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Product Sourcing

Choosing which products to sell will probably take up a large percentage of your time.  When I first started my eCommerce business I didn’t have a good feel for what would sell well online and what wouldn’t.  I can’t suggest specific products for you to sell, what works well for you depends in part on what your areas of expertise are, but I can give you some general observations I’ve made.

Selling very inexpensive products means shipping costs will be a large percentage of your sales price.  Eg, if you sell an item for $1 and then charge $1.50 for shipping, people will be turned off by this.  Their experience is buying from a local store, and they don’t pay for shipping at the local store.  They have an expectation of what this item should cost them ($1 plus taxes), and the fact that you have to pay for shipping won’t alter their expectation.

Selling expensive items, especially when your business is new, will limit your sales much more than you would expect.  People are naturally leery of buying online from someone they don’t know.  They may be willing to take a chance with a modest purchase, but the more expensive an item is the less likely they are to trust you at all.  If you’re selling an item for $500 that in a store would cost $750, that’s a big discount and gives the customer incentive to buy from you.  But what if you’re not a legitimate business?  Or what happens if the item is broken, will you replace it without cost or hassle to them?  Regardless of your intentions, customers who don’t know you can’t be sure of you, and they’ll be cautious about taking a big chance on you.  After they’ve purchased from you a few times they’ll have enough confidence to make more expensive purchases, but you have to have moderate-cost items to sell them first to get them to that point.

A similar issue exists for selling premium products.  Eg, suppose you sell a standard version of product A for $20, a premium version of product A for $50, and a standard version of product B for $50 (product B is just inherently more expensive than product A, like mp3 players are just inherently more expensive than reams of paper).  People may be very willing to buy the standard versions of product A ($20) and product B ($50) online, but shy away from buying the premium version of product A online ($50).  This seems a bit counter intuitive, they’re willing to buy product A online, and they’re willing to spend $50 online, but they’re not willing to spend $50 on product A online even if $50 is a good price for the premium version of product A.  If you’re an inherently great salesman this may be less of an issue for you, but for the non-salesmen out there beware.

You should also consider the likelihood of products being returned when deciding what to sell.  Products that are sized to the customer or dependent on customer taste will have higher rates of return.  Jewelry, shoes, and clothing are good examples of this.  Customers may not be able to tell from sizing information on your website, or from the pictures on your website, if the items are right for them.  If they try it and it doesn’t work out, both you and the customer are unhappy about returning the product to you. 

There are also a small percentage of people who have the attitude that they’ll just order it without checking too carefully and, if they don’t like it, will return it to you.  The inconvenience and expense of this process doesn’t bother them, but it’s expensive and time consuming for you.  You can set return policies to discourage this behavior, but restrictive or unfriendly return policies will be a turn off to other customers as well, and cost you sales.

One final note is that the product mix that’s right for you is likely to change over time.  Partly this is because of consumer tastes and trends, but also because you’re just going to be better at selling some things than others, and you’ll discover what those things are over time.  You’ll have a better ability to connect with customers on some types of products and be better at selling them on those products.  And as customers buy from you and get comfortable with you, you’ll be able to up-sell them to higher value and higher margin products.  Initially premium products may just sit on your shelves, so buying them for your new business may not be a good investment.  But after you’ve been in business 2 or 3 years those same products may move quite well, and be a great investment.

Random Observations

It’s no surprise that manufacturers charge their large retailers a lower wholesale price than their smaller retailers, but some have pricing strategies that won’t work for you at all, so you should take a careful look at the prices they’re offering you before spending a lot of time evaluating their products.

Early on I received a price list from a manufacturer, and searched for their products with Google to see what type of margins I could expect.  The prices on the list they sent were roughly the same as what I found their products retailing for online.  This looked promising; it’s common for manufacturers to just put the MSRP on their price lists, and a statement that the wholesale price is some percentage of the MSRP.  I didn’t see any explicit statement on their price list about wholesale prices being a percentage of the listed price, but that happens sometimes too.  So I assumed that the prices they sent me were MSRP.

Their products looked like a good fit for me, the estimated margins were good, so I placed an order, carefully putting what I expected the wholesale price to be next to each item, and what I expected the total bill to be.  I also included a note that I had estimated the wholesale prices, and please confirm my estimates were correct, or cancel my order if they were not correct.

The manufacturer sent me an order confirmation, but didn’t confirm my estimates were correct.  Normally orders are shipped the same day or next day, so if there was a mistake it was better to fix it immediately.  I called the manufacturer to ask if my estimates were correct.  No, they told me, the listed prices were wholesale.  As a small retailer, they were charging me a wholesale price that was so high I could get the same price elsewhere at retail.

They have a right to price their products as they like, though I thought they had taken it to an extreme.  What bothered me was that they ignored my request to cancel the order if my assumptions were incorrect, and billed me far more than I had authorized them.  I should have contacted them to check on my assumptions explicitly before placing an order, which I now do, but it still left a bad impression.  If they were willing to do this, what else were they willing to do?

Fortunately, most manufacturers I’ve worked with are not like this.  I always put the per-item and total cost that I’m expecting on orders, and they contact me before proceeding with the order if any of it is incorrect, whether it’s just a typo on my part or the prices have been raised.  Overwhelmingly, my experiences with manufacturers have been very positive.  But there are a few manufacturers that will unpleasantly surprise you, so make no assumptions, especially with manufacturers you haven’t worked with before.

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