Sometimes people ask us "What should I sell online?"
This used to take us by surprise because normally we'd expect to be commissioned for a website project after someone has thought of a business idea, not before. But it's happened often enough that we thought we should start giving a bit of advice in this area too.
The first thing to say is that if you are thinking of just buying in a load of stock and selling it slightly cheaper than the competitors, don't bother. The best case scenario is that you'll just have a load of expensive stock on your hands that you can only sell by paying yourself less than minimum wage to package up and ship out.
That business model has be done to death on the internet.
In the late nineties and early noughties, you could get away with it. But these days, pretty much every industry has got at least one wally that has cut their margins down so much that they are selling stock for less than they're buying it. Seriously!
Price is important when selling on the web, but it is not the only factor. If you make it the only factor that your business model has, you will fail.
So, you need to sell cheaply, but not too cheaply.
Analysing market prices
But how do you choose your industry, or your products.
Well, start by shortlisting some industries that you'd like to consider, then look at the price ranges that they are already being sold for online. Pick a few products and find out the RRP. Some companies will be trying to sell at the RRP, but most will be undercutting the RRP.
Usually, the RRP (including VAT) will be double the cost price (excluding VAT). So if you buy it for £100 plus VAT, the RRP is to sell it at £200 including VAT. There will always be some companies selling very close to the cost price. If there are lots of companies selling at these sorts of prices, remove these products/industries from your list. Even though the companies that you've found will probably be bust in a few months, there's likely to be some other wally that comes along to fill the space and do the same thing.
Ignore eBay in your research. There will always be people selling factory seconds, customer returns, and imported knock-offs on eBay for close to or less than your cost price.
Once you've removed the busy fools from your competitor list, examine the remaining prices. If there is still quite a wide range of prices, it might still be worth excluding this industry from your list. This suggests that the prices are still quite volatile in the industry, possibly a price bidding war that hasn't finished yet.
Try to find industries where the vast majority of the prices are within 10-20% of the RRP. Bear in mind that, as a newcomer, you're going to have to charge towards the bottom end of these prices. At least until you've earned a decent name for yourself in the industry. You won't earn a decent name by just charging less than the big names. Charge the same, but give better service. With a good enough name, you can raise your prices.
You may find a "standard" price for some brands. There will be an RRP of, say, £100, but almost everyone is selling it for, say, £90. This suggests some sort of price fixing. Some manufacturers have become so annoyed with internet retailers dropping prices so much, that they've created a "Recommended Internet Retail Price". When retailers drop the prices too low, it devalues the brand. So, any retailers who sell below this price get dropped by the supplier. The legality of this is dubious, but it is good for you. It means that your prices are set and nobody can undercut you (at least not for long). You can then compete on service without having to worry about price.
Now consider the postage and packing costs. How much are the competitors charging for delivery? Are they offering free delivery? How much would this eat into your margins?
Delivery is phenomenally expensive, and yet consumers hate paying for it. Free delivery is becoming very common, and this eats into your margins. It's not so bad if you are selling high value items with very little weight. But bulky and heavy items are really difficult to sell online at a profit without charging high delivery fees.
Work out what the actual delivery costs are likely to be and how much you can realistically charge your customers for delivery. You may have to remove some products or industries from your shortlist because of the delivery costs.
Up until now, we've been assuming that standard retail pricing model of "RRP equals double the cost price". But not all products are like this. Sometimes the mark up isn't 100%. Frequently, it's just 50%, or even 33%.
So now, find out what the true margins are. Contact the suppliers, set up trade accounts and get the price lists. If it turns out that the margins are too low, abandon them. Retailers get abused by consumers all of the time. Retailers suffer from credit card fraud. Retailers have the highest burden of legislation. In short, retailers are the lowest point of the food chain, they get dumped on from everybody. Don't let your suppliers abuse you too. If a supplier isn't giving an RRP of 100% markup (or pretty close to it), they are unfairly profiting from you, instead of the consumer. They are keeping their consumer prices low, at your expense.
Sometimes an industry is based on a pricing model where the main product has virtually no markup in it, but there is loads of margin in parts or accessories. This is still something to consider. Now obviously, don't base your whole website around the "main" products otherwise you'll be a busy fool selling loads of them, and not enough parts and accessories to be profitable.
But you may also consider not selling any of the main (low margin) products, and just selling the parts and accessories with all the margin. This can work, however selling a few of the "main" products can add extra kudos to your website, and indirectly lead to higher sales of parts and accessories. People like buying their parts and from companies who know their stuff and offer a comprehensive service. So if you do add a few of the main products to your site, make sure it is just a few, and don't get involved with any price wars. You only want these products to add kudos to your site, you don't want to waste time by selling too many of them. Maybe just stick to the RRP on these to subtley discourage sales.
Once you've chosen your industry and your product line, contact us on 0845 269 9624 about the best ways to create your website, and the best ways to market your website.