Last week we covered the drop ship supply chain model. This week, let's take a look at Shopster's retailer profit model. The way profit is calculated ties in very closely with the supply chain model.
A large chunk of a traditional store's overhead is the cost of purchasing products to sell. Sellers utilizing a drop ship product source - like Shopster - don't have that overhead. Instead, they see a different calculation of their earnings on a sale.
The drop ship supplier lists a cost for a product. The seller can sell that product for any price. The difference between the supplier cost and the selling price is the profit earned by the seller. Selling above that cost earns the seller a profit. Selling below that cost "earns" the seller a negative profit... also called a "loss".
For some low-margin products (electronics come to mind), this can sometimes be a disheartening discovery for the seller. Because the online market is inundated with electronics sellers, the margins to be made on sales of such products are often lack-luster. This sometimes leads to accusations that the Shopster profit model is a scam. "I can't earn any money with these costs." For some products that just might be true... there are very likely some products that it'd be tough to earn a profit selling. But it's nothing that ingenuity and hard work can't overcome.
Selling online isn't easy. Well, let me rephrase that: "Making a profit in any business isn't easy." Selling online is a complex process. Business solutions like Shopster are there to help ease some of that complexity, but at the end of the day if it were super easy to make money hand-over-fist, everyone would be doing it and eventually nobody would be making money. No supplier can get you a Wii for $50. If they can, they're probably stolen, broken, or actually a Gameboy. So, you're not going to be earning huge margins on that particular product. It'd be nice - heck, I'd love to earn $200 profit selling a single Wii - but it's not going to happen (except maybe at Christmas).
We now try to set reasonable expectations by constantly reiterating that Shopster is not about getting rich quick. Anyone who tells you that you can make money with little investment and no work is lying to you. Shopster tries to be pretty upfront about the profit potential of our model. We had to switch to being up-front because an early marketing message of ours got us into a little trouble.
We had tried a slogan along of the lines of "Unlimited Profit"... which we figured came down to semantics - as the retailer was free to set their own prices and was not limited by how many products they could sell, we figured the profits were technically not limited. Some retailers took issue with this slogan, as their attempts to earn "unlimited profits" were stymmied. This lead to accusations that "Shopster is a scam" or "Shopster is deceptive" or "Shopster ripped me off". (Which you can read about at results for Shopster at Rip-Off Report and on our BBB page.)
Now, we try to set that expectation that hard work is needed - retailers using Shopster are still setting up a business, and that's not easy.
Here are some considerations for online sellers to help set some expectations about profit:
1. Economy of scale.
2. Complementary high-margin product sales.
3. Seasonal sales focus.
1. Economy of scale simply means the seller needs to consider the number of products that must be sold to make the sales effort worthwhile. There aren't too many stores that make a living off making a single sale. Retailers need to be able to make multiple sales to turn a profit for their business. This holds true of the online seller, as well. The overhead of an online store or online sales effort (like on eBay) is usually lower than that of a brick and mortar storefront. Yet, the online seller faces some unique challenges:
a. Ease of the buyer to find competing sellers.
b. Greater volume of semi-targeted traffic - note: capitalization on long tail (or highly targeted, low volume traffic).
c. The value of a personal interaction in the sales process.
2. Complementary high-margin product sales should anchor your sales efforts. While few people will come to you to find an HDMI Up-Converting cable, the people coming to you to buy an XBOX 360 might be convinced they need one. The margin on your 360 is pretty low (Microsoft sells them at a loss). The margin on your cable is pretty high.
Real world example: A couple years ago my wife and I bought our flat-screen TV and a new HDMI-compatible DVD player (our old DVD player didn't survive a move and this new player was cheap if you bought that company's TV). I hadn't bothered to learn anything about cables or resolution or any of that - I only wanted a flat-screen TV so that I had a cooler TV than my brother. I didn't know what HDMI is, so I didn't think to get an HDMI cable - thinking instead of getting the traditional RCA connectors (the three-colored ones). The non-commission sales person was quick to point out that I'd be wasting the potential of my new TV if I settled for the RCA cable, and quickly expounded the many benefits of the way, way better $120 HDMI cable. Not being one to part with $120 on the spot, I opted to take my chances with RCA. My AV-savvy coworkers were quick to make fun of my hilariously inadequate hook-up, and a buddy offered up the same HDMI cable at-cost that his friend could pick up... for less than $20. Looking around at the TV I had purchased, the price I paid seemed pretty standard... everyone was offering the same price within a few dollars. But what about the cable? Assuming my buddy wasn't fencing stolen cables, the margin the big box was earning on that cable was pretty serious.
3. Some retailers adopt a seasonal sales focus. This means they look for high selling times of the year (like Christmas), and focus their efforts on making money during these times. Their stores trudge along during the sales troughs, but then they're fully optimized by the time a seasonal mini-spike comes up. Seasonal sales trends should be a part of every seller's business research - they should be getting an idea of what to sell and when to sell it.
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So, there it is. Signing up for Shopster won't immediately make you a successful online retailer. It will take some work on your part, too. You'll have to research which products are selling and what kind of margin you could make on products supplied by Shopster's network of dropship suppliers. You'll have to work to optimize your sales efforts to make sure you're bringing in enough visitors, creating enough auction listings, and getting your business out there. But, we're here to help make it easier. We source new and better drop ship product sources, we build relationships with existing suppliers to get better prices, we provide the tools to build your online store and sell on eBay, and more.
If you have any questions about Shopster, don't hesitate to contact us. Happy selling!
Read all Shopster Scam posts.