Wholesalers and drop shippers
The pitfalls to beware of

One thing I have had to learn, in building sites for others, is the entire underside of wholesalers and drop shippers.

I am on their sites often, to get details on the items the seller, whose site I am building, wants to sell. As a result, I have learned a few things about the whole process that anyone new come to the idea of setting up their own web store, needs to be aware of.

First and foremost, Wholesalers that aren't:

There are literally millions of sites out there that claim to be wholesalers, that are in fact, not wholesalers at all. What they are is someone with a wholesale license, meaning they have the needed tax Id numbers etc. in order to buy at wholesale rates, who have gathered page after page of goods, and put them up on a site, and then promote themselves as a wholesaler.

Here's how it works:

You the retailer, find one of these sites, and apply to be a seller. They happily accept your application and tell you to put the goods they have on your site. So you do, and people order them. Now, what the "so called wholesaler" does when an order comes in, is turns around and orders the goods from the real wholesaler, and has it drop shipped to your customer.

The ones who are really slick about this, order the goods sent to themselves from the legitimate wholesaler, and THEN send it, in your name, to the customer, which means its been shipped twice, and they pass that cost on to you, the retailer. And, since they upped the price of all the goods to start with, they can make a profit on the goods that you sell. All they have to do is handle the paperwork, and do a little re-packaging.

Now, what this means for you, the retailer, is you are paying more for goods you could buy at the real wholesaler to start off with, and are paying more in shipping costs in most cases, all of this gets passed on to your customer in higher sales prices.

What's even worse, if there is something wrong with the merchandise, now you have to try and get the goods replaced or refunded. Now, your friendly "so called wholesaler" is going to dump that right into the hands of the real wholesaler for replacement, as they don't want you to know what they are doing, they do NOT want you to contact the supplier.

If they are a bit more slick or are playing on your ignorance, what they will do is tell you to take it up with the real vendor. Now you have a problem as the real wholesaler does not know you. They know the go betweens name, not yours, and will rightfully tell you that there not a thing they can do about it. So your stuck with refunding your customers money, with no refund to you.

The "so called wholesaler" does not care if you lose money, nor do they really care if they lose you as a seller, there are a million more right behind you. In fact, to have you on board for a while and then go away is a good thing, as those who hang around too long, tend to figure out what's going on, so a steady supply of hopeful, but ignorance sellers, is exactly what they want.

Now the reason these sites do so well, is the number of people who get into retailing, who don't have a wholesalers license. These people set themselves up to sell to people just like this, knowing full well they are taking advantage of anothers ignorance, or in some cases, anothers avoidance of the license requirements.

For whatever reason, a real retailer, who has a wholesale buyers license does not need to deal with these people, but is very hard to tell who is who, as some of them are very very good at it.

Experts in the field of retail tell the new retailer to have preferably only one vendor, the reason being to control costs. Otherwise you could have this item for less in shipping Vs another item, whose cost is higher as its wholesaler is further away. Which means once the retailer finds "their" vendor, they are not going to go looking for others.

This is the idea, however, this does not work very well in practice, as if a seller wants a wide variety of goods, this means having many vendors. So the scam takes advantage of that need, by offering a plethora of goods.

So, now to know if who your looking at is not really a wholesaler ?

One: Do they ask for your Tax ID number ?
If they do not, your best bet is to stop right there, as if they don't want it, it means they don't need it, as they are likely using their own.

Two: Do they expect you to fill out an application ?
Again, no formal application.. stop.. and re think this.

Three: Does it take a few days to a week to get the application approved ?
If they want an ID and take an application, but approve it in a hour, get real suspicious, as it does take a while to verify such things.

Four: The goods on the site, can you easily find them on another wholesaler ?

This is the one that tipped me off, since I handle so many folders full of goods from a whole variety of "wholesalers" for the sake of my clients, I began to notice that I often saw the same goods, over and over and over, but ... the prices were vastly different, and the places I was told to go get the information were different.

So I got to wondering and did a little research and found that this phenomena is commonplace on the net, there are literally millions of sites that call themselves wholesalers, that are doing a hand off from a real wholesaler. I see the same goods so much, I can often tell you who the real wholesaler is.

Think about it, they have sellers galore out there, selling goods that they order from them, they do a quick dash off of an order with the sellers customers name and address and done, the goods are on their way to the customer, and they net the profit from the seller. Not to mention have all your customers names and addresses, off which they can also make a profit on, by selling them to marketing companies.

Now, this is partly what the real wholesalers do anyway, in that they often buy the goods they sell, at even less cost from the manufactory, warehouse it, and then sell it out to the retailer. And most of them do sell their client list, it's common practice.

But, the more hands a thing goes through, the higher the cost to the buyer, as each pair of hands makes a profit on the goods. So, the "so called wholesaler", is taking a piece out of that profit chain, that's unneeded for a legitimate retailer to pay, as they can buy from the wholesaler directly. And it's not just the seller who pays for this scam, it's the buyer, your customer.

Drop shipping:

Lots and lots of questions come up on this one re costs. Some wholesalers charge to drop ship, others don't. It depends a great deal on how the goods are packaged and stored as to weather or not drop shipping to a single person or persons is feasible to do for free. If the wholesaler is set up to do truck loads to a retailer, and has to stop and take out just one item and mail it, this costs them for packaging, handling etc. and they expect to be paid for that. Needless to say, those wholesalers who absorb that cost, do tend to get more business than those who don't. But those who do want money for it, often want very reasonable fees.

What are Reasonable fees ?:

Tip off: if the drop ship fees are excessive, more than a few dollars, it's likely you are dealing with a "so called wholesaler". Why ? Because what they are likely doing is having the goods shipped twice ... once to them, and then once to your customer, and their "drop ship" fee is how they are passing that cost on to you. A legitimate wholesaler does not need to charge excess fees. They make their main profit on their bulk sales and they offer to do a small order drop ship as a favor, and charge no more than it cost to do it ... Here's what it looks like under normal conditions:

Item cost at real wholesale is $5.00 ( that they likely bought at $3.00 per unit )
Drop ship fee from the wholesaler is $2.00 for their time to handle just one instead of a truck load
Shipping cost is $3.00, the actual cost of postage and packaging

Ok now , that 5.00 item is already worth 10.00, that you, the retailer need to pay to get it delivered under normal conditions

Typical mark up from the item cost, is 100 % so the cost to the buyer is $10.00, plus taxes and shipping

Total cost to the buyer ... apox $ 15.69 delivered to their door

The wholesaler makes a profit of $2.00
The seller makes a profit of $5.00
( The post office, manufactory, and packing supply companies divvy up the rest )

This is as it should be, as the seller is doing most of the work to sell it.

Now add in your "so called wholesaler" and what watch can happen

The item is now $7.00 as they did a mark up right off the top I have not seen one yet that didn't
He has to pay the same drop ship and shipping fees to the real wholesaler, so add $5.00
If he Jacks up the drop ship to twice what they really paid, add another $2.00 ( it's often a great deal more than this )
and if he ships it again, add another $3.00

So the retailer now pays $17.00 to have it sent to their customer
Typical mark up is 100% , so the cost of the item is now $14.00, plus tax and shipping
Total cost to the buyer is now $23.69 delivered.

Profit to the seller $ 9.00.. if he can sell it at that cost, but as he knows is only worth $ 7.00 that likely he can't and so a reasonable seller, who wants to sell, cuts his own profit to say 50% above costs, and sells it at 10.50 plus shipping and taxes.

Total cost to the buyer is now $20.78 and profit to the seller is $3.50

Profit to the so called wholesaler $4.00

Notice, the wholesaler makes $2.00
The middle man makes $4.00
and since he had to cut profit to sell it at all, the seller, whose doing all the work to sell it... makes $3.50
( The post office, manufactory, and packing supply companies divvy up the rest )

And we wonder why things cost so much ? !

This is a real break down..... this is what can happen if just one more pair of hands is between your customer and you the seller, to where you have to cut profit in order to sell it at all, the customer gets a thing worth 5.00 that he paid 20.78 for ... if the seller is willing to make less profit, if not, the cost is 24.96 for an item worth 5.00 !

So the one who really pays for this deal ? .. the customer. So be very sure of your "wholesaler" or the one who pays is you ... in less sales, as you have to charge so much, and ultimately your customer, for the very high price they have to pay for your goods.

More soon

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