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Are you looking forward to turning your side hustle of flipping second-hand clothes into an official reselling business?
Are you unsure of how to proceed? Then this article got you covered. We’ll walk you through the entire process of starting a successful reselling business from A to Z.
But first, let us have a look at what a reselling business is exactly. If you’d listen to someone who has just started his or her reselling business, you may falsely assume that the act of reselling is a piece of cake. After all, all you have to do is buy items and flip them for a profit, right? Not so fast.
The main caveat lies in the fact that – and this is true for all business ideas that are easy to digest – you are often dealing with an enormous amount of competition. Not only is everyone selling on the same marketplaces, but you’re also competing to source the cheapest products of the highest quality.
And that brings us to the definition of a reseller. A reseller is a person who buys goods directly from manufacturers/wholesalers/thrifting shops at a cheap rate and then tries to flip them for a profit. Sometimes, the reseller adds value by repairing or modifying the item.
The resellers have to keep records of all the products they have bought, sold and repaired, and often need to store a large inventory, as they are not able to sell everything they have bought immediately. In some cases, this will lead to storage costs, which eats away the profit margin.
On top of that, they need to have a deep understanding of the market they’re selling on, as their job is essentially a sort of arbitrage, where they rectify market mispricings by reselling goods that were initially sold at a low price.
So knowing at which price to buy and at which price to sell is one of the core drivers of profitability for a reseller.
Hence, this makes reselling a daunting task. That being said, one can surely make money in this space, if they adhere to some critical factors. In this article, we’ll go over the nitty-gritty details on how to become a successful reseller. Let’s get started.
What Should I Resell?
The first topic or question is the most important question you face if you’re looking to start a reselling business: what do I sell? We recommend that you focus on selling things that you know. Sell brands that you love or products that you’ve used before.
The reason for this is that you’re usually able to detect mispricings much easier if you’ve had personal experience shopping for the product. Say for example that you like to buy vintage clothes. If you’re familiar with buying such clothes, you’ll have a good idea of what price you can expect.
This gives you information about the average market reselling price of a piece of clothing within that genre. As a result, you’ll be able to quickly identify mispricings if you can pick up products at half the price where you’d expect them to sell for double.
Another good way to get started is by affiliating yourself with an existing brand or an existing business. By doing this, you’ll be able to secure a steady flow of products at a fair price without having to source them yourself.
This essentially allows you to focus your full efforts on sales and marketing, rather than purchasing. In addition to that, it’s also a form of security in case of economic downturns.
The downside is that the profit margins are usually fixed and smaller. On top of that, you’re also dependent on the goodwill of the manufacturer; if he wants you out, you can lose your business in a matter of days.
Have a Business Plan
Secondly, now that you’ve determined what you want to sell, you need to develop a business plan to streamline your operations. To set up a business plan, you need to formalize objectives and ambitions. What do you want to achieve and in which timeframe? You should set realistic goals of what you want to achieve and estimate the expected revenue and margin that your business will generate.
It’s also a very good way to think about your business and learn about potential market opportunities. If you have a hard time setting up a business plan because the math doesn’t work out, you should be thankful, as it will make sure you do not waste your time in exchange for low returns. It’s a sort of test to see whether your business has any legitimacy, to begin with.
Finally, most manufacturers, vendors and other affiliates that will want to do business with you will require you to present such a business plan, along with your accounting and tax attorney. So be aware of the fact that this is not something you should skip or treat lightly.
The Sourcing Process
Now that you’ve set up your business plan and determine what you want to sell, you need to look at the sourcing process. If you’ve affiliated yourself with an existing brand or business, this shouldn’t be too hard as they will provide you with a stream of products.
If you need tips on how to find such a partner, we can recommend setting up a small portfolio about yourself in addition to your business plan. This portfolio should comprise your business profile, i.e. how big your company is, how many employees do you have, how many regions can you cover and so on. There should also be some information in there about your background, experience in the field and education.
If you’re not affiliated with an existing brand, you’ll need to figure out the best sourcing channel for your product. Naturally, this is dependent on what you’re selling. For example, if you’re selling clothes, containers with expired clothing from existing stores is a good option. Naturally, you’ll also find good deals in pawn shops or thrift stores.
Also, check out your local Dollar Store as they often have some surprising items for sale! And of course, you can always just search the web for opportunities. A lot of people are selling their used clothing – usually in the Spring – without a good understanding of what they’re worth. This is where you step in and use your experience to exploit their mispricing and generate a profit.
The information below happens to cover each and everything you need to know about reselling.
Now, let’s get started with what you need to be a reseller.
Making Your Business As Efficient As Possible
Sourcing products and listing items online costs time. There are many online marketplaces available, each with its dedicated niche of users.
Some marketplaces focus on many products such as Ebay or Mercari, while others focus on certain niches, for example, Grailed and Heroine focus on streetwear, for men and women respectively.
Additionally, you have marketplaces that focus more on the social aspect of selling: bonding and exchanging cool items, such as Poshmark.
Ideally, you want to list your products on all of them; but this isn’t an easy task. Listing items on multiple marketplaces means completing a bunch of complicated forms, which takes loads of time and stops you from focusing on other aspects of your reselling business, such as finding sources opportunities.
This is where Crosslist comes in. Crosslist is a productivity tool designed for resellers to help them save time listing on multiple marketplaces.
Simply complete your product information once, and then post your listing on all marketplaces simultaneously. You’re essentially saving minutes completing forms manually per listing.
They’re currently offering a free 7-day trial with no credit card required, so check them out. Highly recommended if you’re looking to quickly grow your business.
Understand the Compensation Model
Next, you need to understand the compensation model of your reselling business. If you’re affiliated with a business, you’re typically earning a fixed percentage of the market selling price.
To be successful, you need to carefully determine whether this percentage times the price of the product times the amount of products sold is larger than your costs. If not, you’re losing money and your business won’t last long.
The same is true if you’re sourcing items yourself. Carefully determine the margin for each product and make sure that you have some wiggle room in your estimations.
You’ll never know that you’ve made a mistake in determining the selling price and thus have to lower it. It’s best that in that case you left some room and can still secure a nice margin.
If you’re buying an item and expecting a 5 percent margin, you should stop there, as any decrease in market selling price will immediately result in a loss due to your estimated margin being too low. Note again that you can calculate your margin as follows:
Margin = (Price – Cost) / Price
Often, you’ll also see mark-up. They’re very similar, but mark-up considers the mark-up against the cost:
Mark-up = (Price – Cost) / Cost
Read the T&Cs Carefully
This is one of the most overlooked things in reselling but yet one of the biggest mistakes that you can make. Note that this only applies if you’re forming partnerships with other businesses.
When you’re signing a reseller agreement with a manufacturer, make sure that you have a lawyer stand-by to go through the deal at least twice. This will cost you, but running your business into the ground due to some legal clause that eats away your margins will surely cost you more.
A good way to proceed is also by asking your reseller connections and checking the contracts they’ve signed. If they’re getting significantly higher percentages of the market selling price, you need to up your negotiation skills and sit back at the table with the manufacturers.
Once you’re sure that the contract is fair, sign it, shake hands and congratulate each other on becoming business partners!
Reseller as Business Owner
Here’s a thing that people sometimes overlook: once you become a reseller, you should be aware of the fact that now you’ve become an actual business owner. And your business will only thrive if you put in the hard work. So stay motivated, even when things get difficult because artists lead and hacks ask for a show of hands.
Conclusion
Well, 30 points for making it this far. We hope that the information above helps you with starting your own reselling business.
One last tip: don’t read articles forever, get up, sit down at the drawing table and begin writing your business plan.
The biggest hurdle for most is overcoming the fear of failing and taking the leap of faith. We surely wish you good luck in your endeavour.
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