Small business questions (wholesale, sales, profit, stock)

[Repubocrat]

I have a part time resale business and although I am still trying to figure a few things out, I still have a lot of questions! When it comes to profit margin, do you outweight the pros and cons before closing a deal or you just go for whatever profitable deal you can make?. I am still trying to figure out how to forecast profit before I close a sale. Example: I buy a product for $100 and my goal is to resell it at $200(100% profit). If you have the opportunity to sell it for $140(same amount of work), do you go for it or do you wait until you can sell it for $200? Another question, so far I have zero inventory, I try to have a deal closed or at least have a lead before I purchase inventory, I know eventually I will have to have some inventory but I am afraid of getting stuck with inventory that I may not be able to sell. I was not sure if there is a tax deduction for unsold inventory or what kind of inventory control do you have in place? Thanks!!!

[chet everett]

Selling something you bought for $100 to someone else for $200 is not " 100% profit", it is a 100% markup. It would be wise to understand that your "gross profit margin" has to cover ALL your expenses, of which the acquisition costs of goods to resell is but one part.

The manner in which business of all kinds set the price on goods is complex,involving comparing the prices of similar goods at competitors AND determining what is an acceptable price to recover costs as well as putting money in your pocket. You cannot allow your competition to ALWAYS undercut your price, nor would be sensible to ALWAYS sell for much less than customers are generally willing to spend. If your costs are higher than competitors you will fail,


One of the "costs" is the inventory itself, though it is really an "asset" of your shop. As such it is not generally deductible for a going concern, though if you need to liquidate your inventory it may be...

You might want to talk with an accountant and/or take some classes for "running a small business" at a local community college.

Good Luck!

[aaauger]

Pricing - It really depends on how you are selling. If it's an auction, of course you will have multiple price points. But if you're trying to establish yourself as a supplier, you'll want a consistent, documented price structure. It may have multiple levels. Ex. You might offer quantity discounts. Regardless, you need to be sure about your true cost before setting your price point(s). Your cost includes more than your wholesale product price - ex. your time, marketing, utilities, etc.

Inventory - Yes, you can write-off unsold inventory. But that's not optimal. If you are too small to risk getting stuck with inventory, you might consider having your supplier drop-ship the item directly to the buyer with your label.

[Steve Bagu]

Sounds to me like your part time business? is more of a speculation thingy...if I have a chance of selling a item by doubling the price I will go for it and make a killing with no out of pocket expense regarding an Inventory investment. Thats like saying to a friend...know where I can buy a diamond for $1000 where a store sells the same item for $2000...are you interested?...friend says Yes...you go out and pay $500 for the diamond and sell it to your friend for the quoted price of $1000...you made a fast $500. Business does not really run that way. People cannot in reality run a business on a "one item only" scale. This is not a business venture. I was in the Inventory field for 23 yrs...owning my own company for 15 of those yrs. My job was taking a count of their Inventory (stock) so that their accountant could figure the profits during a Quarter (13 week period). Without having a complete Inventory in your possesion you are not really running a business. Making a fast buck is fine...not important how much as you have no operating expenses/overhead to contend with. Continue to have fun. Steve

[The Man in SATX]

You need to determine at what cost you are actually putting that item out of the door. Sounds to me like you have not done your homework in determining what your overhead could be and what you need to "mark" your items for. Your profit would be the bottom line after all bills are paid (to include yourself) to get that inventory out of the door.

It does sound a lot like you are doing the quick buck scheme and not holding onto inventory. Usually when people buy things (in today's society) they want to be able to have that item right away... doesnt sound like your customer service will make you a successful business venture as they will have to wait for the item. That is fine and dandy provided you are the only person that can get them that item in the area.

[Cool hdhunter]

Originally Posted by Steve Bagu

Sounds to me like your part time business? is more of a speculation thingy...if I have a chance of selling a item by doubling the price I will go for it and make a killing with no out of pocket expense regarding an Inventory investment. Thats like saying to a friend...know where I can buy a diamond for $1000 where a store sells the same item for $2000...are you interested?...friend says Yes...you go out and pay $500 for the diamond and sell it to your friend for the quoted price of $1000...you made a fast $500. Business does not really run that way. People cannot in reality run a business on a "one item only" scale. This is not a business venture. I was in the Inventory field for 23 yrs...owning my own company for 15 of those yrs. My job was taking a count of their Inventory (stock) so that their accountant could figure the profits during a Quarter (13 week period). Without having a complete Inventory in your possesion you are not really running a business. Making a fast buck is fine...not important how much as you have no operating expenses/overhead to contend with. Continue to have fun. Steve

I completely agree.

[Golfinnova]

Originally Posted by Repubocrat

I have a part time resale business and although I am still trying to figure a few things out, I still have a lot of questions! When it comes to profit margin, do you outweight the pros and cons before closing a deal or you just go for whatever profitable deal you can make?. I am still trying to figure out how to forecast profit before I close a sale. Example: I buy a product for $100 and my goal is to resell it at $200(100% profit). If you have the opportunity to sell it for $140(same amount of work), do you go for it or do you wait until you can sell it for $200? Another question, so far I have zero inventory, I try to have a deal closed or at least have a lead before I purchase inventory, I know eventually I will have to have some inventory but I am afraid of getting stuck with inventory that I may not be able to sell. I was not sure if there is a tax deduction for unsold inventory or what kind of inventory control do you have in place? Thanks!!!

First of all, I would say that you need to find out if you have competition with the product you are selling. More than likely, you will have competition and you need to know what the market conditions are for that product. Next comes supply and demand which is a basic economic variable, if you have a lot of demand and limited supply then you can dictate price (gas prices this summer is the best example); however, the reverse also holds true, if you have a ton of product and little demand then you will be forced to slash prices to move product (the car sales industry is an example).

Here's a warning: NEVER EVER TRY TO SELL PRODUCT YOU DON'T HAVE, you risk having the reputation of fraudulent practices. See if you can get a sample of the product which a lot of companies will be more than happy to ship to you free of charge. As I business owner myself, I often have to deal with product delays, shipping delays which I have to explain to my clients. If you sell a new product only to find out that you won't receive it for 3 weeks or more do to a hurricane or some other factor then you will lose not only that client but they will tell 10 more people which is something no business owner wants to happen. Moreover, if you don't know anything about the product, you will struggle to finish the sale as it will be hard enough for the potential client to have tangible product to sample.

About profit margin, again it depends on what the product is and what market conditions call for; however, if your potential client is reselling the product themselves then you need to find out an acceptable retail price where the client realizes an acceptable profit margin. If you have multiple products as I have in my business, you will get some things at great profit margins and some things will be minimal.

The best advice is make sure you are able to back up the product with service. It doesn't matter one bit about profit if you lose clients faster than you get new ones because you don't give great client/customer service.

[Humanoid]

Originally Posted by chet everett

It would be wise to understand that your "gross profit margin" has to cover ALL your expenses, of which the acquisition costs of goods to resell is but one part.

It would be wise if you looked up the definition of "gross profit". Gross profit refers to the difference between what you sale the product for and what the product costs you, essentially:

Gross profit = net sales – cost of goods sold

It does NOT include other expenses. This is how the term is used for tax purposes too.

What you are talking about is "net income". Which is gross profit - operating expenses.

Anyhow, these terms have precise meanings just wanted to point that out. And of course, as you suggest you should think in terms of net income. Although, its often hard to amortize other expenses over a single product. But its just some small home business, the operating expenses are going to be close to nothing.

[xxs78]

And invest in a good state for the business.Cheap for the location of the shop and too cheap for the tax.
Texas is good ,perhaps Tennessee and to see the cost of life in the area( Florida and California are bad)

[aaauger]

Originally Posted by Golfinnova

Here's a warning: NEVER EVER TRY TO SELL PRODUCT YOU DON'T HAVE, you risk having the reputation of fraudulent practices.

There are plenty of instances where product is (legally) sold without being physically inventoried by the seller. Independent sales reps do this all the time. Take Avon, for example. In addition, sometimes the products don't even exist because they're custom manufactured.

You do need to make sure you have a reputable supplier and a written agreement. You should also have a backup plan. The less control you have over your supply chain, the more vulnerable you are to fail.