Starting Your Internet Business Right
In our scramble to find a way to offer the lowest prices on the
Internet, we often overlook the basic steps that we should be taking BEFORE we
even offer a product for sale. We also overlook something even more important:
you don't HAVE to have the lowest price in order to make great sales. Following
are some things you should do before and after determining your bottom line. No
matter what your Product Sourcing Methods, these steps should be covered.
Should you be selling this item now?
Snowboards don't sell well in the summertime. You may have a hard time moving a
pair of Roller Blades in January. Don't waste your time and your site space
marketing products out of season. Ask your Supplier for a little historical
information regarding the best time to sell their products. Believe me, to
everything, there IS a season. They have the figures.
Identify your costs
Profit isn't just the difference between wholesale and retail. You have other costs to consider. Think about every penny you spend in order to get that product to the customer's door, and plan accordingly. For example, your merchant account probably costs you about 2.2% plus 30 cents per transaction. On an item you'll sell for $20, that's 74 cents. Don't forget that calculation when pricing the item. Your Supplier may charge a drop ship fee per item, or you may be buying boxes and labels for shipping wholesale products you bought in bulk. Remember to factor that into your price.
This may seem very complicated, but it's really not. Just take the figures one at a time, and you'll arrive at a wholesale cost plus an amount that, when added together, becomes your "cost of goods sold". For example, a Drop Shipped item that costs you $10 at wholesale, plus a $1.50 drop ship fee, actually costs you $12.24, not $10. Why?
� Product cost at wholesale: $10
� Drop Ship Fee: $1.50
� Merchant Account transaction fee for a $20 sale ((20x2.2%)+.30) = $0.74
� Total = $12.24
� At a $20 sale price, that product earns you a 39% profit (1-(12.24/20) =39).
Identifying all your costs is important if you want to price your products properly.
Here's something to think about when you buy products in Bulk, and ship them yourself: When you buy a few cases of products from a Light Bulk Wholesaler, for example, it's going to cost you a certain amount of money to have those cases shipped to you. If you buy a Bulk load of 200 products, and you pay $50 in shipping to get that Bulk load delivered to you, you need to remember to add 25 cents to your cost figures for each of those 200 products!
Check out the competition
Search on the item you plan to sell. Check out the competitors' prices. But DON'T get caught up trying to beat the wrong competitor! You need to stay within your "venue" (the place on the Internet where you sell your products).
If your Store is highly ranked on a particular Search Engine, most of your traffic probably comes from that Search Engine. When you seek out your competitors, you should look for other businesses like yours in that SAME Search Engine. Then compare.
So check out the competition, narrow down your product list and make a note of the three lowest prices you find for each product, and then ask yourself another question.
Is anybody going to buy this thing?
This doesn't have much to do with pricing, but it should be said.
When considering products, there's unique, and then there's too unique. Yak Butter may sound like a great product, because nobody else has it for sale on the 'Net. There's a reason for that. If you sell more than 3 boxes a year, I'll EAT some.
Unique is Rain Barrels made in Maine. It's Exotic Cheeses imported from Italy. Silk Parisian Lingerie. Things you don't see every day, but would be proud to give as a gift.
Then there's "common". Everybody and their grandmothers are selling Alabastrite Figurines on the Internet. Do they sell? Sure, in a limited fashion. Do you want to sell them? Not if you want to make any real money.
In my experience, the vast number of products that fall between those two extremes sell well. Sleeping Bags and Hair Dryers. Drills and Kids' Computer Software. Mainstream products that everyone uses all the time sell. Look at your potential product, and ask yourself honestly if YOU or people you know would buy it on the 'Net.
Set your price
Take the lowest price you collected on a product in your list that has survived all your Research and still looks good. Calculate your estimated wholesale cost, and then subtract that from the lowest price. If you don't see at LEAST 15% profit, look into another product.
If you do see a decent margin, there are a couple of ways to proceed. You can undercut your lowest priced competitor by a bit, and hope to "kick off" the product and get yourself noticed. Chances are, though, that the following week you'll find that someone has undercut YOUR price by just a bit. That becomes a losing game.
One method you can use to draw customers is called the "loss leader". These are desirable items (in your general product line) that you sell dirt cheap just to bring in customers. Then you price the rest of your products at the second or third lowest price in your venue. The customers come in for the loss leaders, and once they're in your store, you can lead them to other products that complement or replace the loss leader. Using a two-slice toaster as a loss leader? Place a much nicer four-slice toaster right next to it, with a higher profit margin. They're already there, they already want a toaster; wouldn't they rather have a REALLY NICE toaster?
There are all kinds of marketing methods like that which you can use to promote your products, but the one that works best is this: Spend some time making your Site or Auction better than your competition, and pay a great deal of attention to your customers.
That makes you more reputable in the eyes of the customer. You'll find that people don't mind paying just a little more if they feel comfortable in your Store. They don't like to worry that they're buying from a "hack" who may not deliver. Nothing says "hack" like a cluttered, confusing Storefront, and a slow response to customers' questions.
Follow up
After you've sold an item for a month or two, revise that "cost of goods sold". At that point, include the monthly cost of your Store or Auctions. Measuring past performance is just as important as setting the correct price to begin with. If sales drop, recheck your competition. If that's not it, drop the product, or shelve it until the "season" comes back around. Don't get sentimental about your products, and NEVER just let your business just sit there in limbo once it starts to make money. This is a dynamic business; stay on top of it!
A last word (or three)
Retail pricing has many "ins and outs", on the Internet or anywhere else! It would be impossible for me to cover everything here. The steps above are just the basics of a process that works for me. Patience and persistence are important keys to a successful business of ANY kind so hang in there and take it one step at a time. You CAN do it!
