How to Ruin a Perfectly Good Product MarketWritten by Chris Malta
"How to Ruin a Perfectly Good Product Market" Those of us who own retail Ecommerce sites are always looking for wholesale pricing from suppliers of products we want to sell.
Unfortunately, many people don’t know what a wholesale price IS, or even what to DO with it when they find one. By definition (Merriam-Webster's Dictionary), word "Wholesale" means "the sale of commodities in quantity, usually for resale (as by a retail merchant)". That definition has been around since 15th century. It does NOT mean "the absolute rock-bottom most dirt cheap price ever so that you can beat everyone else's prices no matter what". There are some very good wholesale suppliers of brand name products out there. We publish a Directory of those who are willing to Drop Ship those products directly to your customer from warehouse, one at a time, at wholesale. It’s an excellent way to do business without spending a ton of money on stocking an inventory. However, to be successful in business, you need to understand what "Wholesale" really means. A Wholesale distributor is a company that owns their own warehouse (no middlemen) and supplies you with products at prices that are significantly lower than Manufacturer's Suggested Retail Price (MSRP). That's what wholesale means. So why do you sometimes find wholesale prices on some products that may be very close to RETAIL prices for that same product on Internet? So close, in fact, that there is not enough of a profit margin to make it worth selling? Here’s one very big reason: Chopper Bob has opened a store on Internet. He thinks he's come up with an original idea. He's going to chop prices right to bone on products he sells. He thinks that because his prices will be so low, EVERYBODY will buy from him, and he'll make lots of money by selling large numbers of products. All those small profits will add up to a lot. Chop, Bob, Chop! See Bob Chop! Chopper Bob is essentially chopping his own throat, although he does not see that yet. Chopper Bob finds his first product to sell. It's a brand name VCR. This VCR has a Manufacturer's Suggested Retail Price of $149. This is retail price that manufacturer suggests it be sold at in order to make a good profit. Chopper Bob has found that wholesale price on this VCR is $69. At that wholesale price, profit margin to be made by selling it at MSRP (Manufacturer's Suggested Retail Price) is 54%, which comes out to an $80 profit on each sale. That manufacturer has made a pretty good suggestion, wouldn't you say? However, Chopper Bob believes that he is first human being in history who has decided to sell at dirt-cheap prices and make money on volume sales. Because he is Chopper Bob, he's going to Chop price on that VCR on HIS web site all way down to a mere $79. People are going to flock to his web site, and buy thousands of VCRs for $79. Chopper Bob is sure that he will get rich from all those $10 profits, once they begin to add up. Internet Retailers will tell stories of his success for years to come. Pretty soon, some people DO start to come to his site, and they start ordering VCRs for $79. Chopper Bob is happy. He was right! However, people who want to order VCRs are not ONLY people coming to his site. There are also people coming to his site who want to SELL VCRs. You see, Chopper Joe has also decided that he is going to undercut everyone else and make big money on volume sales. Surprising? Not at all. Most people who decide to open a business entertain this idea at least once. Chopper Joe searches Internet for absolute lowest-priced competitor, and finds Chopper Bob selling VCR for $79. Chopper Joe puts it on HIS site for $78.98.
The Business End of an Internet BusinessWritten by Chris Malta
"The Business End of an Internet Business" I've had a lot of email from people who know they want to start an Internet business, but don't know how to put nuts & bolts together on business end. That’s not surprising. It can be confusing, and there are certain steps to be taken in a certain order. Without help, you can end up running in virtual circles for weeks. Now, please keep this in mind, folks; I’m not an attorney, and I’d rather not have to hire one after writing this article. Let me just say that this is how it works where I live. Your local government may do things a bit differently, and of course I can’t speak to this issue for those outside US. (Sorry!) If you need to, consult an attorney or accountant. You should, though, be able to do this pretty easily on your own if you choose. So, here’s how we do it in Florida, USA. First, swim to poolside bar and grab yourself a nice cold drink. Then…oops, sorry, that’s AFTER work! Seriously, now, there are five things you would need in Florida to get started RIGHT way. It works pretty similarly around rest of US. 1.) File your Business Entity You need a “business entity.” That just means you need an official business name that’s recognized by government. You can do this one of two ways. A.) Corporation: You can file a corporation with your State. Florida has a web site at www.sunbiz.org, where we can download and print all forms we need to file a Florida corporation. I believe that all States in US have a site like this. They also have instructional forms that detail what goes where, and what everything means on forms. Once we complete our forms, we mail them in with about $90, and poof…we’re a corporation! We get our official copies back in a couple of weeks. B.) Fictitious Name: This is a simpler way to register your business, but it does not afford you protections that a corp does. Same thing…in Florida, sunbiz.org has forms, and we fill them out and send them in. This doesn’t cost as much as a corp. In some States, this is called a DBA (Doing Business As…), and is obtained from your local County Office building for a minimal fee. ($35 would be an average). If you’re not sure which way you want to go, see an attorney or accountant. This is an important decision! 2.) Obtain a Business License Here in Florida, we are required to have a Business License issued by county our business resides in. This takes a couple of hours at local County Office Building, and costs about $30. We must show our Business Entity papers and supply our EIN. In some other States, a county Business License may not be required.