How To Start a Reselling Business

Online reselling is a compelling opportunity for entrepreneurs who want to launch a business quickly and with minimal capital. A reseller forms relationships with product manufacturers to sell their goods online. Responsibilities can be broken down in various ways, but fundamentally, the reseller brings in the customer and makes the sale, while the manufacturer provides the product (and sometimes the order fulfillment). 


This division of responsibilities allows the reseller to focus on marketing and merchandising through an e-commerce site or online marketplace without having to worry about product creation. The most hands-off variety of reselling is known as drop-shipping. If you go the drop-shipping route, you don’t need to hold inventory or handle shipping; the manufacturer will do those steps for you.

Pick a Niche and Research the Market

Broadly speaking, there are two approaches to finding your niche when you start a business: top-down and bottom-up. With both, the key is to identify your competitive advantage. 


If you take a top-down approach, you focus on your own expertise in deciding which products to stock. What sort of goods do you have a deep understanding of? Are you an electronics whiz, always up on the latest gadgets? Do you know more about smartphones than all your friends? If so, you might want to become a phone reseller. 


If you have a deep understanding of a certain type of product, you’ll be equipped to make intelligent sourcing decisions and stock products that will sell. You’ll also be ready to describe your products (whether on your own website or in an online marketplace listing) in a way that accurately conveys the product’s advantages. In short, the top-down approach is all about where you have the most product and market knowledge.


With the bottom-up approach, you don’t look at your own attributes as a reseller; you focus exclusively on customers and what they buy. What are the trending product categories in online marketplaces? Where are customers choosing to spend the most money? Begin by researching the types of goods that are moving well, then focus on particular brands that are strong, and then the product models within those brands. This approach has the advantage of automatically placing your business in a hot product category, a place where many customers are willing to spend money.


There are disadvantages to chasing trends; trends can be ephemeral. Can you tell whether you’re looking at a broad and lasting consumer preference or a fleeting consumer whim? A good method of making this distinction is to analyze the source of demand. 


Are consumers spending more in the category year after year based on a lasting cultural enthusiasm? (A current example of such a product category would be high-end backyard grilling equipment.) Or is the demand based on online media trends, such as TikTok videos? Don’t base your business on viral moments unless you think your competitive advantage is the ability to quickly spot and hop on trends, continually moving from one to the next.

Create a Business Plan

A reselling business doesn’t need an elaborate business plan that runs to 30 pages and makes use of MBA-style market analysis. What it does need is a clear statement of:


  • Who your customers are
  • Why they will buy from you
  • How you will gain their attention
  • How you will manage inventory
  • How you will process orders (payment, shipping)
  • How you will control your costs to ensure adequate profit per unit


When you can confidently answer each of these questions, you’re ready to move on. The last bullet point is particularly important to building a viable business. How will you turn a profit on each sale? 


The economics of your business will depend on your profit margin, which is:


Sale Price − Costs ÷ Sale Total x 100


Many resellers aim for profit margins of around 30%, but more is better, and less can be okay if you sell at a high volume in a very competitive market.


It’s important to be realistic about the prices you can charge. Each product in a competitive market has a market clearing price at which supply meets demand; at that selling price, resellers will agree to part with their goods and buyers with their money. No individual seller can shift the going price. 


So, if you’re analyzing a prospective niche, such as beauty products for seniors, and you think the prevailing market prices are too low for you to make a solid profit, don’t enter the market thinking that you’ll be able to sell comparable goods for a higher price.


Another important factor to consider is how your sales will be taxed. As a reseller, you can avoid paying sales tax on the inventory you purchase by holding a reseller certificate. The exact process to procure one varies by state. Check with your local authorities to determine if you would benefit from a reseller certificate in your area.


Finally, if you start a business, spend a lot of your energy on building a marketing plan. You must have repeatable mechanisms to reach new customers, whether that’s online advertising, search engine optimization, social media, or all of the above. A business lives or dies based on the flow of new customers. 


Virtually all attractive markets are competitive, so you need ways to stand out from the crowd, such as high-quality service, comprehensive product listings, prominence in Google search, etc. The bottom line is to have a plan to reach customers based on factors that you control.

Decide on a Fulfillment Model


As a reseller, you can take on as much or as little responsibility for order fulfillment and inventory management as you desire. 


Beginning at one end of the spectrum, you can handle everything in-house, which means you find the customer, complete the sale, manage the inventory, and ship the product. In-house fulfillment is the most traditional approach to reselling, and if you have good business processes, one of the most profitable because you’re not sharing the pie with anyone else. Many healthy businesses are built around in-house fulfillment, but it is resource-intensive (you have to buy all the inventory).


The next step along the spectrum of responsibility is choosing to go with a third-party provider (3PL). With the 3PL approach, you host your inventory with another company, you send them information on your sales, and they handle the inventory management and shipping. Naturally, they take a cut of the sales price and will typically charge you a regular fee for warehouse space. With a 3PL partner, you’ve freed up your time to focus purely on sales and marketing. If these are your strengths as a business person, it can be a worthwhile trade-off to accept less profit per sale.


Lastly, at the end of the responsibility spectrum, we have drop-shipping. In a drop-shipping business, you own no inventory and do no shipping. You simply send orders to the product manufacturer, and they ship directly from the factory to the customer. A drop-shipper retains the least amount of money per sale but, in return, has the least amount of work to do. Drop-shipping is also the least capital-intensive approach, as you do not need to purchase inventory. Many resellers get their start with drop-shipping.

Roll With the Punches

As a new business owner, you’re guaranteed to encounter many challenges you weren’t expecting. Methodically working through your problems with patience and determination will generally net you success, but be prepared to meet with a few defeats as well. Reselling businesses, while approachable and a great place to get started, are not easy. You’ll need to pick the right market and products, build a marketing engine, and have sound fundamentals in your business processes.


Leave a Reply

Your email address will not be published. Required fields are marked *