The Scoop about Purchasing Wholesale Products for Resale
To Read More Find our blog at The Money Beast
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(wholesale prices) offered on the products are not low enough for you to make a profit, and the products are either outdated or have very little demand
B) The discounts (wholesale prices) offered on the products are low, but the products are either outdated or have very little demand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, as discussed in the middleman-chaining article, 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.