This article shares all about the reselling eCommerce model. You will learn why it doesn’t require your own products and why it requires capital and brand strategy.
What is Reselling eCommerce Model?
Reselling is the archetype of e-commerce and retail.
A reseller buys products from wholesalers, distributors, or manufacturers, and they sell them through their own store for more than they bought them for.
Functionally speaking, you have to have your own website where you accept orders and fulfil them yourself.
You also have to store the products. The big benefit is you’re selling other people’s products, and you don’t need to manufacture them yourself, which can take a few years.
What are the Benefits of Reselling eCommerce Model?
Let’s talk about some of the benefits of reselling.
$0 Spend on Research and Development
If you’re an expert in a niche, then you already know which products are in demand. What’s great about this is you don’t have to spend money on R&D to develop new products.
You know what works, and you can sell existing products.
So if you’re already an expert on birds, then you know what type of feeders are best, what food is best, and what binoculars are best. You can buy those from suppliers and sell them through your own website.
If you’re familiar with a niche, you can get a reselling business up and running quickly.
Having control over shipping costs
With reselling, you’re storing products and fulfilling orders. That means you have a lot of control over shipping costs.
And since it will likely all come from one warehouse, you can experiment with upsells and cross-sells to get users to add more to their cart, so you can maximize the profit with each order.
With reselling, when someone buys more, that almost always means you’re going to make more money.
When you get products at a low cost, usually 50% of MSRP – Manufacturer’s Suggested Retail Price, you will have some room to play with your margins.
You can offer discounts, spend money on pay-per-click advertising, and other tactics to get the sale.
When you have slim margins and the market changes, you can’t do much to respond to the change.
Larger margins means flexibility, which can save your business when eventually the market does change.
If your store starts growing, you can expand into other areas. Since you aren’t inventing new products, you just have to find a supplier who already offers these products and then stock them.
Oftentimes, you can order a case of products, which might only be 12 to 24 units, so it costs very little to experiment with new product types. And it’s highly recommended constant experimentation to see which products and niches are most profitable.
Resellers have incredible flexibility when it comes to overhead.
You can choose to run a very lean operation and outsource fulfilment, or you can keep it in house and keep a higher percentage of each sale. If you want to keep overhead low, you can use services like Amazon FBA – an Amazon solution that helps you reach more customers by giving you access to advanced fulfilment network, fast and free delivery options for your products, and trusted and acclaimed customer service or other third-party logistics companies to store and ship your products. It will eat into your margins but will keep your business completely remote, so you can work from anywhere in the world.
Or if you want to run your own warehouse and shipping setup, you can do that too. This can lead to higher margins for you, so you make more with each order, but it will take time and energy to manage.
As a brand-new reseller, you might be able to start with a small inventory stored in your garage, which makes it very easy to get started. With reselling, you have the choice to build your own infrastructure and make more money per order or outsource it and run a lean and efficient machine, focusing more of your time and energy on your products and marketing.
What are the Drawbacks of Reselling eCommerce Model?
Let’s talk about some of the drawbacks.
Low barrier to entry
When you are a store selling someone else’s products, you risk another store coming along and selling the exact same products, which can threaten your business.
If you sell Apple computers and another store down the road also sells the exact same product, that will put pressure on your business.
To mitigate this, you need to add value to your products in some way.
An example of that might be expert staff that know the product inside and out, or you could offer a bigger selection in a niche. So, for example, a computer store could compete with a big-box store that has some computers but doesn’t specialize.
You can also offer bundled services, for example, a computer warranty or free classes, which come with a purchase or add value in some other way that someone else can’t easily copy.
Require Significant Investment to Maximize Margin
To be a reseller, you need to have the capital to buy products at a low price, with the goal of reselling them at a much higher price, and often you want to have hundreds if not thousands of SKUs or separate products.
Let’s say you want to offer a hundred products, and you’re selling products that cost you $5 each initially to buy. And you need to order a minimum of 12 units of each product. That’s going to cost you, at a bare minimum, $6,000 to invest in product, and this is the best case.
Many stores need to order a lot more than this. Expect to spend 10 or 20 grand to start a reseller business.
Since capital is so important with reselling, you need to plan large purchases from suppliers and time them, so you have enough cash flow to pay your other bills. You need someone on your team who is good with projections. They need to understand how fast you will get product in, how much it will cost, and how long it will take to start earning a return on that investment.
Reselling is a great way to get into e-commerce and maybe someday create your own products. It is cash intensive and requires someone with good planning and logistics skills. It also has a lot more margin and flexibility than other models.
Online, there are a lot of smaller resellers that focus on a particular industry, like HoopsKing.
HoopsKing is a site that teaches your kid to be the best basketball player. It has a lot of informational products about how to train your kids to be great at basketball, and they sell physical tools that complement their informational products.
In this case, they make their own info products, and they supplement it by reselling the equipment.
The unique information products get people to their site and build trust, and reselling other people’s physical products is a nice way to make more money off of each customer. And it’s great for the customer since they’re getting products from someone they already trust.