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Can Your Business Handle Split Shipments?

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Whenever I write an article, I have one goal in mind: to produce a piece of content that will help our readers solve a problem.

I love helping you solve your problems!

I also like being the bearer of good news. Unfortunately, I can’t always be the white knight. The news can’t always be good. Where there is daylight, there is eventually darkness.

We have it on good authority from a source inside Amazon that shipment splits are going to be a HUGE part of everyone’s business going forward (after July of this year). With a minimum of six expected splits per shipment, this will surely be a game-changer for many Amazon businesses.

I will admit, we have been spoiled. Spoiled rotten. Amazon has allowed us to piggyback their amazing rates and have bore the expense of separating our products for far too long. For the past couple of years, all of our shipments have gone to CVG (the Covington-based Amazon warehouse), a mere three hours from our facility. This allowed us to have the absolute best possible shipping rates (at times less than a penny per pound).

That being said, this change provides ANOTHER huge opportunity for our businesses. We love change, and we love the evolution of the Amazon marketplace. It always keeps us on our toes and looking for ways to solve new problems.

Solving problems is what separates Entrepreneurs from jobbers. If you love solving problems, regardless of whether you are currently an entrepreneur or not, you have the entrepreneurial spark.

So, let’s look at some of the things that will change with an increased amount of shipping splits:

  1. Shipping rates per pound/per unit will go up exponentially.
  2. It will be harder to hit discount thresholds for weight as products will be distributed to other shipping locations.
  3. It will be harder to ship efficiently, as tracking products over the course of 6 shipments is much more difficult than having none or fewer splits.

Now, I admit, those seem like strict disadvantages (and they are), but the opportunity lies here…

EVERYONE who sells on Amazon has to do this. That means, that if you find a better solution than others, you will have an extreme advantage. In general, when expenses rise in business, those expenses are passed along to the end consumer through price changes.

If you can develop a system that will allow you to do these processes cheaper, you can be even more competitive and have better margins than your competition. However, to do this, you have to start looking at solutions now. You have to start looking at ways to plan and adapt your business to deal with impending change.

Beyond developing a process that will let you do these processes cheaper you could also look at it from the perspective of making sure you continue to make money, by reacting quickly to the change as it releases.

Here are a few things we believe you should do, to try to stay ahead of the curve on this change:

1) Look at shipping Case Packed.

If you have items that will ship easily case packed and can ship case packed, this should help to reduce the number of possible splits that will happen.

2) Look for more dimensionally-efficient products.

With the large number of splits, it will make sense to find products that ship cheaply and affordable if possible. Bear in mind, these products will become better when shipping rates change.

3) Analyze your new costs early and often.

It is important you have a good grasp on your per pound and per-unit costs when this change happens. Some products that were previously great products may become unprofitable, and you have to be aware it has changed.

I think the best way to do this is to take an average across all shipments, then looking at the combined results rather than focusing on the best or worst shipments. Some will certainly be better than others, but looking at it from the perspective of the entire combination will be most effective.

4) Apply those new costs to new products.

Once you have a good grasp on the change in “inbound” cost, you can apply that to future products and find out what works. Being able to solve this faster gives you a heads up on your competition, as it helps you define your product range much more quickly.

5) Look at the cost of Inventory Placement.

In the past, we have been pretty against using any form of inventory placement. It really felt like the costs were NEVER justified when we looked at them. However, from the perspective of a smaller seller, this may be exactly what makes it worth the money.

Having really small amounts of products split out and shipped to multiple warehouses seems like it could be cost-prohibitive. In that regard, it may be a good idea to reexamine the costs and figure out if it makes more sense after the splits start to happen.

I realize we didn’t give you the best news here today. However, when we heard about these upcoming changes, we wanted to tell our community about them as quickly as possible so they could start planning and making changes that might help their business adapt more quickly.

Hopefully, we have given you enough of a heads-up that you’ll have time to address some of those things in your business, and at least keep you from being surprised when it does happen. Remember, working proactively following these changes will help make a huge difference later on.

As always, thanks for reading!

Please share this with your friends. This change will hurt a lot of sellers if they haven’t started making preparations for it. And, if we are lucky enough that it DOESN’T come to pass, then it is an exercise that will always serve our business (looking for changes that could cause problems).

What to Do When You Get an Amazon Warning

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There isn’t a ton of literature about what to do once you receive an Amazon warning, but there is quite a bit on how to prevent it.

Let’s imagine you have received a warning. Bear in mind, if you sell on Amazon and sell lots of products you will get a warning at some point. It is not anything to fear, just something you will need to deal with.

The first thing to understand is Amazon does this to maintain the integrity of the marketplace. Their goal is to make sure sellers are on the up and up, and the warning system gives them a way to do that. Typically, when you receive a warning (most often related to a product) it will be asking you for information about the product, including proof of purchase and possibly a Plan of Action.
Here are some reasons you might receive a warning:

Intellectual Property Rights Infringement (IP Rights Infringement)

This is typically a claim made by the manufacturer (but sometimes a competitor) asserting you are illegally using the company’s intellectual property (trademark or service marks) to make sales, or are representing the brand illegally.

It is important to remember this is ACTUALLY a legal matter. IP Rights Infringement is a serious crime. Our typical advice when it comes to these types of claims is to contact an attorney.

CJ Rosenbaum is an attorney who deals with these types of issues, and you can contact him through his own website.

Now, if you do not choose to go the route of working with an attorney, you still have some options. A good first step is to contact the brand directly to resolve any issues.

Amazon requires you to send a written notification to their internal department (notice@amazon.com or notice-dispute@amazon.com) from the brand or company saying the issue was in error or has been resolved to please remove the complaint.

Typically, we have seen best results when students reach out in the nicest manner possible with something like the following email:

“Hi,

We are a retailer on Amazon (our store name is: _____), and recently received a complaint regarding IP Infringement.

I can assure you that we meant no harm to your brand, and the products sold were authentic. I have attached our retail receipts for your convenience.

We will agree to refrain from selling your products in the future without your direct authorization.

That being said, we would truly appreciate you removing the complaint, as it negatively affects our business.

You can do so, by emailing this address:
notice-dispute@amazon.com

Please let us know if we can be of any assistance.

Thanks,”

—————————————————————

Typically, we have seen three types of responses to this letter:

  1. Company issues the retraction.
  2. Company will not issue the retraction (at which point, you might want to reconsider legal counsel)
  3. Company does not respond to the email or inquiry

Now, if the latter happens, you can show Amazon where you reached out to this company several times to try and resolve the issue and the company did not respond. In most cases, Amazon will remove the strike on your behalf. If that happens, I would highly advise against carrying that brand of product again.

Counterfeit/Inauthentic Warning

While these complaints may look identical, they aren’t. Counterfeit means that the product is ACTUALLY fake. They believe that this product is not a real version. Whereas Inauthentic may mean something like your product was sourced through a grey market situation.
Either way, these complaints are typically resolved by offering Amazon invoices to show where your product was purchased or sourced from. It is important that when you are giving invoices specifically those need to say “invoice” or show “paid” or “dates shipped”. Amazon does not allow Pro-forma invoices.
Regardless of whether you have retail or wholesale invoices, you should annotate them. This will help the Amazon rep review them more quickly.

Used Sold as New Warning

This one is a common misconception among sellers. Most sellers assume that Amazon (or the customer) is accusing them of selling an actual used product.

In most cases, this meant that the product had damaged packaging OR was damaged itself. It’s very important as sellers that we check the condition of our products OR use reputable prep centers like Prime Zero Prep or PrepIt-PackIt-ShipIt that will review them prior to sending them in.

If you get one of these complaints, you will likely need to show proof of purchase that the item was purchased new.

In addition, you may be asked for a Plan of Action.

What Do I Need to Do If They Need a Plan of Action?

The first thing you have to do is find out what the issue is or do your best to find out that information. The places you should look are:

  1. Feedback received
  2. Customer correspondence
  3. Product reviews (look at recent one-star reviews).

With a Plan of Action, you need to explicitly state you accept your responsibility in causing Amazon to issue this warning. Many sellers have issues with this. Most people don’t want to admit wrongdoing, or simply aren’t looking at it from the perspective of something they did CAUSED the issue.

For example, if the customer received the product and the package had damage, did you as the seller:

  1. Bubble wrap that product?
  2. Bag that product?
  3. Provide adequate dunnage (with 3 inches of padding between each product and the walls of the box)?

In most cases, the answer is no. You didn’t do all you could to protect the product. It also doesn’t matter what others get away with. It matters that you were caught.

So, you should acknowledge wrongdoing, and also accept it is true and something you can grow from later.

Once you do that, you need to identify the “root cause” of the issue. What caused this complaint? We specifically advise that you use the terminology “root cause”, and give them a singular reason you believe to be why the customer had an issue.

Beyond that, you have to construct your plan.

We believe that the best plan of action is simple, 4-part Plans of Action.

Step One: Manages Existing Issue

We are looking for a change or something that will correct the issue with current products in the Amazon Fulfillment Centers.

Step Two: Review Prep Guidelines & Make Changes Accordingly

In this, you are looking at your company’s current procedures and making changes that will prevent this issue from recurring.

Step Three: Additional Steps to Prevent Mistakes (Generally something with Quality Assurance)

In this step, we want to reflect and provide follow-up to make sure the changes in step two are being followed and adhered to.

Step Four:  Changes made to your processes to minimize future errors

Amazon just wants to see you took the time to understand the problem, and are making logical efforts to fix and prevent future issues from arising.

I personally believe the hardest part of this process is not taking it personally, and not being able to take the blame. If you can’t do those things you can’t do the process as Amazon intends, which will help you improve as a seller.

While we consider ourselves to be knowledgeable about Amazon and Seller Performance matters, it is also something we have outsourced. If you find something you can’t resolve, rather than letting it destroy your account OR stealing your bandwidth you can outsource it to a professional.

One person we suggest with these matters is Scott Margolius from FeedbackRepair.com. We recently had an issue we were struggling to resolve and just wanted some fresh eyes on it. Scott came in and helped us resolve it quickly and gave us a WHOLE new perspective when dealing with Amazon complaints.

Hopefully, this article helps you to understand how to deal with Amazon complaints and will help you feel more comfortable doing it. Then if you find something that you can’t resolve, feel free to use our suggestions from this article!

Addressing Amazon’s “ASIN Change” Notifications

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This is a notification sent by Amazon to let you know a product you carry has had information on its detail page altered. As an Amazon seller, it is your responsibility to make sure your product is correctly represented by the Amazon detail page, so the customer will receive the exact product they ordered.

These notifications will say “Amazon.com ASIN Change Notification” or “Amazon.com ASIN Merge Notification.” As stated above, these are simply referencing a change that has been made to the detail page on Amazon.com. Whenever you get them, you should be diligent in checking the detail page for these changes.

Here are some steps you should follow:

  1. Read the email thoroughly and note any changes that have been made.
  2. Go to the listing on Amazon, review the current listing for those changes.
  3. Verify the changes made DO NOT change the overall product qualities.
  4. Looking at all aspects (including weight, measurements, etc) verify that your product still matches the detail page, and is what the customer will receive when they order your product.

If your product matches the detail page then you should have no worries. Often times these changes are simply done to give the product a more vibrant title or description, or even giving it exact CubiScan measurements or weight. If those are the case there is absolutely nothing to worry about.

If the product details were changed and it makes the details inaccurate/deceptive to the buyer, then you will need to address that very quickly with Amazon.

Here are the steps you should take to make sure you don’t receive a complaint from a customer:

  1. Deactivate the listing – change it to Merchant Fulfilled.
  2. Create a case with Amazon – detail the problem with the new listing, DO NOT focus on the changes made. Focus on what would actually correct the listing.
  3. If Amazon does not correct the listing, DO NOT sell these products on the listing, instead return the products and get a refund OR create a new listing.

The same holds true to incorrect listing merges. You should follow the same steps and hopefully, you will be able to get it corrected and the ASIN’s re-separated. If you cannot, you should follow the same deactivation and removal steps.

It is important to say, should you receive these notifications, it is still important to follow up. You should deactivate your listings as, in the instance of returns, you don’t want to sell an incorrect item.

Amazon protects the customer and values the customer experience highly. It is a cardinal sin on Amazon to sell products that do not match the detail pages. I am sure most people have heard the stories about suspended accounts, etc. The best possible thing you can do, in regards to protecting your Amazon account, is to be extremely diligent in following up with these.

Protect your account and make sure you are catching potential issues!

Do You Want to Be Good…or Great?

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I was reading through some of the older posts in our Facebook group today and came across one of the more interesting ones I had written. I am passionate about the concept of how your mindset relates to your business, and how that can affect its trajectory.

In my opinion, people have one of two mindsets:

They settle, or they strive.

Most people will tell you they strive for more, but what does that really mean? Does it mean putting in more hours doing the same thing?

Does working harder, in and of itself, constitute striving for more?

I personally don’t believe so. I think working harder will make you more money as long as it is sustainable. However, I don’t think working harder, by itself, will make you great.

How do you become great? What is the fundamental shift in mindset that has to take place?

Being great is not only about working hard, it is about challenging yourself to find new strategies that work. It is about being creative, and deviating from common thought.

The post I referred to above was about an alarming statistic I read in reference to Amazon sellers specifically. There were more than 2 MILLION active Amazon Sellers, and only 150,000 of those sellers were doing more than $1000 per month in sales! Wow. If you extrapolate that out, you can assume only 15-40k sellers (based on the initial statistic) would be doing over $10k per month in sales. $10k is the absolute lowest amount I could imagine that could produce a full-time income (and a very low one at that).

You have to realize the dynamics involved in taking 3P Amazon Sales to the level of a business.

I can tell you what it isn’t…

  • It’s not knowing everything about Amazon.
  • It’s not about the sheer intelligence of the person.
  • It’s not about the reasons that hold you back.

Since we started working with people on their eCommerce businesses, I have seen so many questions I had to Google or scour Amazon to find the answers to! Why is that alarming? It’s because I have been selling on Amazon for more than five years at this point, sold HUNDREDS OF THOUSANDS of products, and had never encountered (or had encountered so infrequently) the situation they were asking about.

“How is that possible,” you ask?

The real side of this is that most people look for reasons to not move forward. They look for reasons to fail, or why they might fail…

The point of this is not to suggest that you should not ask questions. It is to say, “Are you asking the right questions?”

Too many times we get ourselves in the habit of asking “How?” questions. How questions are the questions you can Google and find the answer to. More often than not, they don’t change your operation, your line of thinking, or open your eyes to possibility. If you want to raise the bar for your business, or for yourself, you need to stop thinking about “How?” questions. Just stop. Realign your mind to think in “Why?” questions. Your focus is misguided if the answer is in the procedural or rote stuff.

I want to point to two of our past students as they are PRIME examples of this. Kenny Lok and Jonathan Ramsuchit. When I met these guys, and when they took our course, their questions were difficult to answer. They weren’t procedural or related to how can I move past this task. Instead, their questions were trying to understand processes.

These guys weren’t looking for “ways to make money”, they were trying to understand the process of making money and applying it consistently. They were less caught up on the how than understanding the why! To date, these guys are super successful TWF students. While I love to believe that it was solely our great teaching that got them there, I truly believe their attitudes and mindset played a HUGE role.

In terms of operating your business, get over the mindset of learning how to complete tasks, and learn to understand the process that creates the task.

The goal of our course has never been to show people how, instead we focus on teaching people why. We don’t want to create a herd of people who blindly follow directions. Instead, we want to teach people the fundamental principles behind making a long-term viable business.

If you want to start thinking about why and move from settle thinking to thrive thinking, transition your mind to consider these simple principles.
The thing about business in general is: there is NO SUCH THING as a RISK-FREE investment. Everything and I mean EVERYTHING you buy for re-sale is an investment. Nothing is guaranteed.

You have to get over your fears, focus on learning the key points of analysis, and assess the risk of your purchase.

If you want to be successful, leave the herd mentality behind.

1) Sellers don’t equate to competition.

They just don’t.

The herd will tell you products are too competitive without having any factual basis for that determination. Instead, learn to analyze your competition and make decisions based on analysis rather than feeling. You will go farther, faster.

2) The herd will try to define a product by sales rank without truly understanding what sales rank is, and what that number represents.

We teach our students WHY they should analyze these. We focus on the “simple” things. If you analyze “simple” things correctly, you realize they are quite complicated. We don’t teach people to read a road map with a key, we teach them to use their compass to build their OWN map.

If you focus on the simple things and understand them at the core, you can make the jump from average to exceptional. However, that doesn’t start with HOW questions.

3) The herd says focus on margin.

This is wrong on SO many levels. First, it is the most antiquated analysis point in business. It’s truly dinosaur stuff. Also, it presumes you can control your market conditions. On a 3P direct-competition platform, you can’t control the market conditions! You end up being the guy or gal whining about the “race to the bottom.” You have to understand you can’t control what others do with their products. The sooner you realize this, the better off you will be.

Margin as a primary analysis point is only viable in a traditional retail setting, or in true manufacturing where you can control the market conditions. In the 3P market, there are too many variables to allow this.

If you want to move your mindset to the present day and make it applicable to the Amazon marketplace, think of your investments as time-based returns. If you focus from that perspective it will serve as Risk Mitigation as well as return projections over certain sets of time. This allows you to plan your investment patterns, as well as move easily from a bad investment into a good one. We focus on sell-through as opposed to maximization of return because we realize that we can’t control market factors.

The primary factors in calculating time-based return are Turn Rate and ROI. We look at profit margin still, but it is a “glance at the past” perspective. We buy based on ROI, and Turn Rate, as we believe realized margin is much more accurate than anticipated margins (even if they are higher).

Focus on Cash Flow.

When you hear others talk about this from a contrarian point of view, you should realize one of the following to be true:

  1. They are either an established business with very deep capital (in which case they may have the luxury to be able to wait out market fluctuation)
  2. They may simply be trying to maintain, and not grow (settle minded mentality).
  3. They are a hobby seller, and really aren’t working towards building a business.

I realize parts of this may be controversial. If they are, great! I have done my job. I have challenged you to think about your business and its direction.

Just remember, don’t be average, and don’t set your sights on average, be great!

7 Reasons You Should Be Selling on Amazon

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As you can guess from our site (and the title of this article), we couldn’t be more excited about the opportunity that selling on Amazon offers.  We started our business in 2011 with a $600 credit card, and high hopes for eventually making enough money as a side hustle that we could pay for things like vacation. In just five short years, our business has done more than $13m in sales on Amazon and has grown to a full-time business which allows us to employ several people.

That’s kind of like the ‘American Dream!’ Thanks a boatload, Amazon!

Here’s the cool part: this opportunity is available to anyone who is willing to put the work in and get started. Amazon has grown a ton over the past few years, and the opportunity has just gotten bigger for those willing to reach out and grab it.

If you don’t already sell on Amazon, this is why you should start today:

1) It’s a low-barrier-to-entry business with a big upside!

Look at what I wrote above. We got started with a $600 credit card and a dream. We turned that into over $13M in sales. Honestly, this is the CHEAPEST business to start in the world. You can start with almost nothing and if you are willing to put the hustle in, and focus on building your business – you can grow it as big as you want!

What other business can you start for $600, and truly hit the ground running? Not many. This business allows you to really grow as your capital grows. There isn’t a required amount of stuff to buy, and Amazon provides you with all of the tools you need to get started. You don’t need tons of equipment and other stuff. You just need a computer, a printer and an internet connection. If you have that, you could have a business overnight.

2) FBA makes this REALLY easy!

So, what is this magical FBA? It is a program operated by Amazon themselves, appropriately named “Fulfillment by Amazon”.

This is a program created by Amazon where you can send your products to their Fulfillment Center, and they will ship your orders to customers and handle any customer-service-related issues to the fulfillment of the product as well as necessary returns.

Let’s think about this; they store your product, pack and ship your individual orders to customers, and handle your customer service. This means your interaction with this process is simply sending the product to Amazon!

This truly levels the playing field and takes much of the size and experience side out of the equation. Instead of having to compete against bigger and more experienced sellers, you are able to use the best fulfillment network in the world, have access to partnered rates, and have a built-in infrastructure that will allow you to scale without adding additional manpower.

If you want to learn more about FBA, check out this link:

https://services.amazon.com/fulfillment-by-amazon/benefits.htm

3) Amazon is the world’s largest online marketplace!

And shows no signs of slowing down!

As our world becomes more digital and mobile, Amazon will only grow. Amazon did $107B in sales in 2015, up from $88B in 2014.

* from statista.com

As you can see, Amazon is consistently growing year over year, and that provides a huge opportunity for third-party sellers to sell to Amazon’s growing customer base.

A little-known fact is Amazon is the largest online retailer, and actually does more sales than the next five competitors combined. Hopefully, this gives you an idea about how big Amazon’s customer base is, and the type of growth you can be a part of.

4) Your business can be run from the comfort of your home.

With the rise of Amazon and the popularity of the third-party marketplace, many third-party solutions have developed to help facilitate selling products via FBA. One of the major boons has been the rise of prep centers. Prep centers are companies that receive your inventory, inspect it, and ship it to Amazon in compliance with Amazon’s shipping regulations.

This helps as you no longer have to receive inventory at your home, or even physically touch the inventory. You can start your business, purchase products, have them shipped to a prep center while never having to see or touch the products you are selling.

That means that you can reduce your interaction further, to the point that you are only looking for great products to sell and establishing relationships with those brands.

5) Selling Physical Products is Incredibly Low-Risk.

There were two concerns in opening a traditional business:

1) Driving traffic to your products.

2) What if I buy something that doesn’t sell?

Creating a traditional business has always had lots of risk. You were selling products and services to an undefined audience. How will people respond to your service/products? If the reception went poorly then your business would struggle. You had to create foot traffic and start to go through the process of establishing your brand and creating a customer base. Amazon allows us to completely sidestep this, as they have a massive customer base of millions of buyers just waiting to buy our goods. You don’t have to commit the time or develop the expertise required to truly build your brand.

In relation to the second concern, the great thing about this business is you are purchasing products that have tangible value. Unlike businesses where you are selling ideas, you are purchasing products with a defined and expected value. These are physical products that you can hold in your hand. In fact, under an ideal set of circumstances, you are purchasing products with a clear demand.

6) Amazon Actually Tells Us What to Sell!

The point of being low risk is further reduced here. Keep in mind that Amazon is a huge database with billions upon billions of data points, and they recognize the products that their customers want and are purchasing regularly. Amazon wants more of those products to be made available to their customers, and actually tells us what products they need based on the sales rank.

Here is what that looks like:

As you can see, this product is ranked 15094 in Health and Personal Care. That means that the product is actually the 15,084th best seller in that top-level category.  Now, as I had mentioned in another point, you can use a third-party (free) solution like Jungle Scout’s estimator tool to get an idea of how many times that product is actually selling per month.

You can find the Jungle Scout estimator here:  www.junglescout.com/estimator

Jungle Scout’s estimate is that this product is selling around 246 times each month. In our experience, Jungle Scout has provided an incredibly reliable tool with very close estimates (and we use those estimates in our business).

So, as you can see, this product sells very well and would be something that you could count on being able to move as it is a demand-driven product. Our entire business is created around these principles. We locate products that people are purchasing and have existing demand, we find those products and we sell them on Amazon utilizing Amazon’s amazing fulfillment network.

7) You can build a family-run business.

You can build this business to incorporate your family and truly run it as a family project. We recently worked with a charity that teaches kids how to grow and operate eCommerce businesses. This was one of the most fulfilling projects we have been a part of, as seeing these kids actually learn how to sell on Amazon was beyond impressive. The entire atmosphere was incredible, as the parents were working side-by-side with their children to help them grow and create long-term sustainable businesses.

Honestly, what is better than teaching your children how to run their OWN business, and being able to work alongside them to help it grow?

You can learn more about this organization at www.ecommercekids.com

Here is another awesome fact…

These kids weren’t just learning to sell. Some of them had thriving businesses doing more than $50K per month in revenue! Obviously, these kids are super intelligent and driven, but I believe that speaks volumes about how easy Amazon has actually made this process.

The bottom line is: Amazon provides a HUGE opportunity. This opportunity can be built to scale to ANY size that you want.

Maybe you want to make a few extra hundred dollars per month to help with rent?

Maybe you want to make a few extra thousand dollars per year to take a vacation?

Or, just maybe you want to create a long-term sustainable business that will be your sole source of income?

Honestly, it is truly an unlimited opportunity. You can grow as big as you want, or keep your business small, as Amazon’s FBA program is fully adaptable to your needs. I implore you to give this a chance. It has been a life-changing thing for us, here at The Wholesale Formula, and for MANY others around the world.

Replenishment-Based Wholesale Primer

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The single thing I find most intriguing about Amazon businesses, or entrepreneurial-style businesses in general, is there are so many ways to do the same thing. The question that we are asked most often is “how do I find wholesalers?” The problem with this question is it does not take into context the different types of wholesale businesses that can exist. In this article, I will describe the different types of wholesale, and describe the model that we subscribe to.

There are four primary types of wholesale: Closeout, Liquidation, Distribution, and Direct.


Closeout

This is a type of wholesale that is done with an “end of life cycle” product. The primary benefit to operating in the closeout space is the product is at the end of life cycle, so there is a finite supply of what is and will be available. This means, ultimately if you purchase the entire available allotment, you could sell this product without competition as competition ran out. There is a level of solace in being in sole control of a branded and demand-driven product.

The primary problems with operating in the closeout space are:

  1. Products aren’t replenish-able. If you find a product that works for you there is an “end” to the amount of sales that you can do with it.
  2. Purchasing the entire runs of products can be prohibitively expensive, and if you don’t purchase all of the product, you are leaving yourself open to the possibility of facing competition and not being able to maximize your profits.
  3. It makes poor use of your cash flow. Purchasing heavy on the front end simply ties your cash up for long periods of time and doesn’t allow you to maximize your purchasing power over time.

Liquidation

This is a type of wholesale where companies liquidate their holdings of given products. This can be done for a variety of reasons like clearing shelf space, getting rid of shelf pulls, or moving product that someone didn’t purchase. The primary benefit to liquidation is that the cost per unit is VERY low, and leaves you with a lot of room for profitability.

The primary problems with liquidation are:

  1. Products aren’t replenishable.
  2. If you purchase shelf pulls there will be MANY problem products, like expiration date issues or damaged product that you cannot sell.
  3. For the most part, the Chain of Custody on these products is poor or doesn’t exist. This comes up in Amazon inauthentic claims or not-as-described claims. Without being able to prove the lineage of your products, Amazon assumes the worst and may suspend or ban your account.

 

Distribution

This type of wholesale is setting up accounts with companies who represent and distribute product for a variety of companies. The major benefit of distribution-based wholesale is you have access to a larger variety of products.

The primary problems with Distribution wholesale are:

  1. Finding products is like looking for a needle in a haystack. You can do it efficiently with a program like Price Checker, but still, you don’t know what you are looking for.
  2. Distributors tend to offer worse margins, as they have to make money as well.
  3. Competition is generally tighter on these products as distributors’ goals are to move high volumes of units and they don’t generally discriminate who they sell product to.

 

Direct Wholesale

This is the method that we utilize. We purchase products directly from the brand owner/manufacturer. The term manufacturer in the context that we use it means we purchase from the Brand Owner directly if possible. For example, if we were buying Nike shoes, our goal would be to purchase product directly from the Nike sales team. Going around this to the factory opens up a lot of liability and should be avoided.

In general, anytime you thwart the Chain of Custody on a product, you are engaging in counterfeiting which can cause you problems on the Amazon side as well as open you up to litigation. It is our suggestion that you do everything above board and purchase through the brand owner.
Direct Wholesale has a specific advantage. You are purchasing product at the highest point on the supply chain and are generally able to get the best possible pricing, as well as hopefully you work with manufacturers who care about protecting their brand and make it less restrictive to competition.

The primary problem with Direct Wholesale is:

It is harder to open accounts, as these companies don’t want to work with just anyone.

While this is the greatest problem, it is also the models’ greatest strength. You have to spend a lot of time on the front end to work with manufacturers and get them interested in working with you. However, when you are able to set-up those relationships you tend to have great products for longer periods of time.

I want to transition this into replenishment, as that is our true motivation for purchasing products via direct wholesale.


Replenishment

That simply means that the product is available for purchase over and over. Our goal is to identify products and companies, then establish relationships that allow us to take advantage of replenishment and consistently buy the same products many times.

The true strengths of the replenishment model are:

  1. Your business will become more consistent. Once you get a product – you are able to realize a true long-term-value from that product, as the products become nearly a passive income source. You simply reorder them as you need them.
  2. It has lower carrying costs. We generally only purchase 30 or 45-day supplies of the products that we carry and repurchase as needed. This allows us to stay incredibly liquid and constantly reinvest our money and profits into new products.
  3. You can create uniform processes that allow you to effectively scale. We have outsourced nearly every part of our business and simply manage the overarching strategy at this point. Anytime that you create a process – you can outsource that process to someone else. Your business will become process-based rather than talent-based and allow you to grow more quickly.
  4. Replenishment lends itself to better bookkeeping. This allows you to utilize growth models and projections in your business. For example, we purchase products to fit 30 to 45-day stock periods. In that period, we can reliably say how long it will take us to sell our products (as well as the amount of cash it will generate) with a high degree of accuracy.

Our business changed dynamically when we moved to the liquidity-based replenishment model. We were quickly able to scale our business by utilizing our cash better, as well as outsource processes to employees and contractors.

Look at what you do in your current business:

  • Do you source products?
  • Do you pack/ship your own products?

If you are sourcing via a method like RA, a lot of your process is based on intuition or feeling. However, in our model, we were able to base it on strict sets of criteria, allowing us to plug other people into that equation. With the replenishment model, we were then able to project the amounts of products that we would be processing and effectively plug-in processors as necessary to fill that role.

In terms of you and your business, look at the benefits of replenishment. The systems it allows you to create, the predictability you get from it, and ultimately the consistency it will add to your business. This model isn’t something that you can move to overnight, but something you should look to start introducing as it will allow you to scale more effectively and take you from the position of working for your business to working on your business.