Lately, a good number of phone calls that we’ve been receiving have been from customers asking whether or not we sell our products wholesale. I always tell them no, but that we can provide attractive discounts for bulk purchases. More often than not, these customers hear the words “no wholesale” and usually just hang up.
What these customers don’t realize is that the discounts we offer are competitive with many of the wholesalers in the US. This makes me wonder what is going on in the minds of some of these customers. Do they think that wholesale is synonymous with lowest price?
I’d be willing to bet that the majority of people out there believe that buying “wholesale” magically means that they can sell their products lower than anyone else. They probably think that obtaining wholesale pricing means that they can undercut the entire market and make millions.
The truth is that the term “wholesale” is just a bunch of BS. Admittedly though, the word exudes cheapness which is why most people fall into the wholesale trap. Well here’s a dose of reality. Wholesale pricing does not guarantee profit. Here are some things to keep in mind.
You Are Not The Only One
If you were able to find your wholesaler easily, chances are a bunch of other people have as well. Even if you receive attractive prices for the products you want to sell compared to MSRP, the low barriers to entry will lead to severe pricing pressure in the marketplace.
In addition, pricing for wholesale purchases are usually tiered based on quantity. When you are just starting out, guess what? You aren’t going to be buying enough to get beyond the first tier so you can forget about getting better pricing than your more established competitors.
Wholesale Prices Aren’t Always The Lowest
When my wife and I were shopping for vendors for our online store, every single person we talked to claimed to a be a wholesaler. But the price ranges were all across the board. Believe it or not, some of these wholesalers had prices that were more expensive than if I just went to Walmart.
How can that be the case? Shouldn’t wholesalers offer the most competitive prices? The fact is there are many retailers out there who offer only a few products, buy in extreme bulk and concentrate on volume. In many cases, wholesalers are just small businesses that don’t have the capital to purchase large enough quantities to get the best pricing across the board.
The reality is that anyone out there can call themselves a wholesaler as long as they do the paperwork. There aren’t any guidelines or certifications required so the term “wholesale” can mean a huge range of prices.
Take The Road Less Traveled
If everyone can obtain “wholesale” pricing, things look pretty bleak in terms of starting your own online retail business right? This is absolutely true if you choose to sell easily obtainable or highly competitive products.
For this exact reason, I would never sell electronic goods. Not only is this market extremely competitive, but your products have a time element involved as well. If your electronics go obsolete, you may never be able to liquidate your inventory.
In highly competitive markets, your products are susceptible to price erosion as well. Since you’re probably getting similar pricing as everyone else for identical products, a price war is likely to erupt which will erode your margins.
Moral of the story: Pick the market less traveled. Choose a small niche and sell products that are not readily available. In a previous article entitled “How To Find Vendors For Your Online Store“, I recommend importing products from outside the country to obtain unique products at superior prices. If you can find products that aren’t readily available in your home country, you should have no problems making a decent profit.
It’s Not Always About The Lowest Price
Let’s face it. No matter which market you choose to pursue, there are always going to be competitors. If there aren’t any, then chances are your market isn’t even worth pursuing. Most people who want to open a store (myself included) often balk during the research phase because they do a Google search only to find several competitors already in their market space.
Often times, some of these competitors offer rock bottom pricing making you second guess whether you can make a decent profit. The reality is that there’s more to the success of your store than just the lowest price. It all starts by establishing your unique selling proposition. What makes your store special? How can you set yourself apart from the rest?
Our wedding linens store offers similar products to over a dozen other websites and we charge more money for some of these products. And guess what? The stuff still sells. Not everyone is going to make purchasing decisions strictly on price. If the market you have selected is large enough, you will still make sales if you can make your business stand out. With our store, we pride ourselves on our customer service and the useful information we provide on our website.
Do you offer superior customer service? Do you offer higher quality items? Don’t hesitate just because you see a bunch of lowball competitors. If you think you can provide value, your business idea may still be a viable one.
Can You Face The Big Boys?
It can be extremely frustrating to go up against large retail giants, so don’t. Don’t go head to head against the behemoths because you will definitely lose. Instead, offer items that aren’t covered by the large retailers. Large companies have to determine whether it’s worth it to carry a certain product and factor in all of the logistics with physically stocking and transporting items to their stores.
Often times, they need to sell an enormous (to you and I that is) amount of product to make it worthwhile. But for a small business, if you can find that product that is not worth selling for a large company and sell it in your store, you will be well on your way to making some serious money.
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