, manufacturers will not work directly with retailers.

Manufacturers are busy making products. They don't have time to worry about distributing them to thousands of individual retailers all across the country. It is much more profitable for them to sell massive quantities to a few select Wholesalers, and let them take care of the distribution. Wholesalers have the necessary infrastructure to perform this service - they have the warehouses, the trucks, the computer programs, and the sales networks in place.

So a Wholesaler is not a middleman, getting between you and the manufacturer. They are a necessary link in the retail supply chain, providing you with a steady stream of products you can sell in your e-business. And to succeed online, you will need to work with genuine, Factory-Authorized Wholesalers who can give you true Wholesale prices that let you charge a competitive price and still make a profit.

Unfortunately, locating real Wholesalers is harder than it sounds. Most of the "Wholesale Suppliers" in the search engines are just middlemen posing as Wholesalers. They are retailers buying from the real Wholesalers and passing the goods on to you, at marked up rates. You can even end up buying from a middleman who is buying from another middleman. The further you get from the real Wholesaler, the higher your "Wholesale" pricing and the lower your profit margins.

The vast majority of genuine Wholesalers don't advertise in the search engines. Wholesale is a volume business - the wholesalers' main accounts are with large retail chains. It's not in their best interest to set up many small accounts with home-based online businesses who only order small quantities of product. It's not worth their time or expense to try to bring in a lot of eCommerce Sellers' business, so they're not always easy to find. However, many can be persuaded to work with your home e-business - but you'll have to go to them, they won't come to you.

To find out who a product's Factory-Authorized Wholesalers are, you need to ask the one that authorized them - the manufacturer. The manufacturer is not necessarily the same as the name brand, so make sure you have the actual product manufacturer, not just a subsidiary. For example, RCA is actually manufactured by Thompson Electronics. You should be able to find the manufacturer on the product's serial number sticker, warranty papers, or owner's manual.

The manufacturer will know who their authorized Wholesalers are, and they should not have a problem sharing that information with you. Simply call them and ask for their sales department. Tell them that you are a retailer looking to carry their products and would like a list of their authorized Wholesale Suppliers. Once you have that list, you can start calling Wholesalers to try to set up an account.

Not every Wholesaler will be willing to work with Internet Sellers. Many have policies against it, and you can expect that you will be turned down for more accounts than you will be accepted for. Some have to protect their physical sales territories, and can't have you selling their products across those lines on the 'Net. Others don't want to waste their time with accounts they consider to be "small potatoes." However, there are plenty of Wholesalers who are willing to work with eBiz, so don't get discouraged - if you keep trying, you will find Wholesale Suppliers that will work with you.

In order to work with a real, genuine Wholesaler, you absolutely must be a legal business - no ifs, ands, or buts. Any real Wholesaler will require your legal business name and tax ID, and will not be able to give you an account without them. Wholesalers use your tax ID number to prove to the IRS that they aren't required to charge you sales tax on your Wholesale orders. If they gave you an account without that number, they'd be in legal hot water. So any supplier that tells you they can set you up without those things is NOT a legitimate Wholesaler, no matter what kind of explanation they offer for not needing them.

Go to your state's website to find the forms you need to apply. Often, you can fill them out right on the site. Many online retailers want to skip the step of establishing themselves as a legal business, but filling out a few simple papers means that you get to keep your profits instead of paying middleman markups every time. The cost is minimal, and it is well worth the effort.

You will find that there are different kinds of Wholesalers, and they all serve different functions. Drop shippers will deliver items directly to your customers, one at a time. They provide a great entry into online selling, with no minimum orders and low overhead. Drop shipping is a great way to test out new products without investing money in inventory that may not sell. The drawbacks are slimmer profit margins and occasional delivery problems.

Light Bulk Wholesaling gives you Wholesale pricing, but with affordable purchase minimums - under $500. You can use light bulk to identify products that sell well, and then obtain additional discounts by ordering them in General Wholesale (Wholesale without the low minimum orders.)

There are also Wholesale Liquidators. Many times, a manufacturer will make too many products, or a Wholesaler will buy too many; and in an effort to get rid of them, they will sell them at almost no profit, or even at a loss. You can pass that savings along to your customers, and use those items to entice people into your e-store to see your higher priced, higher profit items. While Liquidating can provide you with terrific deals, it will never be a steady source of supply because the availability of products will always be changing.

The most successful sellers are the ones that use multiple product sourcing methods. Don't limit yourself to ONLY using drop shipping or ONLY using light bulk. You need to find the best suppliers for all your business' different needs.

Taking the time to understand and follow through with Market Research and proper Product Sourcing can spell the difference between success and failure for your eBiz. You need to make sure you're picking products that will sell, and that you have a steady supply at true Wholesale prices. Understanding your market equips you to do well in it, and ensuring that you're working with real Wholesalers means you're earning the best profit margin every time. If you master these two eCommerce basics, you'll be well on your way to online selling success.
Chris Malta is Founder and CEO of Worldwide Brands, whose product-sourcing materials are used by eBay University. Worldwide Brands' new OneSource product eliminates the hard part of locating Distributors - the company's full-time research staff is dedicated exclusively to tracking down and verifying real Wholesale Suppliers, and with every product search, OneSource also returns basic market research results that can help identify which products are worth pursuing. Chris Malta is also co-host of The Entrepreneur Magazine E-Biz and Product Sourcing Radio Shows, Product Sourcing Editor for The eBay Radio Show, and a best-selling EBiz Author.

About the author:

time research staff is dedicated exclusively to tracking down and verifying real Wholesale Suppliers, and with every product search, OneSource also returns basic market research results that can help identify which products are worth pursuing. Chris Malta is also co-host of The Entrepreneur Magazine E-Biz and Product Sourcing Radio Shows, Product Sourcing Editor for The eBay Radio Show, and a best-selling EBiz Author.

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