Whether you’re a first-time reseller or a seasoned veteran, you know there are two important ratios to think of in this business: risk v.s. reward, and time v.s. money. The key is finding a balance between the two, spending your resources in proportion to your returns.
Sourcing is one stage of the reselling process where finding this balance can be particularly challenging. Your sourcing strategy is arguably the make-or-break piece of your business, since what you source can leave you set for the month or in the red. Some resellers spend hours online perusing sites like Keepa.com or using tools like Amazon’s Jungle Scout, while others are on the road checking out warehouses, Goodwills and clearance racks.
No matter your sourcing style, there are hidden costs that appear in the process along the way. Here are a few costs to look out for, to help ensure you’re not losing out:
The Minimum Purchase
Before you begin adding items to your shopping cart (in-store or online) make sure you know what the minimum purchase price is. While many wholesalers don’t have one, some require you to purchase a certain dollar amount of goods. These minimums fall on a wide spectrum, some requiring a purchase of $250 while others demanding as much as $2500. Because sourcing is so time-intensive, it’s essential to know whether the wholesaler’s minimum purchase fits your price range before you invest time in shopping. More importantly, you avoid purchasing extra merchandise just to fill a minimum order.
Flat Rate vs. Bid Pricing
Whether you’re buying individual items, pallets, or even truckloads, wholesale lots are typically priced at a bid rate or a flat rate. A bid rate means merchandise is sold through an auctioning process, while a flat rate is a consistent pricing model. Watch out for the hidden costs that can appear in each. As a buyer, you can get extreme deals on merchandise at auctions—entire pallets can go for as little as $25-50. However, other bidders may drive the price higher, reducing your margin of returns. And, while flat rates are attractive for their consistency, the value of the merchandise inside may vary. Finding a manifest detailing the items being sold is key to reducing the risk and guesswork involved in making your purchase.
Even the newest resellers will tell you, there are a lot of scams out there. These come in all shapes and sizes: pyramid schemes, outrageous delivery and membership fees, and false manifests. When you’re evaluating a new distributor, make sure to do a quick check online for lists of scammers or make sure the wholesaler has been verified in some way.
Research, research, research. That’s the reseller’s mantra when it comes to sourcing new merchandise. While your goal is to find items at huge discounts, you’ll only turn a profit if they sell for higher. Of course, that means you have to be sure that the item you’re purchasing at a discount from wholesaler can be sold for a higher price online. Using websites like Keepa.com and CamelCamelCamel.com, you can take a closer look at the selling history of an item. If the product is so cheap now because it wasn’t selling at its original price, avoid it. If you see major fluctuations in pricing, the product may be a gamble. Specific language can also tip you off to items that are a good investment. Take a close look, for example, at what’s written on clearance tags in stores. Items that say something like “online return” or “as-is” may not be on clearance across the country, so the likelihood of reselling that particular item at its original price is high.
Distribution and Lead Time
Shipping costs can be a major drain on your finances, so it’s worth your time to investigate the most affordable shipping method. For example, if you’re sourcing items online, check whether a local store has the item and will price-match, saving you the need to ship altogether. Another way to reduce shipping costs is having wholesale lots sent to a nearby warehouse instead of delivered right to your door. Depending on the scale of your business, it may be in your interest to try drop-shipping. There could be a lot of value in flat-rate shipping when calculating your ROI, in addition to having someone else manage the hassles of shipping.
Lead time is how long it will take for your items to reach you. While most merchandise will follow a typical schedule, some may not be available for weeks or months. Make sure you’re aware of the timeline beforehand, since a late shipment will affect your storage arrangement. Depending on the nature of the item, you’ll probably want to avoid delayed shipping altogether. Seasonal items in particular only sell for a small period of time. Prices on electronics can depreciate at a rapid pace. Make sure you’re not setting yourself up to absorb the cost of a delayed shipment. Investigating return/restocking fees can be another important piece of knowledge in the event that the shipment delivery date changes significantly and you want to send the merchandise back to the wholesaler.
Taxes are different in each state, so make sure you’re aware what is required not only by the state you operate from, but also the states you’re doing business in. When you register as a reseller, for example, you’ll need to follow your state’s procedure so that you can avoid paying sales tax on items that you intend to resell. However, you will also need collect sales tax from your customers once you do resell the product. You can find most information you need on each state’s unique .gov site.
The more experienced you are as a reseller, the more likely you are to be able to avoid hidden costs without too much effort. You’ll know how to spot scams just based on the quality of wholesaler relationships you’ve been able to build. You’ll have a process for doing market research built into your regular routine. But that doesn’t mean you should let your guard down. Everyone, whether you’re brand new in the business or seasoned, whether reselling is a side job or you’re a pro seller, should be on the lookout for these hidden costs. Make sure to remain vigilant about monitoring every stage of your sourcing process so you aren’t spending money needlessly.