With the astronomical boost in auction site’s popularity, and more and more people going into business for themselves, it should come as no shock that wholesale and dropship companies are booming with business. If you’ve saved or have the capital to invest in a large lot, pallet, or even truckload of goods you wish to sell, you are just mere steps away from creating a successful business. These items can be purchased for prices ranging from $300-$100,000 (for a truckload). Here are a few guidelines to get your business started:
1) Know your market. It only makes sense that you purchase goods that you have an interest in re-selling. You’d be surprised, however, how many people try to sell things that they have no knowledge in, just because they sell well on auctions sites, or sell well in local markets/boutiques. Having a hobby, or area of expertise is essential to the success of your business. How else are you going to answer questions from your customers?
2) Narrow it down. So, let’s say you have a few areas of expertise and aren’t sure which types of goods would be most profitable. If your interest is online auction sites there are a few categories that you will profit most from. Electronics, gaming systems and games, authentic designer merchandise (clothes, shoes, handbags), collectibles (heirloom, vintage, estate sales pieces), and high-end beauty and makeup lines tend to sell the best on auction sites. They are a no-fail purchase because you will make money off of these products. They are in high demand now and will continue to be in the future.
3) Get organized. Before you even begin to think about purchasing wholesale, you need to understand that whether you are going to be doing this part time or full time, you must keep accurate record books for both expenditures and income, as you will need to report all earnings to the IRS. It’s important to have a spreadsheet or other business software program, or even a business tax booklet on hand to record everything. (Most tax processing companies offer these for free)
Keep in mind, if you delegate a certain area of your home for your business, that room and anything in it or associated with it can be deducted as a business expense. That’s right. Electricity, phone, internet, tv (if applicable), homeowners association dues, trash, water, heating oil, etc. You will receive a deduction based upon the square footage of the room in conjunction with the square footage of the home, or establishment in which your business is run.
Think about additional costs you might incur with your business: the cost of the goods you purchase from the wholesale or dropship companies, fax machines, printers, computers, digital cameras, telephones, inkjet cartridges, business cards, mailing and shipping supplies, postal shipping costs, and even gasoline expenses if you do any traveling in conjunction with your business. In addition, any fees associated with auction site’s listing fees and final value fees, and any payment fees you incur form accepting online payments, can also be deducted. Jot everything down in your book or spreadsheet. You will be amazed at the deductions that are out there!
You must make sure you apply the same diligence to reporting and recording all income as well. Every payment you receive for the goods must be recorded and state tax must be charged (check with the IRS for your state’s policies on in-state purchases from buyers) if the item is purchased from a resident of the state you are selling the item in.
You may also want to request a T.I.N. (taxpayer identification number) from your IRS office. They are happy to provide them. If you have your own business outside of your home, you are required to have one. If your business will be run from the confines of your home, and you won’t be registering a name for your business, you don’t need a T.I.N. You can use your SSN, for tax purposes. Keep in mind, some wholesale companies, depending upon which state they are located in, require that you provide them with your T.I.N or SSN before they will sell to you.
4) Contact a wholesale company. Now that you are prepared from a legal standpoint, it’s time to purchase that load. There are thousands upon thousands of reputable companies you can work with. Many people take advantage of this and try to charge people for this information. I have worked with many great companies over the years, and can recommend some great sources that I have personally used, and still use to this day. If you choose to go your own route and search for your own company, please keep these tips in mind:
Look up a company’s credentials. Check the BBB and look at their website to see which online organizations they are listed with. The BBBOnline Reliability Program is the best one. If a company has this logo listed on their site, they are a surefire success and can be trusted. Other things to look for are the quality of the website. Are there lots of pictures and does the site have a professional feel to it? Check the contact methods. Any good wholesale company will have at least one phone number, email address, and physical mailing address listed on their site, as well as an email opt-in list so you can receive mailings when they receive new goods to their warehouses.
Now, test their customer service. Call, or email them and ask them for some information on the type of merchandise you are looking to buy, and see the response you get. Any reputable company should respond to your email within 72 hours. If you call and are unable to reach an actual person, leave a detailed message. Phone calls should be returned within 48 hours. If you call and are able to speak with an employee of the company, tell them who you are and what you are looking for, ideally. They should ask you questions on the amount of money you have to spend, and should be able to offer solutions based upon your budget. Any wholesaler that tells you you have to have a certain amount of money to purchase from them is a fraud. You are the buyer. You know your limitations, and any reputable wholesale company will be able to accommodate your requests, within reason. Please don’t think you can buy 1 or 2 items from these companies to “try them out.” These companies move goods fast and can’t afford to cater to these types of requests. But any reasonable request should be granted.
5) So, you found the company you want to work with: now what? Get in touch with a member of their staff and make them aware of the amount of money you have to spend. (Ideally, plan on at least $5,000 for a good-sized load of goods) and to be taken seriously with wholesalers. This is a general guideline only, from my experience. Request that the wholesaler send you a detailed “mainifest list.” This is a detailed list of goods for each lot they have in stock. (Clothing items generally do not come with manifest lists, but the wholesaler can and should be able to give you the brand names of the items in the lot, so you have a good idea if it is a profitable lot or not.) Once you have the manifest list emailed or faxed to you, you can look it over and see the product name, retail price, and sku# for the item, and can then check it’s profit margin on the auction site of your choice. Manifest lists will also come with a total retail value of the lot, so you can determine a baseline profit margin, if you were to purchase the load.
Typically speaking, and if you purchase “hot” items for your auctions or boutique, you can expect to pay about 20-35% of retail cost from a wholesale company. You can expect to make between 40-80% back from reselling these items, depending upon it’s category and popularity!
6) I’m ready to purchase. Good. This is the final step of the process, and the beginning of an incredible journey for you. Wholesale companies should give you a variety of payment options. Some companies will even include shipping/handling in the cost of the lot! This can save you thousands of dollars! Once you are invoiced for the purchase and shipping costs (if applicable), if it hasn’t been added, request that shipping insurance costs be added to the lot, to ensure it’s safe arrival, and your money back, should these items get lost.
Payment methods vary from company to company. Some allow online credit card processing, some allow Paypal. (Most wholesale companies will charge a 3% fee for Paypal payments.) Bank wire, and money order/moneygram payments are also other options. You don’t have to be leery if you’ve done your research, as these last 2 methods are actually preferred in this business.
Your purchase typically leaves the warehouse within 2 to 5 days, depending upon the size of the load you purchased. You should receive a tracking number from the wholesale company when it leaves the warehouse.
When you receive your goods, be sure to contact the company and let them know of your questions, comments, and concerns, if any. Most wholesalers will let you know that sometimes a few items that were listed on the manifest list, will be missing from your lot when you receive it. It’s ok. This happens all the time. Wholesalers will add in comparable items of equal value to the lot in place of these items. So concerns such as these don’t need to be addressed with the wholesale company. If you are purchasing new goods, you can expect that around 90% will have retail tags attached. Some will have sales stickers or marked down prices, and some won’t. These are all things to expect.
One final note: some wholesalers will require you to sign a merchandise waiver with the understanding that these items are purchased on an as-is basis. This is normal, as these items are sold as-is 99% of the time and cannot be returned.
Congratulations! Your first wholesale load is ready for you to re-sell and make great money!