The Scoop about Purchasing Wholesale Products for Resale
There are a lot of advertisements both within the opportunity
magazine world and the Internet promising to provide you with
great selling products at extreme discounts for you to resell
for profit. These advertisements claim to offer "hot-selling"
products at deep discounts for the eager entrepreneurs to buy
and resell. It sounds easy - just buy the products for
wholesale, mark them up a few bucks, and sell them online. So
why isn't everyone doing it? What's the catch?
Well let's take a look at how it works...
An eager entrepreneur sees an advertisement that says something
to the likes of:
Make Money on the Internet... Distributors Needed for Our
Unique Products!
We Provide You with the Hottest-Selling Products at Rock Bottom
Wholesale Prices!
The entrepreneur then clicks on the ad for more information.
Usually the information consists of a lengthy advertisement
describing the huge sums of money that can be made by reselling
the company's wholesale products. The wholesale company will
further entice the entrepreneur by providing a showcase of their
products (books, computer programs, knick-knacks, etc.) that
claim to all be hot sellers. Alongside each product the
entrepreneur will usually find a suggested retail price and a
"wholesale" price.
Sounds good, huh? Well, before we answer that, let's follow the
process through. Let's say the entrepreneur takes the company up
on their offer (and many do). The entrepreneur will likely be
required to purchase a bulk order of the product(s) and/or a
membership fee to be paid before products can be purchased at
the discount level.
Now, let me say this, everything that we covered up to this
point can be legitimate. However, the problem is, many of the
companies advertising wholesale products are NOT legitimate
wholesale companies. In fact, they're far from it. I've found
that most of all the wholesale promotions you see kicked around
the Internet fall into one of the following three scenarios:
A) The discounts (wholesale prices) offered on the products are
not low enough for you to make a profit, and the products are
either outdated or have very little demand
B) The discounts (wholesale prices) offered on the products are
low, but the products are either outdated or have very little
demand
C) The products are actually in demand, but the discounts
(wholesale prices) are by no means low enough for you to make a
profit
Again, this is my opinion, but I found that the above three
scenarios just about sums up 99% of every wholesale product
purchasing program you can find throughout the opportunity
magazines and Internet marketplaces. Let us examine each one of
the above scenarios individually...
In Scenario A:
You are given an insignificant discount on products with little
to no demand. Unfortunately, this is the most common scenario.
In just about every instance, the company which is offering the
products markets itself as a wholesale provider for the product,
but in fact they are just a middleman in the middleman-chain
handling the transaction between you and the product source (or
another middleman). As a result the discount will not be
significant, probably in the 20% range, which is simply not
enough of a discount even if the products had a high demand.
In this case, the discount rate in which you receive means
nothing, because the products have no market demand. Your
wholesalers (middlemen in your chain), however, will make a
profit. Each level of wholesaler, including the manufacture,
will make a percentage of the profit off of your initial bulk
purchase. Or if the vender doesn't require a bulk purchase, but
instead requires a membership fee, then that membership fee is
usually divided up the chain as well. They are fully aware that
once they sell you a given quantity or membership, you will not
be back because of the low product demand.
In Scenario B:
Your discount rate is significant, but the products have little
to no demand. This is another common scenario that is usually
the result of dealing with fewer middlemen (wholesalers).
The company providing the products may actually be a legitimate
level-1 wholesaler, meaning, it purchases products directly from
the product manufacture, however, the wholesaler knows the
products have been around for years and already marketed to the
point where there is very little demand for the products. The
best thing for the wholesaler to do is take what it can get for
them by selling them for extreme discounts to inexperienced
resellers.
Again, the goal of the wholesaler is to sell you a bulk
purchase. As in the first scenario, the wholesaler is fully
aware that the likelihood of you coming back as a repeat
customer is very low, so the goal is to make a profit once and
to get rid of slow moving products.
In Scenario C:
The products offered are in high demand, but the discount rate
is insignificant. This scenario is almost always the case with
products that are in high demand. Here you will likely find the
company offering the product to be a high-level (level-3 or
higher) wholesaler, or the actual product producer, which is not
a true manufacture. The term high-level wholesaler is the term
used to describe the number of middlemen between the wholesaler
and the product manufacture. A level-3 wholesaler indicates that
there are two middlemen between the level-3 wholesaler and the
product manufacture.
There are many high-level wholesalers that are offering products
that are in high demand for resale. However, a high-level
wholesaler simply cannot provide a significant discount to you;
therefore you cannot make any profit on the resale.
Product producers are not true product manufactures. A true
product manufacture is dedicated exclusively to manufacturing
products and distributing those products to wholesale companies,
which in turn distribute the product to distributors. A product
producer likely sells the same products to the general public
(retail). In essence, they compete against you, and since they
control the product and price, they will always win.
The lure in Scenario-C is the demand of the product. You already
know the products sell well, you have probably seen them
marketed for a little while and there may be some industry buzz
going around about how good they are.
In this scenario, the wholesaler (or product producer) will
typically offer a low 10% - 15% discount on the product for bulk
purchases claiming this is an excellent opportunity to jump on
board and make a killing off the high demand. Entrepreneur's
usually buy into this and end up purchasing several units to
find that once they add in their operational cost of advertising
the products they, at the very best, break even with a bunch of
lost time.
You see, there are costs associated with doing business
including: advertising, support, handling orders, etc. As a
result of these costs, in most cases, you simply cannot make
money with a 10% - 15% discount, even if the product is in high
demand. Even an experienced entrepreneur would not make a
sufficient profit at the 10% - 15% discount rate; they likely
wouldn't waste their time with that rate.
In conclusion, the underlying problem with any of these
scenarios is that the products are not being purchased from a
true product manufacture or level-1 wholesaler. Instead the
products are being purchased from middlemen, or the products are
being purchased at a low discount rate from a company that is
competing against you for sales. In either case, you will be
unsuccessful.
To avoid these situations, you absolutely must avoid the
middleman-chaining effect, and be sure that you are getting
quality products that are in demand, up-to-date and have good
profit margins. You can protect yourself to a great degree by
thoroughly examining the company you intend to do business with.
For example, whenever you run into a product dealer requesting a
bulk order or membership fee, make sure you have solid answers
to as many of the following 10 questions as possible:
1. How long has the company been in business?
2. Does the company buy directly from the product manufacture
(no middlemen)?
3. Is the company a member of the BBB or BBBOnline?
4. What is the volume of products they move each month?
5. What is the demand of the products (sales statistics)?
6. Is there a product guarantee?
7. Is there a delivery guarantee?
8. What are the delivery options?
9. Is there a guarantee the products will always be available
when ordered?
10. What is the return policy?
The responses you get from the above 10 questions will almost
always filter out the product dealers that simply do not have
quality products or simply cannot perform to your standards.
This filtering process is quick and will save you major
headaches in the future.
Sincerely,
Michael Ellis