Last Updated on Mar 6, 2020 by James W
The best way to know you will make a profit when selling is to buy at the right price. One excellent way to do that is to buy directly from a manufacturer. But the potential downside when buying wholesale is the size of the minimum order. Fortunately, there are some manufacturers who do not have minimums. For example, CTS Wholesale Sunglasses sells by the dozen with a minimum order of as little as $8. Even though you can buy very small quantities, doing so increases the shipping cost per product ordered which lowers your profit margin. So be wise when deciding what to order. If you don’t want too many of the same item, buy different styles or types of products from the same seller.
Importance of Markup
Look for manufacturers who sell direct to resellers with the largest mark-up so you maximize your profits. I use CTS Wholesale as an example because few products have a greater profit margin than their sunglasses. When you can buy a dozen for $8 and sell each pair for $10+ selling one pair puts you into the black. To keep this example simple, if you buy a dozen for $8 and sell each pair for $10 you generate $120 in income minus the $8 cost = $112 per dozen income minus shipping and any other costs you have. This is a much greater profit than is typical. For many products, the maximum traditional markup doubles the purchase price for a 100% profit. This is known as “keystoning”. (Note that profit margins can vary greatly from product to product.)
What NOT to Sell
Avoid commodities – products that have huge numbers of competitors who all compete on price. SimplyWholesale.co.uk advises in their buying wholesale tips:
“Avoid products such as DVDs, computer games, electrical goods etc like the plague. The profit margin is tiny and you won’t be able to compete with the bigger sellers. Unless you want to work for peanuts, just steer clear of these products. The only exception is if you can add value in some way and differentiate yourself from the other larger sellers.”
Sometimes you can take a commodity product and add value to it. For example, there are sunglasses sellers on Etsy who create custom decorated sunglasses that sell for $30 – triple the usual retail and far more than the original product.
Inventory versus Drop Shippers
Buying your own inventory has pros and cons. The biggest pro is you make much more per item. The drawbacks are that you have to invest in inventory and if it doesn’t sell right away you could have that money tied up for a while. So make sure you’re buying what you can sell! Seasonal items are a larger risk. If what you order is only in demand for Halloween, Easter or during the holidays you will have to store the leftovers until the next year. Plan carefully before ordering large quantities of seasonal products. Another large risk is anything that won’t keep well.
If you buy holiday candy, gift baskets that contain food, or anything else that can spoil you’ll end up running a half price sale to unload it and free up your cash again. Consider using a drop shipper for perishables and holiday items and buying stock that can be sold year round. Even non-seasonal goods may sell best part of the year, but generate at least a few sales all year long.
Take sunglasses for example. You think of them during the summer months for vacations and sports, but most people wear them all year – so they also buy them all year. No matter what else you sell, consider carrying some inexpensive inventory of products that have very large mark-ups. Doing so can ensure your business stays consistently profitable.