This was originally a guest post over at Net Business Blog. It’s been over a month so I reposted it here for preservation sake. Here’s the original Comments. Enjoy!
Hello everyone. This is your captain speaking. First I’d like to introduce myself. My name is Eli from BlueHatSEO.com. I do a little SEO here and there when needed. It’s not everyday that someone like Matt offers you an opportunity to do a guest post on one of the best internet business blogs on the net like NetBusinessBlog. So I’d like to start off by expressing how extremely honored I am for the chance to write this post and demonstrate a few things to the NBB’s community. Writing about the business aspect of SEO is not something I get a chance to do very often so I think this is a great opportunity to talk about what I think is one of the toughest business transitions in the industry. The move from affiliate to full blown E-Commerce publisher.
The reason why I say that E-Commerce is the toughest transition to make is because if you’ve ever attempted it, whether you were successful or not, you find out very quickly why it’s called the big boys club. In the affiliate market industry you have several people above you. First the manufacturers. Then the suppliers.. Next the E-commerce sites. Lastly the affiliate network. Everyone above you wants you to succeed. Your success means their success. In the E-Commerce world the model of authority changes. It is just you and the manufacturer. The manufacturers want you to succeed but not so much that it hurts their real cash cows, the local retailers who will spare no time complaining about their online competition. Frankly you are nothing more than a necessary pain in the ass. In that spirit the manufacturers use their biggest asset, the suppliers/distributors, to put up barriers so the average Joe can’t just jump into the business. You go through the suppliers and the suppliers make sure you don’t upset the manufacturers. Understand that to them it’s fine to field complaints about places like Tigerdirect or Walmart being too price competitive. You just laugh and say yeah that’s them! Fielding questions about some guy/girl in a bathrobe out of their house is a different form of headache for the manufacturers. A headache they are not willing to accept. So what about the average Joe? How do we break into the business?
First understand that I’m going to explain in deep detail how, but that the information I’m telling you does not come from lots of research and reading. It doesn’t come from learning from other people and attending conferences, nor lots of personal success or luck. Instead it comes from tons upon tons of failures. I’m too embarrassed to say how many failed E-Commerce sites I have laying around on my servers in ratio to successful ones. Let us just say the numbers aren’t pretty. I learned the true secrets the hard way and in an effort to help you not do the same I present to you this guide.
The obvious first step is to pick your niche. You should be an expert on this by now. So this step should be easy right? Sorta not really, this is where the most average Joe’s fail. When searching for niches as an affiliate marketer you look for easy to sell items that have low competition for their keywords. In E-Commerce its exactly backwards. You’re looking for those products that are seemingly impossible to sell online with extremely high competition for their keywords. I’ll explain why. The natural Internet nerd like ourselves wants to sell something we like or use ourselves. For instance computer parts or electronics. You can easily find long tailed phrases with low competition and get your hands on lots of products to ship. However, you are force to compete with everyone else. If you think you can score the same margins and prices as places like Newegg or CDW you are kidding yourself. They will absolutely crush you and leave barely anything left for the rest of the competition to wipe with. I hate to be blunt about it, but that’s the harsh reality of the situation. Instead do some retail research around town. Try going to a local mall and start writing down every product you see that would possibly have a big gross margin(the dollar amount between your buying price and selling price) that you think might be difficult to find online. You will be shocked at where you find these products. They aren’t on the bottom shelves at large retail outlets they are typically hidden in specialty shops.
After you have compiled your list ask yourself some questions about the products. I’m going list an example. Please don’t take it literally because I have done no actual product research on it. I’m strictly using it as a superficial point of reference. Lets assume you walked into a kite shop. So now we have a potential product to sell, kites.
1) Does this product potentially have a high gross margin? Yes, I would imagine kites would have a high gross margin because they seem fairly cheap to make and yet certain ones like two stringed kites sell for very expensive.
2) Does this product potentially have a MAP price(minimum advertised price allowed by the manufacturer)? Kites possibly do but more than likely don’t because kite shops are sparsely located in places where kite flying is popular like coast lines. *Products with MAPs in place are very good for starting in ecommerce because they allow you to get the product cheap, and still be able to compete with your prices against the heavy competition.
3) How hard will it be to get my hands on this product? With kites I would imagine it would be pretty hard. There probably aren’t very many kite distributors, and the few around are probably big enough to service the entire country.
4) Is this product easy to find and buy online? One search on froogle for the word “kite” gives me only 36k results. By comparison yeah I’d say its pretty hard to find the right kite online. *The harder to find a product the better. It means there is probably loads of information about it, but few selling it. Meaning, if you manage to get your hands on some product fulfillment; competition will be easy to deal with.
5) Are there plenty of variations of this product? Yes there are many many different types and shapes of kites. *Variations are a good thing, it means you may possibly be the only etailer to sell a particular model that a customer may be looking for. It also means your website will be large enough to draw enough traffic to convert. People may come to your site looking for one model or specific product but then decide on another while browsing your site.
Fulfillment and Shipping
Next define a specific plan for fulfilling your orders and shipping methods to your customers. You have several options to pick from.In-House Inventory – You buy the products directly from a distributor or manufacturer and then ship them to your customers yourself. This has several obvious upsides and downsides. On the upside, since you are for sure purchasing the products you can bargain for cheaper prices and suppliers are more willing to respond favorably. Storing the products yourself also allows you exact control over your own inventory. The downside of course is that this piles quite a bit of work upon yourself. You have to have space for all the product. Likewise you have to manage your own inventory counts and personally ship the products yourself. A lot of people in the industry have done very well with this method, but don’t expect to be an overnight success without a ton of work on your part. It’s best to build up to your own inventory not start out there.
Private Manufacturing – You can cut a contracted deal with a person you know who invented something and have them make and ship the products for you. You just make the sales and inform them of the orders. This is ideal because it allows you the benefit of exclusivity to a product. The downside is of course the reliability. Since they are your only sole supplier if they take off or quit you are still responsible for their actions and your business is instantly doomed. You could do this in mass, so if one flakes out you can just drop their products and continue selling others, but then you are dealing with N times the number of headaches. I personally have gotten many offers from people wanting to cut deals like this with me. Just as a preference I would never go with this method despite seeing others around me become very successful doing it.
Drop Shipping – This is the golden nugget that gets most people started in E-Commerce. Drop shipping is where a distributor cuts a deal with you to handle the product fulfillment to your customers for you. They carry the inventory you just notify them of the orders and they ship directly to your customers for you. Besides not having to carry your own inventory, this has the added benefit of cutting your shipping costs. Instead of having to pay for the products to be shipped to you then have to pay to ship them to your customers. You just pay the shipping from the distributor to your customers directly. Likewise you also get a much larger inventory at your disposal. Typically distributors carry very large volumes of the products they carry because they have access to the manufacturers directly. You essentially get access to that entire inventory. You also get access to much larger brand names that people are likely to look for and recognize.
Blind Drop Shipping – Blind drop shipping is exactly like drop shipping except the distributor also agrees to ship the product to the customer with your company name on the package instead of theirs. This way there is no confusion on where they bought the product from. This helps dramatically with drawing return customers back to your site.
For our kites example we are going to attempt to score a drop shipping or blind drop shipment deal. Like I mentioned, drop shipping is probably the most attractive option for people wanting to get into the business. Unfortunately, it is also the reason why most fail. This is simply because drop shipping is an ideal solution made up of smoke and mirrors. Remember what I said. Manufacturers do not want the average Joe getting into E-Commerce, at least not successfully anyways. It is bad for overall business. So drop shipping is a solution for them to turn affiliate marketers with grandeur dreams of E-Commerce right back into affiliate marketers. That is essentially what you are doing after all. So bear in mind that the illusion of the perfect world drop shipping preaches isn’t what it seems. If you follow the conventional path you will make the conventional mistakes and fail like everyone else. So let’s evaluate these traps and come up with a slightly complex but workable solution.
Drop Shipping Directories and Sources
There are several directories and sources that are specifically setup for people wanting to find distributors that are willing to do drop shipping. One of the most notable is World Wide Brands. This is a nice solution. Distributors that specialize in providing drop shipping and blind drop shipping can sign up and people can find them and directly apply to promote their products through the website’s application process. They also are very good at weeding out the fake distributors through a screening process. Sometimes people get the sneaky idea to pretend to be a distributor. They buy from another distributor, jack up the prices and then drop ship for others under the illusion that they are a genuine distributor. The people selling their products get screwed because the prices are so high and they have so many people selling the same products that it makes it nearly impossible to sell while maintaining a net margin for yourself. However, while this trap is taken care of for you through their screening process you are still stuck selling the exact same products as everyone else for nearly the same prices and very little margins. This is because distributors that specialize in drop shipping typically only sell products that the manufacturers are happy to get off their hands and don’t mind online competition. For their pain of having to deal with an automated drop shipping system and the extra cost of having thousands of clients these drop shippers also tend to raise their own margins and lower yours. This draws some negativity to your ultimate goal, but keep in mind that many of your sales will be from people that come to your site looking for one product and end up buying another. So its not a bad idea to keep the drop shipping directories on the back burner to help fill your finished E-commerce site and supplement its product count later on. Another trap to note with drop shipping sources are the sources that claim to manage the entire process themselves. You pay them to join and they supply you with a generated website and automatic inventory management system. This seems like a cool idea because then you have no actual work to do yourself. They offer to manage the product listing, the hosting, and the payment processing after all, but keep in mind that this is an all too common scam. When searching for a drop shipper its always a good policy to remember; Anyone who wants YOU to pay them to sell THEIR products is a scam. There is no exceptions to this rule no matter how attractive the offer.
Alrighty, now that we have eliminated all the scams and nearly every possibility to break into this business without carrying your own inventory lets talk about attempting the seemingly impossible. We are going to attempt to contact and setup a relationship with a real big time distributor. We are going to do this tactfully and even to do it through the actual manufacturers. We are also going to convince this distributor to change their entire system for us and to drop ship for us. This will be easier than it seems but at the same time keep in the mind the ultimate goal of selling the products no one else is allowed to sell online at the absolute highest margins and price competitiveness. Hang on to your seats we’re going to the promise land.
1) Build a beautiful E-Commerce site of the products you are wanting to sell. For our kites example we will build the best looking kites website and fill it with fake products. It would be easiest if you got an open source shopping cart system such as OS-Commerce and then heavily modify it as well as add in your own custom template. Distributors look at a lot of websites related to their products on a daily basis. They should be very well versed in the sites available out there so it is important to make one that will visually impress them.
2) Make a list of recognized brands for your niche. Don’t worry about availability. Just focus on building a big list of brand names. For our example we will make a list of all the major kite brands.
3) Get a business license. This is a mandatory step. You will never even have a chance to talk to a proper distributor if you don’t have a valid business license and bank account. Also, get a credit card or bank card in your business name. The best advice I can give you is to do everything possible to appear like a legitimate long standing business. It is also helpful to get your own business phone. Every detail will matter. You are now a legitimate successful business no matter what the IRS says.
4) Take your list of brands and call all the manufacturers. Contact the sales department. Once you are in the sales department say your name and what company you are from as well as your city and state. Say you are interested in finding a distributor that will supply their products. Before they get a chance to forward you on tell them you would like to speak to the regional sales manager for your area. For instance if you live in the North East. Ask to speak to the North East Regional Manger of Sales or an equal. From my experience the regional managers are very good at micro managing business relations with the distributors in their area and are the absolute best person to talk to when wanting to find premo distributors.
5) Once you get a hold of the regional manager SELL SELL SELL. If you are a timid person now is the time to let the bad ass business person inside shine through. The only reason you are talking to this person is because someone in his company said he was a very good person to talk to. You show him a lot of respect but at the same time let him convince you to go with one of his distributors. A good way to get the ball rolling on this is to ask him what is his BEST distributor in his area. Feel free to embellish and let him know you are from a major E-commerce development company and allow him to sell you on a specific distributor. After that is finished politely request some personal information from him. One of my patented moves is to say something like, “Well great I’m looking at their website now they seem pretty good. If you don’t mind me asking you for your personal opinion since you seem to really know what you are doing. Who would you recommend I talk to at that company? We move a lot of products and are in constant communication with our suppliers and I would really like to know who you would recommend in their company to work with. I always enjoy working with a person who’s really motivated and a go getter when it comes to their clients.” This is usually when the regional manager will lower his professional tone and really start to like you. He will usually give a personal recommendation (which will become a very important piece of leverage later). When he says something like, “Alrighty, just my opinion, but you should definitely talk to *James* over there. He is really smart and motivated.” I just used the name James as an example, but just be sure to write down the persons name, the distributor name and their contact information as well as the regional manager’s name.
6) Call up the distributor immediately after getting off the phone with the manufacturer’s regional manager. Don’t bother introducing yourself to the receptionist just ask directly for the person he made the recommendation for. “Hi James, my name is ___ I am from *yourcompanyname*. We’re a large E-commerce development company in your area. I was just speaking to *regional managers name* the regional manager over at *manufacturers name* about you guys. He seems to think highly of you and recommended I talk to you personally about buying some products.” Remember your goal is to convince this guy to not only push your account through but to agree to drop ship for you. At this point all he knows is the guy in charge of one of the company’s coveted manufacturers and whom his boss has weekly conference calls with and flies out to have lunch with just made a personal recommendation to speak with him. For all he knows you may be golfing buddies with him. At this point he’s blind, he just knows he better seal this deal with you as if his christmas bonus depended on it. So let him know you’re not interested in the details but at the same time make all the important requests. “Are you guys capable of drop shipping for me?” “How about blind drop shipping?” When he responds with a sure we can probably make that happen then stop the deal making and rush the rest of the process. “Alrighty, well that sounds great. I’ll talk to my lead developer and have him start integrating your product lines into our system.” “Go ahead and fax me an account application and any paperwork I need to get signed. Don’t bother with a credit app. We pay for everything up front when the order goes through using our credit card, but go ahead and send over the paperwork so you can put that information on file. I’ll give you a call when everything has been taken care of okay? Here’s my personal number if you run into any questions.” Right before you hang up remind him to send you a list of his product lines (all the brands his company sells). Then end it right there! Try not to get into talking about your site or your business, although if he asks happily show him your website. Either assure him it already gets lots of business or assure him it will very soon because your company never fails at producing a successful E-Commerce site. If he is quick on his toes he will start warning you about his company’s “protected lines.” Protected lines are the brands that only his company is allowed to distribute in their region. All others are restricted by the manufacturer to never touch their products. These protected brands tend to also have very tough restrictions on selling online, which typically means absolutely not. Not in a million years. You are a jerk for asking. Divert any questions he may ask as to “which lines are you interested in selling?” “Well James I’d have to look at what you have. Go ahead and send me a list of your product lines and I’ll have my PT (product tech) look over them. I don’t know a damn thing about kites. All I know is how to sell them.” If you get too much into that conversation it will result in him telling you all the brands you aren’t allowed to sell and eventually end in you only selling a few kite strings.
7) Fill out all the paperwork and have it faxed or emailed back by the end of the day. You are not a company that screws around. When you say something will get done it gets done immediately and you expect the same from everyone you work with. This is very important because when you assure him that your site will produce them enough sells to compensate for the bother of them drop shipping for you and only you, you are not really assuring him, you are TELLING him. It is important for him to adjust to the fact that everything you tell him gets done at a pace he’s not accustomed to with his typical brick n mortar retailers. Immediately after the paperwork is sent call him (or have another person call) and let him know it has been sent and you are waiting on him to push the application through the approval process. If he or the credit department is slow to push the applications through be sure to let him know that you are slightly inconvenienced by that.
Be prepared. If they are a big enough distributor with a big enough line of protected products they WILL investigate your company. Here is what you know about your company. You’re business license is new because you either switched names, management, or states recently. Your company has little or no credit because you pay for every product and order up front with your bank card. You personally have great credit, and anyone else who signs the paperwork has great personal credit. If this doesn’t apply to you I’m sorry to say this business isn’t for you. Big time distributors will need you to prove that you are responsible enough to pay your own bills before you start managing 5-6 dollar figures worth of orders a day. Yes, you eventually will be doing that kind of volume if you are the only one selling those lines. Those big protected lines are the products consumers want, many don’t have places in their cities that sell them so they have to buy them online. If you are one of the only ones selling them you will make sales. Lots and lots of sales.
8) Once you get the account approved talk to him about the protected lines. Email him a list of all the brands you would like to sell through your website. Don’t ask him to look through the list and figure out what ones you are allowed to sell. Most if asked will just send you back a very short list of the ones they are sure of. Your goal is to sell every single product they have. If he tells you no, that’s okay just ask what you have to do to sell that brand. Sometimes they will require someone in your company to be certified in either the installation of or repair of their products. Sometimes they will require authorization through the manufacturer. He will happily handle all this for you. Just fill out any applications you can and get as many products as you can, especially the protected ones. There are many protected lines you will not be successful in obtaining authorization to sell. For those I have had some success in directly contacting the manufacturer and getting authorization to sell a few of their products. This works great because if you show your responsibility there you can eventually move up to new protected models as they come out. Just take whatever you can get. Every product is potentially worth thousands in profit a month.
9) Finish the website. Get all the products in and remove the fake ones that were in there for show. Then repeat the first 8 steps and get more and more distributors and products. Try to load up your website as much as possible. Put in useful and good information about each product and make it as high converting as possible.
10) Advertise! Advertise! Advertise! Make sales. Make sales anyway you can. If your site is not performing within the first month buy some of your own products for your relatives across the country. Just do whatever you can to produce some results. Some great ways to advertise include joining an affiliate network. One of the cheapest is Share A Sale. The cheap ones are good to start off on. Then as your site grows you can move on to bigger ones like Commission Junction and shopping.com. Also be sure to utilize free advertising such as Froogle. Just be sure to produce some kind of results.
11) Rank for your terms. Pick a recognizable term for your site. For instance we will want to rank for “Kites.” Follow basic SEO and do some of Matt’s brilliant ideas that he shares to be sure you rank. This is a great way to make sales but its also quite a bit more than that. When finding distributors in the future it gives you a bragging right. Tell them to search for Kites on Google. When they see your site in the top 10 they will KNOW that you make sales and work hard to get your business. This also works for your current distributors that have locked you out of too many items and/or are being difficult to give you custom pricing. Say something like, “Hey, I’m making tons of sales through these other distributors because this last week we started ranking for Kites in Google. We are having a hard time keeping these products in stock. You got to help me out and give me some more products to sell or give them to me at cheaper prices so I can compete in the price market.” Just saying that gets them pacing around their cubicle while talking to you on the phone.
12) Follow up with your distributors. Always be pushing down your own pricing on the products. If you are exclusive and picked a good niche pricing won’t matter too much, but it always helps to convince the customers that your more expensive item is much much better than the cheaper one your competitors are selling but only slightly more expensive. View your distributors’ account managers as your personal friends and business partners. Once you are in they are there to help you succeed. They want you to sell! If a competitor is just stomping out your prices show them their website and ask them why. They have direct contact with the manufacturers and they will investigate and figure out why they are able to get the products to their customers for cheaper than you can. They also love investigating etailers that are selling products they aren’t supposed to. If a competitor is selling a product line that is protected; they can figure out who they are getting it through and whether or not they got authorization through the manufacturer to actually be selling them. If they don’t have the proper authorization the manufacturer will sick the rabid legal dogs on them until they take the products off their website. They are like your own personal guardian angels of your business. It is their job to protect you and take down anyone trying to stop you from being successful, or at least get you to a competitive level. All you have to do is continuously produce sales and make them as hassle free for the processing as possible. Every distributor has its price. No matter how much of a pain the fulfillment is, if you produce enough sales/day or convince them that you will they will happily work with you and do anything it takes to help you succeed.
Anyways, I hate to cut it off but I am making this post entirely too long. There is so much in this business that it’s tough to fit it all in only one guest post. There are hundreds of other ambiguities and dilemmas you will face in the business. However, this should get you the solid start you will never read about anywhere else. If you follow closely and make sure to understand all the traps and advice I’ve given you are sure to succeed. I understand that there are many articles that claim to be the “secret” to e-commerce, but I figured Net Business Blog was the only suitable home for the one and only post that really does dispel the secrets and information that no experienced e-commerce professional wants people to know. I’d like to thank Matt for this opportunity and allowing me to write for you guys. Feel free to fill his comments with your questions and I will happily answer any I am experienced enough to answer. Welcome to the big boys club
Good Luck and Keep Reading!