Archive for April, 2009
Multi-Level Marketing Scams: Problems with Quixtar (Part Two)
Posted by elizabeth in Home Based Business on April 30th, 2009
In the first part, I discussed problems and complaints I have in hind sight about the Mary Kay business opportunity. I am sure there are some “successful” Mary Kay business owners out there, but the majority of their revenue comes from the people they too suckered in, not selling cosmetic products.
About a year after I stopped wasting time and money on Mary Kay, and after I paid off my initial inventory debt, I was approached by someone with Quixtar. The first time I heard the pitch, it wasn’t very professional and I walked away. I had no problems seeing it for the MLM it was, and I wasn’t interested in doing that again!
A few months later, as I was itching again to be my own boss a more professional and glossy presentation swayed me. Now the program didn’t sound like an MLM, it was pitched more like a wholesale business opportunity. I paid my yearly fee, which was about $149 back then, and thought “Finally, a large catalog of wholesale products I can sell!”
Teeny-Tiny Profit Margins: When Wholesale Isn’t Wholesale
The first complaint I have is my own stupidity. I sat at this mass recruiting event, which gave me a false sense of legitimacy, and lapped up every word out of the presenter’s mouth. He had charts, and a power point presentation. He showed an example of how we can buy in bulk from the Quixtar catalog special vitamins and sell them or supply them to gyms, spas, and other retail outlets. Of course he said this was just an example, the Quixtar catalog has hundreds of products available for resale.
Wow, this is exactly the complaint I had about Mary Kay that I was now seeing melt away. This is what I wanted to do: If I was going to sell something, I wanted to sell in bulk. Additionally, the presentation showed other brand names I did recognize, and my yearly “business fee” allowed me access to wholesale lots of these products. Not once in this presentation was there the traditional MLM scheme of recruiting more people.
I should have asked to see an actual catalog. Once I was a Quixtar IBO (Independent Business Owner) I was sent one of the catalogs. Turns out, the ONLY products really wholesale priced were the vitamin supplements. Everything else was priced comparable to any bulk wholesale store like Costco, Walmart, or BJ’s.
During the presentation, the profit margin sounded great on the vitamins. However, I really had no interest in selling vitamins, instead I was intending on selling the cosmetics. After all, I had experience there. The difference though on most of the products was only 5-10% from retail price, and that was before I paid for shipping fees! Plus, the brand names were nobodies. There was no real way for me to resell these products and recoup any kind of meaningful salary for my time and effort.
Quixtar Quickly Focused on MLM Downline Than Products
It didn’t take long too before once again I was called in to learn how to recruit people into my “cluster.” One difference with Quixtar was their multiple levels to my cluster; I could bring someone in to just buy products from my website or I could entice someone else to pay that yearly business fee and make a percentage on their product sales.
Here’s the bottom line: programs that only bring you meaningful profit based on a number of people below you also selling products do NOT work. I have learned the hard way that REAL wholesale suppliers sell inventory at least 25% below retail price. The wrong way, which is what many MLM scams are founded upon, are fake business models. Eventually, the people on the bottom get nothing but the paltry 5-10% savings on a select number of products. Yes, you are one of those people on the bottom!
Quixtar Scams by Making You Wait for Profit Payments and Changing the Profit Margins
It’s been so long that I honestly don’t remember the convoluted points system to get your “paychecks.” Each product was worth a certain number of points, arbitrarily set by Quixtar so they could protect their profits. Once you reached certain point thresholds, then you received a check. I ended up only buying products for personal use. This is one of the many excuses given for why there is really no risk as a family will save $149 in a year from replacing groceries with Quixtar products. Unfortunately, we were a family of two at the time, and I doubt I recouped my losses there.
The problem with this system is the points per product structure changed quarterly. As a business woman, there was no real way to plan business goals, even IF the profit margin was worth it. Supposing I did find a magic buyer willing to buy inventory from my website for their retail business, unlikely since real wholesalers have better prices. From quarter to quarter my earnings on those exact products would change. One quarter a case of energy drinks might be worth a certain level of points, and the next quarter only half points. Why couldn’t they just spell it out in dollars in cents? Because then most people would see the paltry profit margins on the products!
Overall, Quixtar is an overpriced bulk grocery membership club. For the yearly business fee, you get prices similar to what you pay at any wholesale grocery club, and you can also pay to have it delivered right to your door. Again, you are not going to make much money selling the products to business customers, it is not a true B2B program. The only way to bring in hefty checks each month is to recruit a bunch of people into your cluster, and there are only so many people you can talk into this kind of thing.
Multi-Level Marketing Scams: A Home Business Opportunity With No Profit
Posted by elizabeth in Home Based Business on April 30th, 2009
What a dream, I can work from home with flexible hours and still put my family first! This is the promise of home based business opportunities, but not the truth for multi-level marketing schemes (MLMs). I fell victim to not just one, but TWO, multi-level marketing scams. The first is one that has been around for decades, the well-known cosmetic company Mary Kay. The second was the renaming of the old snake Amway, called Quixtar. Here is what happened, what I learned, and warning signs for you when you evaluate an “opportunity.”
First, each of these experiences occurred about five years ago as I now run a successful writing e-business. I can’t promise the policies and problems I ran into are still a part of the plans that are peddled in mass recruiting events. Even so, what happened to me can still save you! There are many other MLMs out there with similar complaints and problems.
Problems With the Mary Kay Opportunity
Mary Kay makes great cosmetics, I still use them today. I also loved selling them. I am an outgoing person with natural public speaking ability– getting orders wasn’t hard. I learned everything I could about the products, including the active ingredients, and made my demonstrations fun for customers.
The biggest complaint I have looking back on my Mary Kay business is my “mentors” were NOT business women, they were saleswomen just like me! They didn’t understand how their “suggested” inventory levels of only certain products were dooming new business owners. Every sales woman is different, and it takes a few demonstrations before it is clear which products the business owner is best at selling. I wanted to stock only a few of the cleansing products but mostly the color cosmetics as people my age didn’t care about anti-aging.
Instead, I was bullied and discouraged from deviating from THEIR tried and true inventory model. Now if this inventory model was actually based on their experience, that’s fine. But it wasn’t. No, the inventory I was told to start off with is what the Mary Kay company makes the most return on because they know very few of us starting out are going to be successful.
Another major problem was the lack of focus on true business skills. My recruiter was more interested in helping me make cutesy little programs for my hostesses that had no ROI analysis behind them. It’s not her fault, no one in her “up line” taught her about running a business either. Why? Because with Mary Kay you are not running a business, you are a door-to-door saleswoman of cosmetics.
Why Isn’t Mary Kay a REAL Business Opportunity?
In REAL business, the focus is on profits, NOT recruiting. Again, after the disastrous inventory level advice, and costly hostess incentive programs, the next complaint I have is where they did focus. I was pressured again and again to bring other women to our monthly meetings. Every month my “Red Jacket,” a saleswoman with three other saleswomen beneath her, wanted to know who my current “prospect” is. We never sat down and made a business plan or goals for selling Mary Kay. Nope, I was coached and coached again on how to sell the “business opportunity.”
Sure, in running a real business the possibilities of franchising out your successful model is lucrative. But this isn’t franchising. In fact, individual franchise owners have control over how they run their business. With Mary Kay, the saleswomen do not. The parent company says:
“You can’t sell Mary Kay products in any retail outlet, like shopping malls or salons.”
“You can’t market them online outside of our website service (which you must pay for) and cannot personalize or modify.”
“You can’t combine Mary Kay products with any other service or product promotion like spa treatments.”
It’s easy to fall for their nonsensical justification, too. For example, when I questioned the retail outlet sales I received a perfectly practiced response from my Team Leader. It was just rhetoric the Mary Kay company taught her to say.
I was told that the Mary Kay brand is all about enriching women and giving them personal beauty consultation. If I am just selling the cosmetics to a salon or at a mall booth, how can I give that “personal touch?” Oh, at first that sounded like a really good business model. Later I learned this was all a crock. Even though I was Mary Kay Beauty Consultant, my monthly training sessions did not allow me to apply makeup on anyone or give specialized advice for skin care outside of the product pamphlet. I spent more energy appearing to personalize the cosmetics, while constantly mitigating my risk of legal trouble for not holding a cosmetology license.
So think about this, as an IBO (Individual Business Owner), who they deem to be a “wholesaler” of Mary Kay products, I can’t sell products to a local beauty salon for them to mark up or give to their customers? I can ONLY sell this makeup in a private home setting? Imagine if Subway told it’s franchisees they can only sell Subway sandwiches out of their own kitchen? Or that they weren’t allowed to cater events?
Complaints About Mary Kay That Are Common MLM Red Flags
Here is what I learned as an entrepreneur from my failure of selling Mary Kay:
Beware any push for set inventory levels. Real business suppliers may have minimum order amounts, but they are never going to tell you to wait on buying certain products until later. Real wholesale suppliers make money on the products, and want you to stock as much as you can.
Run away from “business mentors” who do not, or cannot, use business terminology. We never spoke about profit, devising promotions for a high ROI (return on investment), or strategies to find more clients. Instead, the language was about how much I could make, gift incentives, and prospects to become down line Mary Kay business owners.
Never sign up for a business opportunity you do not need a business license to operate. Legitimate business owners must have a license to operate in their state or county. Not all business types require payment for this license, but registration with the state for tax purposes is necessary. How could I be a business owner, as Mary Kay called me, if they made all the decisions? Why would they say “Provide personalized cosmetic and skincare service.” but in the same breath tell me to never touch the client or apply anything as I do not have a cosmetology license? Even if I had one, the company policy still stood because they didn’t want to be responsible for my actions as a cosmetologist.
Avoid selling any type of product or service that is heavily restricted. I would have had my own pink Cadillac in a heart beat if I could have sold Mary Kay the way it should be sold. I had contacts with nail salons who wanted to use and sell the nail care products, and a massage therapist friend interested in the line of skin softening lotions. I knew I could distribute at least $1,000 of wholesale Mary Kay each month. But I wasn’t allowed. I wasn’t even allowed to sign them up as Mary Kay business owners because they wouldn’t be allowed to distribute or sell the products with their other services!
I don’t know why the Mary Kay parent company doesn’t let their “business owners” grow productive businesses and just keeps them saleswomen. My guess is the parent company markets and sells Mary Kay cosmetics under other names and doesn’t want any competition on their market shares there. Sure, to be legal and honest these other products would be slightly different formulations, and I have no proof this is what happens. It the only logical reason I can think of for how they operate as a company. However, real suppliers for wholesale and retail sales of products do not operate like this.
All I know is the Mary Kay “business opportunity” is not really a business, nor a franchise. Instead, it’s just a dressed up Multi-Level Marketing scam, trading on people singing up and buying that initial inventory, but with no real interest in further sales of the products. This is evident in the lack of business development and overabundance on sales force training. It is clear in how they restrict product sales but push signing up new “business owners.” Any one wishing to be a true entrepreneur and not just a sales lackey should avoid Mary Kay, and similar MLMs.
Exclusive Costco Customer Returns Contract Part 2: Fraud Prevention and Label Sanitation
Posted by Wholesale News in Wholesale, eBusiness on April 27th, 2009
There are a few more terms you need to familiarize yourself with if you are still interested in obtaining an exclusive contract with Costco for customer returns. In Part 1, I talked about how you simply get the contract, who you need to talk to, and what you can expect in picking up the Costco customer returns for wholesale liquidation.
Real liquidation of customer returns does not just stop with early pick up times. As a liquidator, you are responsible for protecting your supplier from return fraud with label sanitation. When the original supplier, Costco in our case, liquidates products they fully expect to never deal with them again. Here is how you make sure this happens:
Return Fraud With Liquidated Products
The last thing Costco wants to see is their salvage items finding a way back to their front end returns desk. As fraudulent as this seems to be, it’s easy to do and happens with regularity. “How does this happen?” you might ask?
- Costco sells its salvage batches of customer returns to the contracted liquidator.
- A wholesale liquidator markets the customer returned products. The customer returns are sold to either a retail store, in case lots (re-wholesale), or in a secondary retail outlet (flea market or eBay).
- The customer who buys a salvaged customer return drives to the nearest Costco and seeks a full retail refund. Even without a store receipt, the refund policy will usually give store credit or exchange for a brand new item.
A customer returned digital camera for example may end up in the customer’s hands for only $60.00. After taking it to Costco for a retail refund, the refunded amount could be as much as $199, or more. Even in store credit, this is a huge theft by return fraud for Costco, or any other retail outlet!
Prevent Return Fraud With Label Sanitation
It’s up to liquidators to stop return fraud from happening. After all, why would Costco want to sell their customer returns if it will just lead them to more returns? A simple label sanitation process will stop return fraud thieves in their tracks.
Label sanitation covers three basic areas:
- Remove all references to the original source. Sales tags and store stickers are often stuck on the products themselves.
- Remove brand names or strike through with black permanent ink if the brand is store-exclusive. Costco has a few brands exclusive to their stores, such as the Kirkland brand. Make sure you know which brand names scream “I’m from Costco!” and handle them appropriately.
- Disable the bar code or scan tag. Be careful here– only draw a black line with a permanent marker through the black and white bar code so a customer return agent cannot scan the item back in. Do not remove or disfigure the model number or serial number. Those are indications of stolen property, not liquidated products.
Tips and Tricks for Label Sanitation
Label sanitation can be a ton of extra work though. Make sure your contract with Costco, or any other retail outlet, spells out your label sanitation responsibilities. Distinguish between low-risk and high-risk customer returns. Liquidated items like food, paper goods, and household staples are not likely to be returned for personal gain to the original supplier. There are a number of red flag categories for customer return fraud, such as:
- Clothing
- Electronics
- Appliances
- Jewelry/Watches
These high risk categories MUST have all labels sanitized. A regular permanent black marker will disable a bar code very easily, and it takes only a moment to do so. Clothing tags should have a black slash through the brand name to denote returned status. If the clothing tag is black, use gold or silver permanent ink instead.
Another strategy is to mark large electronics and appliances with the term “SALVAGED.” You may see this in grease pencil or some other colored marking on the back of a wholesale good in secondary markets. Be leery about agreeing to this practice on every electronic. First, try to make sure you can place such a term discreetly near the model number or other area a customer return agent would look for information during the return process. The reason is that you still need to remember you must resell these items, whether to another wholesale distributor or in another discount retail market. Customers and wholesale buyers will be reluctant to buy liquidated electronics and items with large writing on the back of a negative term like “SALVAGED.”
Bringing up effective strategies to prevent customer return fraud is another valued service you bring as a liquidator. Large retail sellers, like Costco, will be happy you bring this up as it saves them on fraudulent returns. It may take some negotiation on how to handle label sanitation, but make sure you don’t sacrifice your ability to resell the items. Finally, label sanitation shows your supplier that you are a professional player in the liquidation industry.
Selling Online Can Be Insanely Fun - and Profitable
Posted by Wholesale News in eBusiness on April 24th, 2009
So when was the last time you purchased something online?
If you’re one of the exceedingly large (and growing) tribe of folks that purchases books, electronics, clothes - or even groceries - online, then you probably swiped your credit card online at least once in the last month.
In spite of a growing recession and slowing economy, Forrester Research says online retail sales are expected to rise 11 percent to $156 billion in 2009. That’s $156 “billion” - with a “B”!
I don’t know about you - but I for one would certainly love to get a piece (even a small one) of that delicious pie!
Just take a look at how selling online can be insanely fun - and profitable.
1. Start Fast (and Free):
Imagine launching a full-blown web site for free! If you went to WordPress.com or Blogger.com, you could have a free, full-featured, professional looking blog up and running within the next 10 minutes. And you could be running ads on this blog, or referring people to Amazon.com for a commission, or selling your very own products - and be making money online within the next 24 hours!
2. Learn Fast:
Imagine you own a regular brick-and-mortar store. Now imagine being able to figure out the following details about your store:
a) How many people walk in to your store every day
b) How long each person stayed in your store
c) Which “section” they browsed and which items they appeared interested in
d) How long they looked at each of those items
e) Who referred them to your store so that you can send them a “thank you” gift
f) Changing the look and feel of your store every day to see which “Look” makes you the most profit.
You can’t really do that with a regular store, but there are cheap and even free tools available - like Google Analytics - that let you do exactly that with your online store!
3. Fail Fast
Let’s say you just spent a whole bunch of money advertising in the classified section of your local newspaper. Now imagine getting the following statistics about your ad:
a) How many people viewed your ad
b) How many responded to your ad and called the number listed on your ad
c) How many of those who responded actually went on to purchase one or more of your products
d) Even if they don’t purchase anything, getting them to quickly give you their contact information so that you can follow up with them, send them free information about your product, keep sending them free stuff till they buy something from you.
e) What happens when your ad doesn’t work? You have already paid for it, and it has already been printed and the paper has delivered. There is nothing you can do about it now, except run another expensive ad, and sit around waiting for the phones to ring.
You get the drift.
It is not only extremely difficult and expensive to get some of those statistics in the real world, but some of them are actually impossible to achieve [like (e) above]. But if you were advertising using Google’s Adwords, you could be reaching visitors on thousands of web sites, and you could test and tweak and experiment with your ad’s headline, body, your offer, and extensively track detailed statistics about your audience.
The Internet takes doing business to a whole new level and lets you do stuff that you cannot even imagine doing in the “real” world.
So stay tuned to this blog as I walk you through how it is very much possible to realistically get a piece of this “e-commerce” pie.
Because you can either get started now and be making money online in just days; or you can simply put this aside, go on with your life, and be completely left out of the party!
Pump Up the Sales Volume: Bulk Drop Shipping Instead of Retail Drop Shipping
Posted by Wholesale News in Drop Shipping on April 20th, 2009
We’re seeing drop shipping e-business boom all over the digital world. Ebay stores, Yahoo! Stores, even private e-commerce web sites– who doesn’t love a business model with very low risk and easy maintenance? As a drop shipper you don’t have to store any inventory, hold very low overhead (if any), and just concentrate on advertising your popular items and providing great customer service. Eyes go wide when e-business owners realize orders come in and ship out without any interference or work from them!
But why only drop ship retail goods in ones and twos when there is an entire business to business market willing to buy in bulk? There are so many headaches in drop shipping at retail prices to an end consumer. An initial problem is finding retail customers in the first place. The Internet is an instant cost comparing tool– if your wholesale feed is available elsewhere on the web you will be competing in a race to rock bottom prices. With so many web retailers drop shipping in similar circumstances, there is just no wiggle room in the price to entice customers and keep e-businesses in the black.
Once you have a retail customer buying from your drop shipping web site, rarely will an end consumer want more than one item. Therefore, retail drop shippers are forced to carry the higher end products just to make a profit. Higher end wholesale products come with hefty shipping fees, either due to weight or value, and end consumers are conditioned now to expect free shipping on most orders over $50. No big deal, you will just lose shipping costs out of your profit margin right?
What happens when the customer also expects impeccable customer service by demanding a return? You’re now wasting man hours on resolving the issue trying to avoid a return– one that is completely reasonable to the customer but completely unreasonable to your business. The customer doesn’t like the color of the item, it doesn’t look right, it arrived too late as a gift (because they ordered it at the last minute) so they bought something else, or any other excuse in a long list of worthless complaints. Bottom line the product works, but the customer doesn’t want it anymore. Now, they not only want a refund on the order, but you are also stuck with the shipping costs of getting the item back.
Retail drop shipping only one or two items per order means each transaction is typically smaller than a business to business bulk drop shipping order. This is a problem for any e-commerce merchant as transactions have costs. There are administrative costs, whether it’s your time or an employee’s, fees from banks or Paypal, shipping costs, and insurance and business operations costs as merchants protect themselves against fraud. As a retail drop shipper you just can’t compete with any low priced single items available at a store.
So how can we make selling a $1.00 kitchen spatula work in a drop shipping model? Easy, sell them in case lots of 20, 50, or even 100! Where the retail drop shipping market is very over-saturated with every person able to buy and sell on eBay, the business to business (B2B) market is still in need of quality bulk drop shipping web properties. Wholesale vendors and even direct from the factory suppliers are usually too busy to trifle with selling on the Internet. But they’re more than willing to take your orders if you are willing to develop and run the web site and deal with the customers!
Or it may be smart business move for the wholesale supplier to protect their prices by selling through a third-party: YOU! There is so much that goes into pricing a durable good– how many is the buyer purchasing, what additional items will the buyer also procure from the same company, how often is the order to be filled? Large wholesale distributions don’t have the time or expertise to deal with smaller business buyers. Bulk drop shipping for B2B purposes protects wholesale suppliers from selling goods on various complicated contracts at the same price.
If you’re a drop shipping e-business owner used to only thinking retail, you’re probably wondering who on earth will buy from a drop shipping web site specializing in business to business? Easy, tons of people! Here are just a few:
1. Small Brick-and-Mortar Retail Stores
You know these as specialty stores or “Mom and Pop” companies. Often these are the small stores in malls or shopping centers. These business owners can’t afford to run around town to gather business inventory, they have a shop to run! Buying direct from a big time wholesale distributor doesn’t work either as they usually only need a case lot of two of an item in the stock room.
2. Swap Meet, Flea Market, or Online Auction Sellers
Even in a booming economy, there are always those customers looking for a bargain. They can be found at local public swap meets, flea markets, or bidding at online auction sites. The small business owners running these stalls or virtual auction houses need inventory to sell! Take a local trip to the flea market and give out information about your wholesale business to business website.
3. Offices, Nonprofits, and Charities
Most of these entities use a super store card or bulk membership to stock the break room, office supply closet, or any other needs. The employee responsible for buying in bulk at the local mega store will be thrilled to just point, click, and ship directly to the office!
So why don’t all of the online business men and women running retail drop shipping web sites diversify into business to business (B2B) transactions? Some don’t even know the market exists; others don’t want to take on a completely different web property. There is a saying “If you always do what you’ve always done, you’ll always get what you’ve always got.” There are eBay and Yahoo store owners out there satisfied with their e-business earnings and dealings. They don’t want to rock the boat.
History has shown truly successful business men and women are always after that next mountain top so to speak. Running a B2B bulk drop shipping e-business isn’t any more difficult than a retail one. In fact, it so much easier in many ways. A business customer is usually more reasonable to deal with than an individual end consumer. B2B customers are repeat customers, eventually little effort is needed to bring in new customers. Compare that to one-time retail customers you have to replace with other first-time customers! Orders are also larger on a B2B bulk drop shipping site, meaning more profits per transaction. B2B bulk drop shipping is just a better e-business investment by far.
5 Dangers to Bulk Drop Shipping Profits
Posted by Wholesale News in Bulk Drop Shipping, Drop Shipping, eBusiness on April 10th, 2009
Bulk drop shipping is turning a profit on selling case lots to businesses from a wholesale supplier. The manufacturing supply chain needs bulk drop shipping, otherwise business large and small would all have to buy directly from the factory! Buying directly from the production line isn’t a great system since factory owners don’t need the added chores of advertising and customer service on top of producing a quality product. As a bulk drop shipping entrepreneur you are providing that service of transaction expediting between a business buyer and wholesale supplier. When these transactions sour, you are often the one left with the penalties as neither the buyer or supplier is willing to suffer any losses. When developing your bulk drop shipping e-business, beware the following 5 dangers to your bottom line:
Bulk Drop Shipping Danger #1: Vendors Unwilling to Ship Directly to Buyer
The best bulk drop shipping web sites are expert information handlers. The back-end system of the purchase web site should handle the shopping cart transaction and then send the shipping fees and wholesale price straight to the vendor. Wholesale vendors and suppliers then ship out the order to the business customer. Don’t get dragged into handling the shipping of liquidation items or you will be doing more work than what is worth it. After all, if the wholesale supplier or vendor can ship to you the drop shipper, why can’t the company ship directly to the business buyer?
Bulk Drop Shipping Danger #2: Soliciting Buyers With Tight Timetables
Advertising to the wrong kind of buyer is a time-bomb waiting to go off! Bulk drop shipping wholesale goods is best suited for business to business transactions, not an end consumer. Even so, don’t look for business buyers with very tight timetables from when they order inventory to when it must be delivered. Superb business to business drop shipping seamlessly sends the order information directly to the wholesale vendor and products ship within one to three business days. However, delays in product handling and shipping do occur, and promising unrealistic delivery times may end up costing your business when buyers return “late” products or cancel orders altogether.
Bulk Drop Shipping Danger #3: Limited Wholesale Items to Drop Ship
The most successful business to business drop shipping web sites have thousands and thousands of items for buyers to select. Remember, drop shipping is primarily a transaction service business. The chief reason a buyer wants to use YOUR bulk drop shipping website over another is the availability of wholesale products. Even business inventory buyers want to one stop shop! One order through a drop shipping e-business can contain items from multiple wholesale suppliers– a good thing for everyone involved. Limiting your e-business to bulk drop shipping only one wholesale supplier or only one type of product reduces your website appeal and therefore number of orders.
Bulk Drop Shipping Danger #4: Requiring Minimum Orders
The bane of buying business inventory for any company is a minimum order. As a bulk drop shipper, don’t do business with wholesale suppliers and vendors requiring any minimum order larger than a complete case lot. Dealing with wholesale vendors that have minimum orders is being a drop shipper selling with one hand tied behind your back. Buyers of wholesale goods know how many cases of items they need, and minimum orders only edge out smaller business owners. Don’t rationalize a minimum order of “X” case lots as business buyers will order greater quantities than they need and give you greater profits. Instead, your business customers will find someone else selling the product they need in the case lot amount they can afford. Without a minimum order you make more profit with the many “small” buyers now eligible to buy wholesale stock from you. Many wholesale suppliers may even use your bulk drop shipping e-business just to offer these smaller transactions of one or two case lots so they do not need to offer this option to their larger buyers.
Bulk Drop Shipping Danger #5: Agreeing to Too Tight of Margins in Price
All bulk drop shippers need freedom to negotiate with each of their buyers to maximize the profits for both their business and the wholesale vendors. Wholesale business buyers all have different needs. Some are looking for a break on shipping costs. Others want to know can they get a better price by purchasing many case lots of one item? When you negotiate your mark up on a wholesale vendors’ goods, make sure you leave your e-business plenty of wiggle room to handle these unique transactions. Making just a small percentage off the sale of a wholesale case lot seems reasonable in the beginning, after all you didn’t make it, store it, or ship it. However, business customers will expect customer service from you. A small markup percentage won’t cover the costs of handling customer issues, mitigating any order returns, or negotiating reduced prices on larger orders to keep a happy and long term customer.
How I Secured an Exclusive Contract with Costco for Customer Returns
Posted by Wholesale News in eBusiness on April 8th, 2009
After a few years in the liquidation and surplus business, I realized I lacked an “exclusive” deal with a supplier. All of my wholesale and liquidation suppliers were available to every other wholesaler out there. I was still building a successful business, but there was NO standing for my business to negotiate better prices or goods in this “free-to-all” supply chain. The prices on the liquidation items were the same for any liquidator based on supply and demand from other wholesale buyers. I decided to find a business needing a better return on their liquidated and overstock goods and secure my wholesale business an exclusive supply chain.
It’s one thing to decide, and quite another to achieve! Where was I to start? I began with my favorite place to shop– Costco. But could I negotiate with corporate minded General Managers? Would they even speak to me? My wholesale business was an ant in comparison to the giant Costco!
Thankfully, the simple truth is ALL retail businesses need liquidators in one form or another. Without liquidators, the product cycle comes to a stand still as there just isn’t any room for new inventory. Plus, the generous return policies every retailer must keep for happy customers create large stockpiles of virgin customer returns. For Costco, just on a weekly basis this stock of customer returns builds up considerably. Most of these customer returns are in selling condition, it was just a return due to preference. The corporate headquarters doesn’t want those items sent back, what would they do with them?
This is where I, and other liquidators, offer a service– for pennies on the dollar, a wholesale business could buy customer returns that Costco cannot or will not sell to another consumer. I get a great value on my supply of products and Costco can recoup some of the loss on the returned merchandise.
The beauty of seeking an exclusive contract for customer returns with a business like Costco is the type of products they carry. Costco bills itself as a wholesaler, although technically they are selling retail since it is going to the end consumer. The majority of items are sold in bulk numbers. Customers will buy numerous quantities and if anything is damaged, they will return the entire case lot. For me the wholesaler, I can dispose of the damaged unit and sell the remaining pristine units at a markup. Customer returns are frequently in popular categories of wholesale goods such as households, clothing, and other general merchandise. After all, someone wanted to buy them in the first place!
So how did I get a contract with Costco to buy their store returns?
I let my fingers do the walking, calling many of my local Costco stores directly. At first it didn’t go so well until I realized a few things:
- Always represent yourself as a liquidator, this let’s them clearly identify your intent. Another term they may use is salvage company.
- Ask for the RTV (Return to Vendor) manager or the Receiving manager. This is who generally makes decisions about how and who handles customer returns.
- Ask what percentage their current “salvage company” is currently buying the customer returns for and see if you can beat it. If they are currently getting 15-28%, see if you can offer 3-5% above.
- It may take as long as 30 days for Costco (or any large business) to terminate the contract with the current salvage company. Be prepared too for a bidding war.
Working with Costco to Process the Customer Returns
Once I secured the contract for Costco’s customer returns, there were a few differences I noticed in working with them in a business relationship. First, the RTV or Receiving Manager is always going to want the highest revenue possible for the customer returns with the least amount of headache. It is very different working with an employee of a large corporation instead of another business owner. The business relationship is a little lop-sided in terms of what the RTV Manager can do or is willing to do in the event of a dispute.
To avoid losing the contract I had to adopt these behaviors:
- Remember the RTV Manager’s motivation is to please the General Manager. Therefore, he or she will not be thrilled to provide flexibility at the expense of Costco, even if it is in the interest of the continued business relationship.
- Be prepared to show up weekly with a VERY large truck. Nothing screams unprofessional more than a liquidator unable to pick up all of the overstock goods and customer returns he or she is scheduled to do so.
- Costco will not give the customer returns or overstock on credit. You must pay in cash or with your business credit card (they do accept American Express), or cashier’s check at the time of pick up.
- Visually check any item listed over $1,000 as the paperwork will often include the item, but it really was shipped back to the original vendor. Any large oversights like this must be resolved at the pick up time.
- Expect an early morning pick up always arranged in advance, with enough assistance to handle the pick up as efficiently as possible.
- There will be other discrepancies in the order. 99% of our pick ups always had different quantities from the inventory sheet prepared by the RTV. There will be overages and under reporting because the employees at Costco do not care if the inventory number is incorrect in the system, the items are just salvage to them. Regardless of if the numbers and items match up, the items are purged and end up in your shipment.
- Be cautious and tactful about reporting discrepancies in your shipment. The RTV Manager’s job is to keep accurate count of every item, or at least appear to do so on paper to the General Manager. Every complaint you file is considered a personal attack and place the life of your contract in danger. Unfair, but a reality of working with a corporate giant.
Does this method only work for Costco?
My experience was working with Costco, but the basic premises are the same for any retail business. There are some large corporations that will handle their customer returns in-house, but you will never find out until you call and ask. Just remember that every retail business has overstock, liquidated items, and customer returns that must go somewhere. Your wholesale business could become any retailer’s liquidation outlet if you pursue an exclusive contract with them.
Overall, the liquidator is usually treated as the lowest on the totem pole. There will be some “unfair” contract provisions that as an overstock and liquidation business you just need to endure. However, if you can structure your profit margins to overcome these inconveniences, your wholesale business will ultimately come out ahead. The reality is most retail businesses are looking to pass the “headache” right along with the customer returns and liquidation items. Running a wholesale business is one part service to many parts goods and products.
Warehousing Wholesale e-Business Inventory
Posted by Wholesale News in Warehousing on April 7th, 2009
Strictly drop shipping wholesale e-businesses have no need for warehouse space. It is one of the many benefits of running a drop shipping wholesale business. Successful drop shipping e-biz owners can grow their business by expanding the ways in which they sell inventory. The most common form of growth is reinvesting profits into a retail business selling wholesale items. Moving beyond drop shipping wholesale items, inventory storage becomes an issue. There are three warehouse options for wholesale e-Business owners to consider.
Use Your Most Convenient Warehouse — Your Home
A small retail business selling wholesale, overstock, and liquidated items is usually stored suficiently in a private home. This is for a wholesale e-business owner looking to sell select wholesale items at retail prices. We are not talking truckloads or even pallets of wholesale items; more like buying wholesale caseloads to sell items individually at retail prices. Wholesale products can be sold for retail prices in a variety of outlets. Easy places to start are on other web properties; Internet market sites like eBay, Craigs List, or local classifieds; or in low-cost retail space such as a mall booth, table at a swap meet or flea market, and established businesses like salons or consignment boutiques.
Success in selling wholesale items at retail prices is addictive! It won’t be long before a personal home living space is outgrown as adequate warehouse space. Before using a private home for inventory storage, there are a few concerns an exclusive drop shipping wholesaler should consider.
- Holding physical inventory of wholesale items changes sales tax requirements, and tax write-offs. Wholesale e-business owners transitioning from strictly drop shipping to retail sales of wholesale items should familiarize themselves with pertinent tax law or seek the advice of a tax professional.
- Home insurance policies frequently treat business inventory differently than personal possessions, if the business inventory is even insured under the existing home insurance policy! Contact your home insurance company to learn details and possibly pay for a policy rider to cover the value of wholesale business inventory in the event of an emergency.
Outgrown the Home Garage, Renting Personal Storage Space as a Warehouse
The next warehouse option for wholesale e-business owners also involved in retail sales is a local personal storage unit. There are many benefits for selecting personal storage space over a private living space. First, the private living space may not be ideal to accommodate wholesale stock. This is especially the case for small living spaces like apartments, or even large homes with many family members. No sense in forcing your family to literally trip over your new retail business in the hallway!
Also, personal storage space companies are required to carry insurance on the contents of every rented space. It may not be as much coverage as a wholesale e-business needs. Insurance in this case is typically a set number of cents per pound. However, this insurance coverage incorporated into the rental price can make other business inventory insurance premiums more affordable. Every personal storage space is different, but here are some of the issues wholesale e-business owners should see resolved before leaving any wholesale inventory in the care of personal storage space companies:
- Climate control usually doubles the monthly rent on storage spaces. Smart wholesale e-business owners will rent two spaces. First, a large and cheaper non climate controlled space for stock that does not need temperature regulation. Second, a smaller climate controlled space only for stock that requires a temperature range to remain marketable, if needed.
- Long term leases paid up front often yield a significant savings on the monthly rental fee. If it isn’t offered by the public storage company, ask.
- Access is very important depending on the turn over in wholesale stock. Be clear about the hours your wholesale stock is available, how many people you can designate to pick up and drop off, and how your personal storage space is accessed.
- Check on security. Make sure the cameras are actually recording clear video and not just decoys to deter thieves. Decoys do not help in the event a real theft. Look into local police records for any break-ins occurring on the site.
- Use your business relationship with the public storage space to pursue a deal with the company about selling abandoned property. The public storage company may be only too happy to sell you abandoned property for pennies on the dollar.
Renting Commercial Warehouse Space for Wholesale Inventory
It takes a great deal of volume in retail sales to support and justify renting commercial warehouse space for storing wholesale stock. Local classified listings will show the going rates per square foot, but each property will have different amenities. Listings usually are priced per square foot of warehouse space. The rental prices may immediately sound like great savings over the monthly cost of public storage space for a much smaller space. However, before leasing commercial warehouse space, every wholesale e-business owner should ensure the warehouse space is indeed a deal by considering these issues:
- First, business 101 states the monthly profit from retail sales of the wholesale items must exceed the warehouse rental cost and any other related storage costs. Otherwise, your warehouse option will bleed your e-Business dry.
- Rent amounts do not typically include utility costs, equipment such as forklifts to maximize space usage, nor the staff to maintain manifests of items stored which is a large job for a sole proprietor to cover.
- Putting utilities in your company’s name for a commercial space is very costly for any business. Utilities charge higher rates for business or commercial use than private homes, and most accounts require a significant deposit for utility turn on.
- Security and insurance is completely on your shoulders. This is another added cost to the monthly rent.
Warehouse space for wholesale e-businesses is not difficult to obtain, but the level of warehousing needs to be appropriate for the growth of the wholesale business into a retail entity. In strictly drop-shipping wholesale e-businesses, the issue of warehouse space is never even a concern. Once a wholesale e-business owner steps into the retail realm, he or she must be prepared to negotiate lease agreements and incorporate warehousing costs into their profit calculations. There is no reason to be discouraged by securing wholesale warehouse space, but most wholesale e-business owners should start small and may never need commercial warehouse space.
What Is A Bulk Drop Shipping Business?
Posted by Wholesale News in Bulk Drop Shipping, Drop Shipping on April 7th, 2009
Blink an eye. That’s the time it takes for a business inventory buyer to click and make an order on a web site. Blink again. The order is processed by the web site, sent to the warehouse,and the order is shipped within 48 hours. Welcome to the digital supply chain, historically housed within one company. Today, new models for e-business are breaking up the digital supply chain in the form of bulk drop shipping– lightning quick business to business transactions of wholesale case lots.
Bulk drop shipping is the term used for a web property or web site, taking and processing orders from business owners for wholesale products not physically stored in stocked inventory. Instead, the wholesale order items are housed in another warehouse and shipped from direct from the supplier to the buyer. Bulk drop shipping has come into its own as a successful e-business niche due to the speed at which payment and information transfers from a web “store front” to suppliers.
It is not a new notion. For over a century, brick-and-mortar stores have held catalogs of merchandise available by mail-order. The store takes the money, with a small markup, and the customer would pick up the goods in a few weeks after they arrived. Our digital age makes this process a much faster purchase, especially for business to business transactions! Bulk drop shipping is so fast the business inventory buyer doesn’t even notice the products are not kept in stock by the web site owner!
Each component of a bulk drop shipping business must be robust for success.
To start, a web entrepreneur needs a strong business relationship with a reliable wholesale supplier. Bulk drop shipping web businesses may need many wholesale suppliers to fill a web site’s online catalog. It can be trial by fire to first find wholesale suppliers, find the ones willing to work with you, and then hope the suppliers are reliable to ship orders out! Many bulk drop shippers use some type of supplier listing or service to handle this headache.
Second, a bulk drop shipping web site needs to attract business inventory buyers to the wholesale products available. If business inventory buyers were bees, your bulk drop shipping web site needs to be the prettiest flower in the garden and the easiest to get pollen from! An easy to use and appealing web site is a must, but it is positively vital the information in the online catalog is up to date. Inventory buyers also expect secure shopping cart applications. These foundations of an online store are the walls and windows to a brick-and-mortar store. A faulty database or non-secure shopping cart application is the same as shoddy construction and your bulk drop shipping e-business won’t be around for long.
Finally, it is up to the bulk drop shipping web business to provide buyers with customer service, resolve concerns, and seek repeat business. You can use innovative advertising, repeat customer reward programs, shipping cost deals, and affiliations with feeder organizations to keep your drop shipping business hopping. The appeal of a relationship with a bulk drop shipper for warehouse owners is the freedom to focus on what they are good at: maintaining merchandise and handling shipping orders. At the end of the day, you are the middle man or woman for the transaction handling between case lot buyers and wholesale suppliers. And you can take a tidy profit for the trouble.
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