Chapter 3: Source Products

Chapter 3: Source Products

Source Products

Our goal here in Chapter 3 is simply to find a source for products you can sell. In other words, you need to set up a reseller account with a supplier. A reseller account does two things for you:

  1. It gives you "permission" to sell their products on your website.
  2. It entitles you to purchase products at discounted wholesale prices (so you can make a profit).

Now, a small percentage of you may already have access to the products (or services) you're going to sell...

  • You might make the products yourself (or have a friend or associate who makes them).
  • You might be offering a digital product (i.e. an ebook or something else they can download, or possibly access to member-only content on your website).
  • You might have access to products you can sell through the company you work for at your boring "day job" you'll soon be quitting. 😉
  • You might have an "in" with a product manufacturer or supplier (or know someone who does).
  • You might be offering a service you will provide (rather than selling tangible products).

If you're one of the lucky few who already have a source (aka supplier) lined up, give yourself a pat on the back... you just completed Chapter 3! Well, almost... Before proceeding, it would be a good idea to skip down to the final section of Chapter 3 just to make sure your profit margins are going to be good. After all, Chapter 3 isn't just about getting a supplier; it's also about verifying that the supplier is going to give you good enough wholesale prices on the products you buy and resell for you to pocket a decent amount on each sale.

The vast majority of you aren't going to have a supplier yet, which is perfectly fine. Of the 60+ stores we've run over the years, I can't think of a single one where we had an "automatic in" with the supplier. We've always used the steps I'll be showing you here in Chapter 3 to go out and get a supplier account.

Ready to get started? Let's do it!

Definitions

DictionarySeriously, a Definitions section? BORING! Sorry, but it must be done. The eCommerce world is riddled with some confusing and intertwined terms. Before you start your supplier search, it’s important to know the difference between a manufacturer, wholesaler, dropshipper, etc. so you can contact potential suppliers like an expert. Many of these terms are used interchangeably, but understanding what they mean will help give you a better knowledge of how eCommerce works.

Manufacturer: A manufacturer is simply the creator of the product line. This is the company that actually builds (i.e. manufactures) the products you will be selling. Sometimes they will supply their product for you directly, and other times you will have to go through a middleman.

Brand Name: The brand name is simply the name (or label) that a manufacturer gives to their product line. The brand name often reflects the name of the manufacturer (i.e. Sony Corp builds "Sony" brand products), but not always.

Distributor or Wholesaler: This is the middleman we referred to earlier. The distributor (a.k.a. wholesaler) buys products in bulk (usually pretty large bulk) at discount prices from one or more manufacturers, and then distributes the products to retailers. They don’t actually manufacture products themselves, but keep a large stock of various brand names on hand to resell to retailers (like you).

Dropshipper: A dropshipper (a.k.a. supplier) is a broad term used to describe any entity that supplies products for your store and who ships those products directly to your customers. It’s usually a manufacturer, a distributor, or a hybrid of the two.

Retailer: A retailer just refers to anyone who purchases products at wholesale prices and resells them at retail prices. This could be an eCommerce store or a brick & mortar retail store. In your new business venture, YOU are the retailer, seeking a manufacturer, distributor, wholesaler, or dropshipper to supply you with the brand names of products that you want to sell.

Reseller Account or Dealer Account: This is the what you're really after here in Chapter 3. A reseller account is an agreement you set up with a supplier that officially authorizes you to sell their products. It gives you the right to buy products from them at a discounted wholesale price (see below) and then resell those products to customers.

Here's one of my favorite YouTube videos, just to help keep you awake...

Good stuff! Alright, slacker, let's get back to work now... 🙂

Wholesale Price: This is the discounted amount you pay your supplier for products. Typically, suppliers will only sell products at wholesale prices to authorized retailers who have set up a reseller account with them. Wholesale prices are typically 10-50% less than the retail price (most commonly in the 15-25% range).

Retail Price: This is the full market price that the end customer (i.e. the consumer) pays at a retail store (including an eCommerce store).

Profit Margin: This is the amount of money you pocket at the end of the day. It's simply the difference between the retail price the customer pays you and the wholesale price you pay your supplier.

Sorry to put you through that, but like I said before, it's important to understand the terminology so you know what you're talking about when you reach out to potential suppliers to secure a reseller account. So let's move forward with actually doing that now...

Identify Potential Suppliers

Potential SuppliersAt the risk of sounding like a broken record, I'll say this again 'cuz it's so important... Regardless of which model (stock & ship or dropship) you plan to use, your goal is the same: establish a reseller account with a supplier in your niche. I'd say the majority of manufacturers today are willing to dropship, and almost all distributors (aka wholesalers) will dropship. If a particular supplier isn't willing to dropship for you, you'll just need to decide whether you want to stock and ship (at least as a temporary solution) or if you want to "pass" on that supplier. All you really need to break into a niche is a single supplier account. (We've had plenty of stores where we started out with just a single supplier, then added a couple more a few months down the road.)

We always recommend contacting manufacturers directly, as this method results in the best profit margins (no middleman getting a cut). Even if the manufacturer won't supply to you directly, who better to tell you which of their authorized distributors will?

When it comes to finding potential suppliers, there are three steps that you need to take.

Step 1: Use our Supplier Directory

If you haven't already gotten this impression, we've done everything we can to make it as easy as possible for you to build a profitable online store. That's what Store Coach is all about! One of the things we've done for you is create a massive directory containing thousands of dropship and wholesale suppliers ready and anxious to work with entrepreneurs like you.

So the very first thing you should do is pop into our supplier directory and spend a few minutes to see if there are one or more suppliers listed. Just type your chosen root keyword phrase into the search bar to reveal suppliers of those products. You’ll likely find at least one supplier that seems like a good fit, and you can go ahead and start contacting them!

Step 2: Identify Top Brand Names

The next step is figuring out which brand name(s) you'll want your store to carry. There are three methods you can use for accomplishing this:

  1. See what brands your top-ranking competitors are selling. Go to your top competitors' sites and see which brands they are selling. They'll usually have brand filters and/or labels, and you’ll be able to quickly identify who you need to contact to sell those products yourself.
  2. Use Niche Finder Pro to find brands most commonly searched for. Set the 'Minimum Daily Searches' filter to 0, and then search for your root keyword phrase.
  3. Search for your root keyword phrase in a major shopping portal (i.e. Google Shopping, Bing Shopping, BizRate, etc.) and look for a brands list or filter.

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Question from Pro Member: I'm struggling to identify brands and manufacturers. Any advice?

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Step 3: Gather Manufacturer Contact Information

Once you have a list of brand names you can potentially carry, the next step is to find the manufacturer’s website and get all of their contact information. Finding the manufacturer's website is usually as simple as doing a Google search for '[brand name]' or possibly '[brand name] [product type]'. Typically, the top result in Google will be the manufacturer's site. You'll know it's the manufacturer's site because...

  • It will use words like "maker" or "creator" or "manufacturer" rather than saying "we carry".
  • The brand name you're looking for will be the ONLY brand shown on the site (manufacturers are never going to sell/promote other manufacturers' competing brands).
  • The 'About Us' page will likely talk about their manufacturing plant or factory.
How Many Suppliers Do You Need?

Prepare to Contact Suppliers

Once you've gotten the contact information for potential suppliers, you're almost ready to start contacting them. You don’t want to go in blind, though. The more prepared you are, the more likely you are to secure a reseller account. It's important to have all your ducks in a row so you can make a good first impression and seem as professional as possible. Your level of preparation can have a big impact on how successful you are in securing a reseller account.

How "prepared" do you need to be? Every supplier is different. On one end of the spectrum, you've got the manufacturers of "household name" type brands that are sold at your local Walmart (Sony, Samsung, Nike, L'Oreal, Pampers, Singer, etc.). On the other end of the spectrum, you've got ma and pa shops you've never heard of. Obviously, most suppliers will fall somewhere in the middle.

The type and extent of preparation you'll want to do before reaching out to the supplier largely depends on where you think the manufacturer you're about to contact falls in this continuum. If you're trying to get set up as a reseller for a major corporation that manufactures a well-known brand name, you might have to do quite a bit to impress them. (Sometimes you'll be surprised, though... we were able to set up a reseller account with Singer Co. for a sewing machines store we built a few years back without much effort at all.) On the other hand, if you're trying to set up a reseller account with an unknown brand whose website says "Yes, we dropship!" and has a dealer application readily available to fill in or download, you probably don't need to do any preparation. Just fill out the application, and you're set!

I'd say that most suppliers fall on the easier don't-need-to-do-all-that-much end of the spectrum. Each one of the tasks listed below are optional. Very, very rarely will you need to do all of them (or more than just one or two of them, honestly). I'm just going to list them here - starting with the tasks I'd recommend more commonly - but you'll want to check out this blog post to learn how to actually do these tasks.

  • Register a DBA (Doing Business As). A DBA gives you a legitimate business name to operate under, and typically only costs between $20 and $30, depending on which state you live in. It also enables you to get a seller’s permit in your DBA's name, which is usually a requirement for potential suppliers. There are no additional tax returns that have to be filed with a DBA, and having one registered before contacting potential suppliers is a good way to show them that you are serious, legitimate, and ready for business. (Alternatively, you may consider registering an actual business entity - such as an LLC or S Corp - rather than just a DBA. The blog post linked to above goes over the pros and cons of each.)
  • You may consider setting up a placeholder site using your niche-specific domain name. That way, potential suppliers will see that your site exists, and it gives them something to look at when they visit your domain name, rather than getting an error.
  • Consider getting a toll-free number and displaying it on your placeholder site. Again, this will make you look more professional and show that you are planning on being accessible to customers.

While these preparedness items aren’t always necessary to seal the deal, they will go a long way in making you seem more legitimate and trustworthy.

10 Tips for Securing a Reseller Account

Optimal Store OperationsAlright, here we go. You've identified the top brands. You've tracked down the manufacturer of each of those brands. You've gotten all your ducks in a row so you can call with confidence and look legit and professional. So what are you waiting for? Pick up the phone and make the call (after you read the rest of this section, that is). 🙂

Let's do this "Top 10" style...

Tip #1. Do Some Quick Research

Before you even reach out to the supplier, cruise around their website for a few minutes to gain an understanding of their brand and product selection. Identify the top selling points for their products so you’ll be able to genuinely say why you've chosen to sell their products.

Tip #2. Call, Don't Email

It's always best to call the supplier on the phone, rather than emailing or filling out a contact form on their website. You can only get that personal touch through a phone call, and it’s far too easy for suppliers to ignore or forget about an email that gets buried in their inbox. We’ve talked many suppliers into dropshipping for us simply because we took the time to call and get to know them. So unless the supplier's website doesn't list a phone number or they have a page that specifically instructs you to fill out a dealer inquiry form instead of calling, pick up the phone and call them up.

Tip #3. Connect with the Right Person

Ask to speak with the person in charge of setting up reseller accounts. (Typically, this won't be the person who answers the phone.) The job title of this person will vary from company to company, so I'd recommend just saying something like "Can you please connect me with the person in charge of setting up new reseller accounts?"

Tip #4. Introduce Yourself as a Representative of Your Company

Your "company" likely just consists of you doing business as "[Your Initials] Enterprises" (and you may not have an official business entity set up at all). That's fine! But it sounds way more professional to introduce yourself as "Dave Hermansen, VP of Operations for DKH Enterprises" than introducing yourself as "Dave, a guy who wants to sell your stuff." 🙂

Tip #5. Don't Ask About Dropshipping Right Away

We've learned that it's best not to bring up dropshipping right off the bat. So don't lead with "Do you guys dropship?" Wait until you've made a good connection with the person and pretty well established that they will set up a reseller account for you (see #10 below).

Replay of a Recent Pro Live Learning Workshop  

Workshop Title: Mock Phone Call with a Potential Supplier

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Tip #6. Humbly Brag About Yourself A Little

Talk yourself up a little bit. Explain that you/your company specializes in building niche stores in specific markets and generating a lot of traffic and dominating niches. Express confidence that you will be able to sell a lot of their products and help them make a lot of money (focus on them)! Even if you don’t have the resume of a successful Internet marketer yet, you can ride on our coattails a little bit. We’re showing you everything we’ve learned over the last decade, and you will be successful if you follow the Store Coach process. Without being deceitful, present yourself as the successful entrepreneur you will be a couple months from now.

Tip #7. Compliment Their Brand

Be polite and genuinely interested in what the person says. Oftentimes, the representative will want to talk for several minutes about what their company has accomplished and why they are superior to their competitors. This is a good sign, and you can really “butter them up” by listening attentively and asking on-target, relevant questions. Tell them why you're so impressed with their brand and explain that you want to feature their products in your store.

Tip #8. Be Personable and Enthusiastic

Don't think of the person on the other end of the phone as a corporation; think of them as a person! So talk to them as a person... ask how they're doing, find common interests, ask if they saw the game last night, that kind of thing. Also, try to be enthusiastic and positive (without being obnoxious or cheesy). 🙂 An upbeat attitude goes a long way!

Tip #9. Be Ready for the 'No Online-Only' Policy

Some suppliers are hesitant about working with Internet-only businesses. So don’t come right out and volunteer the fact that you're an online business. (If they ask you, I'll leave it up to you whether you want to fudge a little bit about whether you also have a brick-and-mortar store where you'll sell their products.) In our experience, very few companies actually have a firm policy regarding online-only businesses; they just say they do.

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Question from Pro Member: This supplier says they'll only work with retailers with a physical store. What do you suggest?

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Tip #10. Ask for a Reseller Account... Then Ask for Dropshipping

When the timing feels right, ask if they'll set you up with a reseller account. Then, after they've said they will, ask if they're set up to ship orders directly to your customers (i.e. dropship for you). Keep in mind that a fair number of manufacturers won’t be familiar with the term “dropship” (even if they’re already doing it)! So it’s usually best to describe the dropshipping concept rather than using the term “dropshipping” (e.g. "Are you guys willing to ship orders I place directly to the customer?").

Potential Outcomes & Solutions

Alrighty, let's talk about each of the possible outcomes from the calls you just made to the potential suppliers. Ideally, at least one (or two) of the suppliers agreed to both set you up with a reseller account and dropship for you. But this isn't always the case, unfortunately. Sometimes, even if you've nailed the calls and done everything right, the outcome will be less desirable. But even in those cases, you still have a lot of great options. Let's discuss the possible scenarios you may encounter and the appropriate next steps to take in each scenario.

What If the Supplier Will Give Me a Reseller Account but Won't Dropship For Me?

If the supplier is willing to set you up with a reseller account but unwilling to dropship for you, you have 4 options, as follows:

  • Option 1. Go ahead and set up the reseller account and have them ship the first few orders directly to you. You’ll have to turn around and ship the orders to the customers yourself (and therefore eat some shipping costs), but once the supplier sees that you are trustworthy and making money for them, you'll likely be able to convince them to start shipping the orders directly to your customers.
  • Option 2. Some suppliers require their resellers to place an initial order (mostly to ensure that you're not just a customer "posing" as a retailer in order to get a lower wholesale price). If this is the case, purchase a handful of their top sellers (which you'll need to ship yourself as the orders come through) and then ask to transition to a dropship account later on.
  • Option 3. If you really want to carry this brand but the supplier is dead-set against dropshipping, ask the supplier for the contact information for their best distributors who may be willing to dropship. Then source the products through the distributor (rather than from the manufacturer).
  • Option 4. Take a pass on this supplier. Thank them for their time, and move on to the next supplier on your list. Remember, you only need to get one supplier to say "yes" to get your business going. (And by the way, there's a good chance you'll be able to come back to this supplier a couple/few months down the road (once your store is getting traffic and making sales) and talk them into dropshipping for you at that time. Once they see you're getting a decent amount of traffic and selling their competitors' products, they'll likely become more willing to accommodate you.)

What if None of the Suppliers I Contact Will Give Me a Reseller Account?

It's extremely rare to not be able to get any of the suppliers on your list to set you up with a reseller account. You'll almost always be able to land at least 1 account (if not 2 or 3). But we have run into this scenario a few times. If this happens to you, you have a few options...

  • Option 1. Build an affiliate product store instead of an ecommerce store. Becoming an affiliate for a retailer already in the market (or for Amazon) is a piece of cake and can be a nice "stepping stone" to break into the market. Once your affiliate product store is getting a fair amount of traffic, you can go back to the suppliers who turned you down originally and say, "Hey, my site's getting XXX visitors a day, and I'm currently sending them all to your competitors. Are you sure you don't want to set me up with a reseller account and feature your products?!" I guarantee you'll have a reseller account within the hour! 😉 Follow the steps in this blog post if you decide to go this route.
  • Option 2. Not too long ago, we discovered a way to get factories in Asia to dropship just about any product imaginable directly to our customers' doorsteps in the USA (or really anywhere in the world!).

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Question from Pro Member: Any specific advice on how exactly to go about getting products dropshipped from China?

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  • Option 3. Get major sellers on eBay or Etsy to wholesale to you.

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Question from Pro Member: How do convince eBay sellers to wholesale to you?

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  • Option 4. Go back to your 'Favorites' list in Niche Finder Pro and choose a different niche. I know, I know... you've put a fair amount of time into this niche already and were all excited about it. But I'm willing to bet that several other niche ideas you found back in Chapter 1 are just as good. And the time you've put into finding a supplier was time well spent and a great learning experience. You can now put everything you've learned to good use with a new niche idea.

"Yes, We'll Dropship For You!"... Now What?

Sweet! Good work. The representative is now going to ask you to fill out and submit a dealer application. Fill it out and returnit to them as quickly as possible, while you're still fresh on their mind.

Once they received your dealer app, they should provide you with some kind of "dealer packet" (though they may not call it that, and it likely won't be in "packet" format). Basically, it's just the information you need to start selling their products...

  • A price list (i.e. price sheet), which lists all the products you can sell, retail prices, your cost, etc.
  • Information on how/where to obtain product specs/details and product images
  • Policies you need to abide by

Some old-school suppliers may actually send this "packet" to you in the mail (with stuff printed out and maybe a CD/DVD/thumb drive inside). But most suppliers will send you the information via email or provide you login information for a dealers-only section of their website. It doesn't really matter how you get the information, just that you get it.

Questions to Ask Your Account Rep

Verify Your Profit Margins

Okay, you now have a supplier. You're almost ready to move on to Phase 2 and start building your store (where the real fun - and the money - begins)! There's just one final step here in Phase 1, and that's to verify that your supplier is going to give you good enough profit margins that you'll be able to make a good profit on each order.

Your profit margin is simply the difference between a) the grand total you'll receive from your customer (i.e. the retail price, including shipping fees), and b) the grand total you'll pay your supplier (i.e. wholesale cost, including dropship fees, shipping fees, etc.). It's the amount of money you walk away with once an order is processed and paid for.

At this stage of the game, you're only going to do a profit margin analysis for a small sampling of the products, not every single product you intend to carry. Randomly choose 3-4 low-end products, 3-4 mid-range products, and 3-4 high-end products. This will give you a good idea of whether or not your store will be profitable using your chosen supplier.

From start to finish, this process really shouldn't take more than an hour or so. Translation: You're only 1 hour away from being ready to build you store and start generating profits. Let's go!

Step 1: Determine Your Total Wholesale Cost

Verify Profit MarginsThe first step is to calculate your all-inclusive wholesale cost (i.e how much you will be paying your supplier). To find your total wholesale cost for a product, you simply need to add up every cost you will incur when ordering that product, including:

  • Product cost
  • Shipping cost (if any)
  • Dropship fee (if any)
  • Handling fee (if any)
  • Any other costs/charges (this is rare)

Most of this is really straightforward and likely already laid out for you in the price list your supplier provided. Really, the only potentially tricky part is the shipping cost. I say "potentially tricky" because a lot of suppliers make it easy by either a) giving you free shipping (i.e. they're burying shipping into the product cost) OR b) charging you flat-rate shipping (i.e. $X per item or $X per order). It's really only tricky if your supplier charges you "actual shipping" for each order (i.e. they make you pay whatever it costs them to actually ship each order). And even if this is the case, a lot of suppliers are nice enough to provide the "average" shipping cost for each product in the price list. If they do, just use that! If they don't (and if your rep isn't able to provide you with an average shipping cost), check out the expandable box to the right...

How to Calculate the Average Shipping Cost for a Product

Step 2: Determine Your Total Retail Price

Now that you know how much you'll be paying your supplier for each product you've selected for your sampling, it’s time to determine how much you'll be receiving from your customer for each of those products. This is the retail price that customers will pay you, plus maybe an additional amount they'll pay for shipping.

First, find out (if you don't know already) whether the manufacturer has a MAP policy. MAP stands for Minimum Advertised Price, and it tells you the minimum price you're allowed to sell the products for. MAP is freaking awesome because it protect retailers (like you!) from "price wars" that would otherwise erode the profit margins over time. If you aren’t allowed to sell below a certain price (i.e. the MAP price), that means none of the other retailers are, either. Therefore, you are always guaranteed to have the products listed for the lowest possible price.

If the manufacturer has a MAP policy, take a few minutes to visit a few of your competitors' sites to check: a) whether they are selling at (or above) the MAP prices, and b) whether they're charging anything for shipping. If you find a retailer that's selling below MAP, call up your rep and point it out to him/her to see how serious they are about enforcing MAP. (If they're letting it slide and basically admit that they're not going to do anything about it, you can basically ignore the fact that the supplier has MAP.) If the competitors are abiding by MAP, pay attention to whether they're offering free shipping. Chances are that they are offering free shipping (I'd say that's the case 80-90% of the time when a supplier has and enforces MAP). If that's what you're seeing, you're done with this step because you know that you'll be doing exactly what your competitors are doing... you'll be selling at MAP and offering free shipping. So you know exactly how much money you'll be collecting from your customers: the MAP price (which will be shown in the price list).

price-tag-374404_960_720If the manufacturer doesn't have (or doesn't enforce) a MAP policy, you'll need to do a little more work to figure out the all-inclusive retail price for the products. (You'll also need to do this in the rare scenario where everyone is abiding by MAP but some/most/all of the retailers are charging extra for shipping rather than offering free shipping). The goal is to find out the all-inclusive amount (including shipping) that your competitors are charging for each of the products in your sampling. Why? Because you'll be charging right about that same amount.

In the box below, we've provided a downloadable spreadsheet for Pro Members, along with step-by-step instructions for how to use it to calculate the all-inclusive retail price your competitors are charging (which is very close to what you will likely be collecting from your customers as well, as we've discussed).

Exclusive Download for Pro Members

Free Download: Profit Margin Analysis Spreadsheet (with step-by-step instructions)

You must be a Pro Member to download this file.

Step 3: Analyze the Profit Margins

As I've said 3-4 times already, your profit margin is simply the difference between a) the all-inclusive wholesale cost you pay your supplier, and b) the all-inclusive retail price (including shipping) you receive from your customer. (Note: If you downloaded the 'Profit Margin Analysis' spreadsheet from the box above, the 'Profit' column shows you what the profit margin is on each product.)

Remember from Chapter 1 that we always shoot to make at least $25 on the average order (the higher, the better). Usually, you won't make nearly as much profit on the low-end products as you will on the mid-range and high-end products. Don't get scared off if the profit margin on some of the low-end products is less than $25. Also, keep in mind that in some niches, the average order will contain multiple products (not just 1 product.) The number of dollars of profit is far more important than the profit percentage. It really doesn't matter if your profit percentage is 7% or 14% or 23%... what matters (at least to me) is how many dollars of profit go into my pocket at the end of the day.

So the million-dollar question is: Are you going to be able to make $25+ on the average order? If the answer is yes, congratulations! You're done with Phase 1 and ready to proceed to Phase 2 and build your store! 🙂

If the answer is no, that's okay. Don't give up! This is just one supplier. Go back and try again with another supplier! And if none of the suppliers you've been able to get reseller accounts with have sufficient margins, you still have several options to explore.