Am I missing a trick reg wholesale + VAT?

[GazTop]

Hi Folks,

A couple of friends and I are setting up a very small side business for a pretty niche market (Will be sold through online store, national events and getting some shelf space in a shop with similar interests), I made contact with the only UK supplier I am aware of and as expected they came back happy to do business with most ranges 50-55%% of the RRP. However this doesn't include VAT so this bumps its up a bit, so for say something thats RRP is £10, we pay £6. (Not too bad I guess)

But the bit thats making us think we are missing something is there are a few online stores running the items at 80% RRP. (The manufacturer also sells online at RRP with free shipping)

So we're now buying something at £6, to sell it for £8 then you still have transaction fees and postage to take into account (although the other online stores seem to charge £5 give or take flat shipping and theres no danger it costs that much so i guess theres some markup there)

So without being detrimental to the products, it is not a market that has massively high volume purchases (Prices range from £8 to £50 for what we will stock) but the margin just seems very low with a mix of paying 50-55% plus VAT against 80% RRP sales price, (If you were pushing 1,000+ sales a month then I would get it)

I'm just curious if i'm missing something here or if it just is what it is? Is that within the normal parameters of online sales?

The goal at the moment isnt profit to pocket, as we all work full time anything for the foreseeable that comes in will be reinvested to attempt to grow the business.

We dont have any plans to register for VAT as unlikely to be near the threshold.

Any advice from some experienced retailers appreciated ^^

Gaz

 

[AlanJ1]

Hi Gaz,

The answer comes down to the product you are buying, some products have great margins and some don't. If you look into what margins the retailers make on new phones you are talking <3% in most cases. Same with most tech items, margins are 10-20% for the retailer.

RRP is that a recommended retail price, if people are below this, then it's worth thinking about is this worth stocking at such a low margin? Who knows they may even drop it further when someone else comes to market.

Competing with the manufacturer / wholesaler happens a lot nowadays. The advantage they have is they have a greater margin so they can offer things like free shipping where you can't.

Have you tried to negotiate with them or just taking the price they have given you?

My next question for you is your online store. How are you getting customers? This (especially right now) is so expensive to do, you will be competing with existing companies in the market selling the same product. What marketing activities will you do to drive customers to your store and why would a customer trust to purchase from you and not someone else?

There are hundreds upon hundreds of questions that can be asked here on this but this should get it started.

 

[GazTop]

Hi Gaz,

The answer comes down to the product you are buying, some products have great margins and some don't. If you look into what margins the retailers make on new phones you are talking <3% in most cases. Same with most tech items, margins are 10-20% for the retailer.

RRP is that a recommended retail price, if people are below this, then it's worth thinking about is this worth stocking at such a low margin? Who knows they may even drop it further when someone else comes to market.

Competing with the manufacturer / wholesaler happens a lot nowadays. The advantage they have is they have a greater margin so they can offer things like free shipping where you can't.

Have you tried to negotiate with them or just taking the price they have given you?

My next question for you is your online store. How are you getting customers? This (especially right now) is so expensive to do, you will be competing with existing companies in the market selling the same product. What marketing activities will you do to drive customers to your store and why would a customer trust to purchase from you and not someone else?

There are hundreds upon hundreds of questions that can be asked here on this but this should get it started.

Thanks for the reply.

So the online store will be a pretty manual affair for us, we are all fairly integrated within the product communities so will be selling in private groups and in person at events and directing people to the site and our social media pages and we have a plan to generate more interest through giveaways and the like. (Better conversion than paying facebook for advertising) The idea is to Jerry Maguire it a bit, while other online stores stock hundreds of different ranges etc our aim is to corner a small part of the larger market through youtube and social media content related to the product, build a reputation and loyalty within the communities and expand gradually.

As none of us are relying on this as income we just need to make sure for the first year we dont run at a loss, as long as we are turning over trade and building a customer base its hopefully something that will develop over time.

The site will essentially be a glorified fancy checkout and inventory so we dont need to be worried about how we can be googled etc just yet but that will be on the "long term goals" part of the list.

Sadly the distributor doesnt negotiate :-(

 

[AlanJ1]

I don't really see how you can make any money out of this if the margins are what you say they are. You are also putting all your eggs in one basket with one distributor. (PS all distributors negotiate even if they tell you they don't). What would happen if they stopped supply to you? Your business goes overnight, these are just things to think about.

I have no idea which market you are in but you are severely over estimating how people will get to you. It is a tough tough world out there in E-Com right now.

I wish you all the best though.

 

[WaveJumper]

I would go back to your business plan and run all your numbers again and double check you have included every Ie internet hosting etc etc and personally I would check those postal costs depending who you use these may not be as cheap as you think. Your margins look to be very tight and you don’t want to suddenly realise your running at a loss from day one. Best of luck though with the new adventure

 

[MarkOnline]

This enterprise will give you excellent experience about how to work for nothing. The margins are not sustainable, you have managed to combine 3 of the main factors in guaranteeing failure, namely small margin, high selling costs and low turnover.

You will need a miracle to make this pay, but as you rightly say, every day's a school day.

 

[GazTop]

Thanks folks,

You've all basically confirmed a lot of my concerns :-D

As I said initially I was more curious if there was a trick that I was missing as wondered how other businesses (who do this full time) turned a profit working within similar margins. Assume it will be through sheer volume of product range and some excellent stock management. (Or theyve racked up thousands in debt.....)

Appreciate everyone taking the time to comment ^^

 

[MBE2017]

Just to add some food for thought, why would you expect as a start up to get similar deals to established sales channels? The supplier probably sees you as just diluting existing sales, possibly annoying existing clients and so on.

All deals need to work both ways for both parties, but new internet company sellers are viewed by many suppliers with suspicion, they worry that you might just do something silly like undercut their prices and lower the items perceived value.

In the old days you used to need contacts to break into new markets, things are not so different today, you still need to forge the relationships with suppliers to get the best deals.