Tagg Martensen is a self-employed entrepreneur. He specializes in non-web based business opportunities such as retail and services.
Sell What You Know Unless What You Know Doesn't Sell
I love meditation. I also love woodworking. So one of my first business ideas was to combine my three great loves; meditation, woodworking, and commerce. The idea was simple, I designed a very basic meditation bench. I made the design such that I could easily batch cut the wood, then assemble all of the parts. In the end, with about two hours' worth of work, I could make around 12 meditation benches.
Online I could see these benches selling for up to $150. I was going to make a killing with my costs coming in somewhere around $12 per bench including labor.
I still have those 12 meditation benches.
While meditation benches could be good business the fact I hadn't considered was that the $150 benches were much much nicer than mine. My ideal price point was somewhere around $30. Hey, still lots of potential, right?
When I added in shipping costs, I found fewer people were willing to take the plunge on the internet purchase of my benches. For the same price they could get a knock down style bench where the legs were removable. Or a foldable bench. Mine didn't have any of these features and a redesign would drive up costs and time. Plus, these twelve benches were already made. To top things off, I found out that there were no fewer than three local woodworkers selling benches very similar to my own for $15 a piece.
Some were using reclaimed wood so their material costs were lower. Others were selling at cost as a sort of community service to encourage meditation. Profit was not their motive. For me, though, it meant that there really was no market for my product.
Know Your Market
To know your market, you first need to consider your preferred distribution channel. Is this something you're selling on Craigslist? On eBay? At a flea market?
Then you need to carefully examine what is selling, and what isn't selling, in that venue. Some of these platforms have tools associated to help guide you to searches and closed sales. There are multiple tools for helping people to sell on Amazon, for example.
If eBay is your preferred outlet, look closely at similar listings but pay attention to that "Items sold" count. Just because something is for sale doesn't mean it will sell. However, if you find that many of those items are selling, this could give you a hint as to how popular it is and at what price point you can sell.
Source Product And Be Mindful of Price Point
You'll want to set up a spreadsheet to track costs. Identify any cost associated with bringing the item to market. This may include listing fees or PayPal fees. It could include the cost of padded envelopes or boxes and postage. Know these amounts and add them to the total per item cost of your product.
Then you can begin looking to sourcing product. You know what it can sell for. You know the other costs. This gives you likely a very tight range that your product needs to cost delivered to you.
My first successful business, selling tie tacks and lapel pins, had me so excited at first. I thought I was going to double and triple my money. I'd sell out my inventory only to realize I had barely enough to restock let alone turn a profit. At my next restock I was able to bulk order and lower my per item cost by $0.13. Then I found a cheaper shipping method which lowered my per item cost by $0.35. Then I bought padded envelopes in bulk and took my per item cost from $0.50 to $0.25, saving myself an additional $0.25. Then I was able to raise my price slightly, freeing up a full dollar per item.
My products didn't fly off the shelves like before but sales remained steady. This tells me that my original pricing was too low. Once I began to keep better track of expenses I was able to identify a good deal from a supplier versus a deal I needed to pass on.
Focus On Niche Goods
If you look at a lot of the YouTube stars promoting new business opportunities they'll tell you how you can buy cell phone chargers or earbuds from Alibaba and resell them. If you go on eBay you'll find tons of these items for sale. They can be obtained cheaply and resold for a fraction of what they cost in a brick and mortar store.
The theory sounds tempting; almost everyone needs a charger for their phone. While this is true, it's such a general category that many people get into it. Competition remains high. Just to get a bite, your competitors will price themselves too low. For you, this means that you won't be able to sell at a price point that enables you to turn a profit.
Obviously, people are successful in this space. But you'll be facing an uphill battle in many of these high competition areas. Consider niche products that have a devoted following. Certain television shows or movies, groups, religions, or ethnicities have people who are devoted to buying a special kind of swag that doesn't fit into the mainstream.
As you begin to check out these niche sellers you begin to find that a loyal fanbase provides regular sales and few competitors mean you can break in with relative ease.
Don't Overextend Yourself
A colleague of mine decided when he was starting his reselling business that he was going "all in." He went to his bank and took out a $10,000 loan. He found a supplier on Alibaba and bought $10,000 worth of headphones. They were the kind that wrap around the back of your neck and the earbuds extended out from the ends on retractable wires.
They were trending at the time. The big brands were charging hundreds of dollars for these headphones. He was getting them at a total cost of $3 per, delivered to his home.
His idea was that he would sell them for $19.99. After shipping costs, he would make approximately $14 per unit. He had approximately 3,250 headphones. With those margins, he would be looking at making $45,500. If every unit sold, he would easily be able to pay off the loan and still have a cool $35,500 left over. Not bad for shipping some headphones.
Not long after he listed his headphones, however, another competitor got into the business and began undercutting his price. Then another. By the end of the year, his price had dropped to $12. Sales slowed. Worse yet, he was getting a fair number of returns because his headphones weren't holding a charge and were dying after only two to three uses. So he was faced with either issuing refunds or replacing the defective units. Either way, money was lost.
In the end, he was able to barely pay off the loan and scrape together just a few dollars for his troubles. It was a disaster because he put all of his eggs in one basket. He was so obsessed with making a mountain of cash in one go that he took big risks by going all-in with one supplier and relying on a really high, but unsustainable, margin. He was also in a high competition market.
I built up my lapel pin and tie tack business with an initial investment of $50 for inventory and some mailers. I'm glad I started off small. I also purchased some jewelry I had high hopes for as well as a few other items. All in, I had about $250 invested in a variety of small products to test the market and see what sold and what didn't. My gains were far more modest but at the end of the day I only really risked losing $250.
Don't invest money you can't afford to lose. Don't put your eggs in one basket. Certainly don't quit your day job until your success is sustainable.
Be Versatile. Be Humble.
Being an entrepreneur is awesome. It's also super trendy to say you're an entrepreneur today. Don't rush out and buy swag for your new company. Don't go calling yourself a CEO until you have a business, not just a business entity, but a functioning business that is generating revenue.
Take all of that pride and focus it into making your business as successful as possible. Relish in the joy of all the money you're making rather than all the money you want people to think you're making.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.