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Wholesale Sourcing Essentials for Retail Success

If you could put in a few hours a week and start making an extra couple thousand dollars a month within a year, you’d probably like to know how to do it, right? That’s exactly what is possible when you become a retailer using wholesale sourcing for the products you sell. The more time you put in, the more likely you are to be able to make it your primary source of income. That is, as long as you learn the ropes and get started right.
 
Which is why we’ve created this guide for you—to help you jumpstart your new retail business. It’s not exhaustive but, when used with our many other resources, it’s going to go a long way toward getting you ready for success.
 

JOINING THE SUPPLY CHAIN

There are a lot of moving parts involved in getting a product in the hands of the people who want it, but these parts break down into just a few major roles:
  • The manufacturer puts the product together and into its own display packaging.
  • While some manufacturers ship directly to retail stores, most rely on a wholesaler or distributor to manage the logistics of storing the product and delivering it to retailers.
  • A retailer is a company or person that interfaces directly with the end purchasers of the product. Retailers might have a physical storefront, or they may sell online or through a catalog. While the latter two options may choose drop shipping to get products to customers, all three can use wholesale sourcing to buy a product in lots in order to build an inventory, which they either put on display for customers to choose (if they’re in a physical location) or ship out to a customer who has already paid via a website, phone or mail order.
 
In this guide, we’re focused on educating you about becoming a retailer through wholesale reselling.
 

THE PROS OF RESELLING—AND HOW TO AVOID THE CONS

Starting a retail business is easy. So easy, in fact, that many people jump right into it, expecting immediate success. Some of these people are lured in by misleading or downright false advertising. On the flip side, those who’ve heard nightmare stories about “work-from-home scams” often dismiss this way to make an honest living.
 
Easy doesn’t mean simple. Just like the supply chain, there are a lot of moving parts to running a solid, successful business. Here are a few things to be aware of as you consider wholesale sourcing for your retail business:
  • Misconceptions. People want to understand things quickly, so they form—and pass along—very basic ideas about complex problems. You should know the myths surrounding wholesale reselling and why they’re not accurate.
  • Poor suppliers. We’re going to walk you through choosing a good supplier, but consider this a warning that you need to carefully screen the wholesaler with which you’re thinking of doing business. Having a community of experienced sellers at your fingertips is a huge benefit when it comes to vetting a supplier.
  • The competition. There are a lot of people out there with the same goal as you—sell products at a profit. If you’re selling online, you need to do your research on who is offering the same or similar products, where they’re selling them and for how much. Your goal is not to beat their prices but to know whom you’re up against.
  • Low profit margins. It can be exciting to look at the wholesale prices of the products you sell and compare them to the price you think you can retail them for, but be sure to factor in all the costs involved—shipping and handling, fees, the product’s cost to you, the time you spend marketing and managing the business—before you settle on a final price.
  • Scams. In your search to find the right products at the right price from the right supplier, you will likely overturn at least one rock with something nasty underneath. Be careful about whom you trust with your money.
 
Now that we’ve given you a healthy dose of medicine, here’s the spoonful of sugar to help it go down: For those who are willing to understand that retail selling through wholesale sourcing is not a “get rich quick” scheme and who want to commit themselves to the hard work, there are some wonderful benefits to running your own business:
  • Freedom. Your workplace can be wherever there’s an Internet connection—from a home office to your favorite coffee shop—and anyplace with the capacity to store your stock.
  • Small, focused inventory. Though you will need to purchase in bulk, you can scale your purchasing to your business. It’s very possible to start out small and grow with your success and experience.
  • Low overhead. Depending on the scale of your business, you may be able use a basement or garage for your stock, eliminating warehousing costs. You also don’t need to pay for office space or staff.
  • Flexibility. Your success is the result of the effort you put into your business. Want to keep it a small side job? Then you only need a few hours a week to maintain it.
  • Variety. Whether you source one product from one supplier or multiple products from multiple suppliers, you call the shots on how to focus your business. You can also take advantage of trends in retail.
  • Control. Since you’re maintaining a small stock of your products, you know your inventory and shouldn’t have to deal with being unable to supply a customer’s order because the item is backordered with the distributor.
 
Sold on selling yet? There’s more to understand, so keep reading.
 

WHAT TO SELL

Read much of anything about selling online with wholesale sourcing and you’ll learn there’s a lot of emphasis on choosing a product. That’s because the right product can help make your business a success. We have some tips for you as you evaluate potential merchandise for your store:
 
Use our Market Research Lab. It’s a free tool to help you measure a product’s demand and it’s easy to use—just type in the name of the product and click “Analyze.”
 
Research what sells best on which market. We’ll talk about different online selling platforms in a moment, but here’s some helpful information on matching your products to the marketplace.
 
Don’t be afraid to get specific. In fact, the more specific you are with your product focus, the easier it is to target consumers and build your customer base. Choose products that will be of interest to a certain demographic, such as a particular group of hobbyists or certain businesses.
 
Maximize your profit margin. Smart product sourcing is about a number of different things. A low wholesale price cannot be your only way of ensuring a good return on your hard work. Look for products with one (better yet, more than one) of the following features:
  • Low turnover. Choose products which don’t change models often to eliminate a lot of maintenance work on your site.
  • Lots of accessories. Any product which has extra attachments or components is a potential gold mine for targeting customers and creating repeat business.
  • Marketing potential. The more innovative you can be with marketing, the more you can stand out from the crowd. Look for a product with which you can get creative.
  • Small and/or lightweight. Free shipping would be a great added value. Next best is a low flat rate. Either way, your best bet is to offset shipping costs by selling items which are not bulky.
  • Less expensive. Customers spend more time researching higher-priced items and want a lot of extra information about them, often even phone support. If you’re not running your business full time, this can be a big problem. And even if you are, it can quickly eat away at your profit as it eats away at your time.
  • Hard to source. One of the most golden opportunities for retailers is to sell a product which is difficult to find. If there’s a demand for the elusive Product X, it would be a great way to create a niche market—and raise your profit margin.
 

WHERE TO SELL IT

Another significant factor in your online store’s success is its location. While there are multiple marketplaces from which you can choose, most of them have similarities to one of the three major choices we outline for you below.
 

eBay

It’s easy to jump aboard the “world’s largest online marketplace” and start accessing its huge audience. The site garners tens of millions of visitors monthly, so marketing isn’t needed to drive traffic to the site; however, the competition on eBay is fierce and mostly driven by price. You’ll need to work hard to differentiate yourself and watch your profit margins while keeping eBay’s fees in mind. Constant maintenance and relisting should also be factored into your profit equation. eBay sellers are nearly invisible, and all that work might pay off now, but you won’t be building a business that can be considered a strong asset in the future. Despite the obstacles, eBay is still a popular choice for wholesale sourcing resellers and we have a whole section of training modules dedicated to the world’s go-to auction site.
 

Amazon

Many wholesale resellers have seen success as third-party sellers on the Amazon marketplace. You won’t need to worry about relisting items, and it’s possible to remove the hassle of handling shipping by sending the retail giant your bulk inventory and relying on their fulfillment services. Amazon also charges fees for using their site to sell and gives sellers even more anonymity than eBay, as it focuses on providing consumers with a consistent shopping experience. This lack of branding potential means your hard work will not accumulate into a salable asset down the road. Another significant mark against Amazon is their practice of using your sales data to identify what moves well and then marketing those products themselves. You risk working hard to develop a profitable niche on their marketplace just to have them muscle you out of the way with their ability to offer your items at lower costs.
 

Your own site

Creating your own site is your best option for building not just a business but an asset for the future. This avenue also gives you the most flexibility for product focus, the most freedom to market your business and merchandise and the most versatility for combining wholesale sourcing with other types of product fulfillment. You don’t have to be a programmer or designer to create a professional-looking site; choose a ready-to-customize store that suits the brand you want to build. You will have a learning curve on marketing your site and making it search engine optimized (SEO) to drive traffic, since you can’t take advantage of a more established, larger site; this is where targeting a specific niche can really pay off. Adding value with rich product information and possibly other services is also more of a possibility when you run your own site. You’ll have to spend a bit of money upfront on the site, but the costs are relatively small and predictable in comparison to fees on eBay and Amazon. For more on selling via your own site, check out our learning modules in our Seller Training Center.
 

SOURCING GREAT WHOLESALERS

The suppliers from which you choose to source your products can make or break your retail business, so you need to spend as much time searching for, and then researching, your potential vendors as you do choosing your products and selling platform. Don’t ignore the possibilities offered by international wholesalers. There are multiple ways to find wholesalers—we go into the process in a little more depth in our training module—but here are a few quick ideas:
 

Finding a drop shipper

  • Through a search engine. Most legitimate wholesalers aren’t spending their energy finding retailers as small as you will be when you begin, so be careful of your results. There are a lot of retailers—just like you—who market themselves as wholesalers, and you won’t get the best price from them.
  • Through the manufacturer. This is worthwhile because, though it’s rare for them to do so, you may discover a manufacturer that is willing to sell their merchandise to you in small bulk lots. The closer you can get to the original product source, the greater your profit margin. If they don’t do their own distribution or wholesaling, ask if they would be willing to provide you a list of the companies that do it for them.
  • Through a trade show. You’ll want to know the product you want to sell, or at least get a feeling for the general market. While trade shows are an expensive way to connect with wholesalers, they also allow you to start developing strong relationships with them. Need to find a trade show? Use our free directory and search by industry or locale.
  • Through membership with a selling community. If you haven’t yet, you’re going to come across offers of wholesale directories and supplier lists. Most of these contain incomplete, outdated information and may also include “suppliers” that are retailers themselves. Your best choice, which also helps you avoid a lot of footwork and headaches, is to align yourself with a full-service provider of supplier information and selling tools. This option is especially valuable when you’re beginning. It allows you to access training and business development tools, network with other sellers and—with the right company—receive superior customer service when you have questions and issues. For a great example, take a look at our comprehensive outline of benefits of membership with SaleHoo—which includes a quality list of prescreened suppliers. 
 

Profile your potential wholesale sources

You’re about to set up a business that, at the least, will provide extra income for your household or, at the most, will earn you the equivalent of a full-time job as you work from home. So why would you trust your personal money and your business’s reputation to just anyone? It’s crucial that you spend time screening your possible wholesale suppliers before you do business with them.
 
A phone call to a sales rep or other qualified staff member is a great way to start the relationship. You should ask questions to get to the heart of these issues:
  • Their systems. How tech savvy is their company? How will they take your orders?
  • Their policies. How do they handle damaged items and returns?
  • Their staff. Do they offer dedicated support with product experts?
  • Their accounting. What credit terms will they give you?
  • Their logistics. How efficient and organized is their inventory and fulfillment?
  • Their customer service. Do they respond quickly and reliably?
  • Their quality. How do they ensure merchandise arrives safely? What’s the quality of the merchandise itself?
 
If you like what you’re hearing, your next step is to place a small test order to find out if you’ll like what you experience. It’s a great way to get your feet wet and get an idea of how the process will work.
 

SET YOURSELF UP FOR SUCCESS

Now that you have a pretty good grip on your product, your market, and your supplier, it’s time to get the other pieces in place to create a great business plan and structure. By now, you should know that retail selling online is not a “get rich quick” method, but will require your ongoing thoughtfulness and dedication to develop a successful, enduring business. We have just a bit more parting advice to help you take a professional approach as you launch your wholesale-sourcing retail shop.
 

Be a legitimate business

You need to legally form your business. How much liability protection you want for your personal finances and assets depends on how much you want to invest in the registration of your business. The least expensive route is a sole proprietorship, but it’s also the least legally protective form. A limited liability company (LLC) is the next step up and makes your company a separate legal entity. Ongoing legal fees to maintain the status make it more expensive. You’ll get the most protection—and spend the most in formation and on the double taxes—with a C-Corp. Find out more about getting your business going legally with our guides.
 

Develop a strategy

Plan now for the “hiccups” you’ll encounter as you operate your retail business. Issues like returns, damaged items, fraud, international shipping problems, chargebacks and backorders will become a—hopefully rare—part of your world. The best time for dealing with a problem is before it even happens, so put some time into crafting comprehensive policies that communicate clearly to you and your customers how you’ll handle the problem. Before you do, however, take a good look at the policies your wholesale suppliers have in place and make sure you either align yours to theirs or are willing to take responsibility for any differences.
 
Don’t forget your marketing strategy. If you’re running your own site, you’ll need to get up to speed on SEO and online marketing to drive traffic to your store. Included in your marketing strategy should be an outline of how you will add value for customers in the way you provide information and support.
 

Become a pro

Take advantage of every opportunity to continue your education on running your online retail business, including wholesale sourcing, marketing, shifting product popularity and other relevant issues. We have several resources for your use:
  • Our Seller Training Center – tips for before and after starting your business
  • Our Blog – stay in the know about great products and marketing ideas
  • Our Community Forum – network with other sellers
  • Our Master Seller Training Course – free membership allows you to access this and gives you full forum membership, and is available through a link at the bottom of salehoo.com/forum
 

Take a leap of faith in yourself

We believe you should put a lot of thought into your business, then put a lot of work into it. However, if you wait until you have the perfect business plan, you’ll never start. Experience is the best educator, so be sure to take a deep breath and actually dive into your new future as an online retailer. Just remember, while you’ll own your own business, you don’t have to navigate the ins and outs all alone—join SaleHoo and discover a complete support system that provides you with the tools, knowledge and community to get and keep you going.