Q: What do I need in order to work with a wholesaler? How do I get them to give me an account? What can I do to increase my odds that a wholesaler will work with me? What can I do to make them take me seriously?
- Q: What exactly is a middleman, and what are the pros and cons of doing business with one?
- Manufacturer sells to Wholesaler sells to Retailer sells to Consumer
- Manufacturer sells to Wholesaler sells to MIDDLEMAN sells to Retailer sells to Consumer
- Q: Why are my wholesale prices for an item higher than what I see other sellers retailing that same item for? How are they making a profit?
- Q: Other suppliers are beating my prices. Do I have to drop my prices to compete?
A: To be a reseller of products from a wholesaler, you need a sales tax permit and a state tax identification number (commonly called a resale number) from your state tax authority. For information on how to get one of these, see the related questions in Chapter 2. Some wholesalers as well will require proof that you have registered your business name with a local or state government agency (for a limited liability company or corporation, you would get a certificate of good standing from your state secretary of state's office; for most sole proprietorships and partnerships, you would get a filed copy of a trade name certificate or fictitious name certificate from your town clerk's or county clerk's office).
To import certain goods from overseas, you may also need an import license or permit from a federal government agency (see related questions in Chapter 18).
Wholesalers (depending on the state) are required by law to have your resale number on file. If you are working with a wholesaler that does not require a resale number, then it is very likely that they are not a genuine wholesaler! If you are an international retailer (an eBay seller residing outside the United States that does not have a U.S. registered business), you are not required to provide suppliers with a resale number. Always confirm with a supplier that they will work with an international retailer. Some suppliers won't work with international retailers because of trade and export agreements that they have with their manufacturers regarding selling outside the United States.
To increase your odds that a wholesaler will work with you, make sure to present a highly professional image. Using a business address instead of a home address and posting official business hours are examples of presenting a professional image. Consider a private mailbox with your local UPS Store rather than a post office box, because a UPS Store will give you an actual street address, such as "123 Main Street, #456." A supplier needs to know the best times to contact you. In addition, they want to know that you are a real business. Use a business landline for communications with your suppliers. It doesn't sound very professional when your cell phone drops the call. When you're working from home, you need to keep in mind that the distracting noises in the background (such has your pet dog barking) can give you an unprofessional image. A professional business would not have these distracting noises in the background (see related questions in Chapter 19).
Q: What exactly is a middleman, and what are the pros and cons of doing business with one?
A: Unfortunately, when eBay sellers decide to start purchasing wholesale products to resell, they often get caught in the "evil middleman scenario." In order to understand this scenario, you have to be somewhat familiar with the product supply chain, which is how a product gets from the manufacturer to the end consumer, your customer. When it's working the way it should, it goes like this:
Manufacturer sells to Wholesaler sells to Retailer sells to Consumer
Many people have the mistaken impression that the second link in the chain, the wholesaler, is a middleman, because the wholesaler is in the middle, between the manufacturer and the retailer (that's you).
That's not true, according to Worldwide Brands business development manager Colette Marshall (worldwidebrands.com). The wholesaler is there for a very important reason: Manufacturers don't always have the infrastructure to actually manufacture, sell, and deliver small numbers of their products directly to retailers. Wholesalers provide the infrastructure for selling and delivering the manufactured goods to retailers. This infrastructure includes warehouses, order systems, delivery trucks, account representatives, and so on. So the wholesaler is a legitimate wholesale supplier, not a middleman.
When an illegitimate middleman inserts itself into the product supply chain, it looks like this:
Manufacturer sells to Wholesaler sells to MIDDLEMAN sells to Retailer sells to Consumer
A middleman, according to Marshall, is someone who takes your rightful place in the product supply chain and bumps you down a link: "They try to make you believe they are Link Two in the chain (a wholesaler), when they are really Link Three (a retailer). Sometimes, it's worse than that, with multiple layers of 'middlemen' between the legitimate wholesaler and you." The trouble with "evil middlemen," explains Marshall, is that they take away from your profit margins by increasing the wholesale price (they buy from the manufacturer at the same price as the other sellers but mark up the wholesale price when they resell to you), making it difficult for you to compete on any online platform, especially eBay.
Q: Why are my wholesale prices for an item higher than what I see other sellers retailing that same item for? How are they making a profit?
A: Because the other sellers are buying in much higher quantities than you are, they are getting a volume discount much lower than yours on a per-item basis. Or you might be buying goods from an "evil middleman" (see previous question).
Q: Other suppliers are beating my prices. Do I have to drop my prices to compete?
A: You can, but watch out for your profit margins. Use a software tool such as Corey Kossack's ProfitBuilderSoftware (profitbuildersoftware.com) to calculate your eBay fees and other costs of doing business to make sure you can still make a decent profit at the lower price. If you can't, then perhaps these other sellers have a better source of product than you do, and you should look into sourcing product from another wholesaler or supplier that will give you more aggressive discounts.