Thinking of taking the plunge...

[Mike79]

1t post so hi everyboby.

I'm thinking of setting up a business but I've got a few queries. I'm currently a website designer, and have set up e-commerce sites for other people, and I now feel I am ready to start my own online shop. :) My main problem is that I only have IT skills, but no experience of running my own business. So far I have next to nothing done - I need to get a name and domain, my own hosting, and sort out a way of taking payments.

Here's my (very rough) business idea. I want to sell bike lights and maybe torches aswell both on ebay and from my own site. I might also stock batteries and spares such as bulbs.

Now, I've done a bit of research, and found a wholesaler in china that can supply me with most of my stock for around 50% of what I reackon I could sell the item for. EG. I could buy a typical bike light for £10 and sell it for around £20. Also, my wholesaler gives me a bigger discount the more I buy, but I don't want to have too much unsold stock.

Now, I'm not sure if this is a good profit margin or not, plus there are other things like import tax and VAT I have to consider.

Now with VAT I just have to add 17.5% on to the cost of every item and send it off to Tony Blair. :) Now import duty isn't quite as straight forward as I've heard that it can vary depending on what is being sold. I've heard that "electrical goods" is around 4%, but this is from memory and is probably wrong. Where can I find more info on this? Any advice or tips? I want to be clear on my costs as I need to make money at the end of the day.

I'm assuming royal mail would be best for delivering the items, but again I've got a choice of Parcel Force, Special Delivery or good old First class.. any advice on this would be great. My products will sell for £10 to £100.

Finally, I would like to stock branded products such as CatEye bike lights and MagLite torches (the best sellers). Now, both MagLite and CatEye are American compaines, so I guess the best people to contact about this would the UK distributor? Would they to be accept me as a seller or you normally have to be trading for a while before they will allow you to become a seller?

Also, any advice or warnings for a newbie like myself would be good... It's never nice to learn mistakes the hard way. :)

[multilingual]

Hi Mike,

Just a couple of points to begin with.

Lets just use Bike Lights as an example:

Decide much money you need to make in order to live without any worries.
(Lets say £20,000 / annum)

Do your research and find out what is a 'realistic' price to sell your lights.
(You say £20)

Work out every single cost factor involved in buying, shipping, importing, delivering your lights and take that away from the £20 sale price. (You can phone Customs + Excise to get a true figure on import duty)

That will give you a Gross Profit. (Let's say that gives you £5 GP / unit)

Then take off all your other costs such as phone, website hosting, admin, fuel, commissions, etc. Let's say that comes to a further £5000 / annum.

So you need to sell 5000 units per year to be succesful.

But.....

Selling 5000 units means that you will turn over in excess of 60K which means you will need to register for VAT. That in turn will hit your profit because you then need to deduct 17.5% from the £20 sale price. Unfortunately, that comes to £3.50 which eats into your profit of £5!!!

(You could increase the price of the lights by 17.5% but that would make you uncompetetive)

So using these (basic) assumptions, you would need to sell about 17000 units per year to be able to live.

Is that feasible?

You can play about with the figures to make them match your own circumstances, but don't be tempted to get overly optimistic with the sale price. Be realistic with that figure above all others.

Buying for £10 and selling for £20 sounds good at first, but I would estimate that you would need to be buying for no more than £3 to make this work.

Just my thoughts.

JB

[fastfences]

Brilliant post JB. I've done that myself with higher cost items, but you've really rammed home the reality (and viability) of selling low cost items for a good return.
cheers, Nigel

[multilingual]

:oops:

Cheers Nigel.

[WakingDragon]

You will have to pay VAT on imports anyway so you should be registered for VAT if you plan to do it.

You will need to give thought to how you will manage the quality of the production if you are buying from China. Without a proper inspection process you may end up with garbage - not good if you have customers waiting and the next delivery is 3 months away.

Are you sure you are buying direct from the factory? Based upon normal retail margins it sounds like you might be buying from a trading company - its difficult to tell without experience.

My company can help you out - this is our bread and butter. We can provide inspections, importation, logistics, supplier assessment and all the advice you need with regards to Customs etc.

PM me with your number/email address and we can take it from there.