Going back to our hypothetical scenario, we are a new business owner who has got his website up and running, only to find that everyone out there is able to sell their same products for far less. We aren’t making sales, and things are looking dire. We’re stuck in a bad situation… but how could we have avoided it?
The answer is simple, and one that you may be quite familiar with: research! Research is our best friend in business, and in this regard it is no different. Before we build a site, we want to see how our potential suppliers stack up compared to everyone else online. If our supplier’s wholesale price is higher than what people are selling for at retail, then we’ve got a problem.
Some of you might be wondering how a wholesale price could ever stack up poorly against retail price. We’d talked previously about this phenomenon, and this is definitely one instance where we’re seeing first-hand the effect this concept has with us and our business.
Without being willing to carry inventory, our only recourse is to research the effectiveness of our supplier prior to creating a website where we will utilize them. This way if we see that our supplier will not be effective price-wise, we can turn around and look for an alternate supplier, or even an alternate niche, before we’ve passed the point of no return and created a site.
There are a few website tools that we can utilize to do this. First and foremost we have the Google Product Search, a tool powered, aptly enough, by Google that will allow us to see what people are pricing our specific item on online, utilizing the power of the Google search engine to give us a very good picture into all the available products out there. Conveniently accompanied by images, and with the ability to sort by price, Froogle is one of the easier ways to see what our competitors are pricing their same items at, to see if there’s room to be competitive.
A second resource I like to utilize is PriceGrabber. This website functions quite the same way as Froogle, but it gives us a different system for pulling their results, which in turn gives us an even more complete view of what our competitors are doing.
This is all well and good, you may be thinking, but how do we make sense of all this information? We can see the prices, big whoop. How does this help us? Are we supposed to try and see if we can be the lowest price? Do we just want to see the highest price and price our items accordingly?
Our goal in doing this research using these sites is to see where the price extremes are, both high and low, and find a median fair price. We don’t want to try to be the lowest; someone can always get a better discount than us, and someone is always willing to undercut us, even at their own peril. We can briefly flirt with being the lowest price out there, but it simply isn’t something feasible to try to sustain.
At the same time, we do want to make sure we’re not the highest. If we’re the highest, than it is quite probable that people will utilize many of the same tools that we can to see that there are cheaper alternatives out there, which they will most likely go with. For that reason, our goal is to find a fair price that lies between those extremes, and price ourselves there.
However, this is not so simple a thing as seeing where our supplier’s price is, and just gauging things that way. We want to make money after all, so we need to make sure that we are basing these numbers off of our supplier’s price plus our profit margin. Typically a new business owner should try and shoot for a 30% profit margin, which roughly translates into a $15-$20 per item profit.
This may seem like a lot of extra leg work, but if we can find out whether or not our supplier is effective before creating our site around them, we can be much more confident moving forward with the knowledge that we can be priced effectively, and expect many more sales as a result.
For more information, please visit GoGo Dropship.
