If you have a (halfway) decent Internet Business, you will probably get unsolicited proposals from product vendors to sell their physical products.
If you don’t have any experience, these proposals may look good to you. But following these proposals may get you into deep trouble. In this post I’ll analyze the potential dangers and propose a way to deal with this.
First let me describe how these proposals usually look like: It is an email praising some physical products, usually electronics, with offering you a whopping 15% reseller discount.
Now, let’s analyze that proposal:
- A 15% reseller discount is ridiculously low:
- It won’t even pay for your logistical effort ( time and money ) especially if you are not a big catalog company with a well-optimized logistics infrastructure.
- And it will of course not pay for your marketing or for the value of your customer relationship.
- Reselling products puts several serious risks on your shoulders:
- If the product has quality issues, the relationship with your customers is damaged. (This can mean a huge financial loss in terms of lost future profits)
- You, as the reseller are responsible for warranty replacements etc.
is also a legal responsibility, but in any case it is a moral responsibility
which you must fulfill in order to maintain a good relationship with your customers.
Now let me explain what this means:
- If your customer returns a defective product for warranty replacement or full refund, you depend on the vendor of that product to provide you with the warranty replacement or full refund.
- If the vendor does not do that, you have to refund your customer out of your own pocket. In case of a 15% reseller rebate, your loss is 85% of the end-customer price plus all of your expenses related to transactions, logistics, marketing etc.
- This is a huge financial risk, if your vendors sells lousy products and then the vendor kind of magically disappears.
- So, since you take a lot of risk, this risk has to be factored into the reseller rebate.
- If the products cause harm, such as starting to burn and causing a whole building to burn down
or similar things, you as a reseller have a big problem, especially if the vendor disappears
or does not pay for the damage for some other reason.
You may be able to resolve the legal ramifications without having to pay for a burnt down house, but it will cost you lots of time and possibly lawyer fees.
But, in any case, there is a huge damage to your reputation. And that can outright kill your business.
Plus the moral issues may cause you to not sleep well for some lengthy period of time.
Now that we have analyzed the risks associated with such a proposal, let’s look on how to mitigate the risks:
- You have to do your due diligence to make sure that the vendor is reputable and dependable.
- You have to check any proposal to make sure it fits the need of your customers.
- You have to factor in all costs ( including risk compensation ) for determining which reseller rebates are acceptable.
- You have to check all products to see whether they meet the quality requirements which you think are necessary to support a good relationship with your customers.
You see, that checking everything costs a lot of time.
If you get many inquiries from vendors, you will be spending too much time for that and this time will be missing from serving your customers well.
Therefore, you have to charge fees for checking proposals and products. And of course, you should not have to pay for sample products. Au contraire, the vendor has to pay you for your time and effort needed to check the products.
And there is one additional benefit: Charging fees will filter out vendors who are not serious and just a waste of your time, Plus the fees will cause all remainig vendors to spend some time in preparing well written proposals…
Therefore, my last answer to an inquiry by a product vendor looked as follows:
I have not given you permission to send me advertising about your business by email, so I consider your email spam. So, please delete my email from your database.
Also, if anybody wants me to sell/market something for him/her, here will be my conditions when I will have implemented my program for reselling other people’s products.
- I need a free sample of each product for checking quality etc, so I am sure, the quality of your products respects the good relationship with my customers.
- The vendor pays me a $250 fee for checking each product. The fee pays for my time required for checking the product, so it is not refundable, even if I decide to reject his product. Also, I will keep all free samples, but I may at my own discretion decide to send them back for them being disposed off properly by the vendor.
- Before sending me a product sample, the vendor sends me a description of his product in less than 100 words which also explains why the product is a good fit for my customers. There is a $25 fee for me checking this 100 words description of each product. The fee is not refundable, even if the proposal is rejected.
- Also there is a $100 fee for checking the vendor itself ( i.e. some checking whether the vendor is a reputable and reliable vendor ), and this check is done before I check anything else. This fee is not refundable, even if I decide to not work together with that vendor.
- Reseller discount must be at least 50% for single items, and 60% for quantities between 10 and 100, and 70% for quantities above 100.
- All products must have a 2 year warranty.
- My payment terms:
- I will pay half of the sum 30 days after I have received products in good condition
- I will pay the other half of the sum after the warranty period has expired, and it is only paid if you have fulfilled your duties of warranty replacements as demanded by me or by my customers.
- There are no guarantees on how much I will sell. This really depends on my customers and market tests and I cannot guarantee the actions of other people. So even if I accept your products, there is the risk that I don’t sell anything at all.
But, since you have contacted me in a spammy way, and since I haven’t started my reselling-other-people’s products program yet I will not even work together with you under these conditions.
However, I will setup a page on demorecorder.com where product selling proposals can be entered after paying the appropriate fees. And you will be welcome to enter your proposals through that page when it exists.
Setting up this page will probably take several months, because this has low priority for me, so please check demorecorder.com from time to time.
My guess is that spammy vendors which I answer in this way will never contact me again because spammers usually go the path of least resistance. If a vendor is serious, he/she may actually go through my evaluation maze as soon as I will have set it up.
I hope this blog post helps you to avoid some problems…
Also, what do you think about this topic? Please write a comment with your thoughts.
P.S. I do work together with reputable and dependable vendors and sometimes I also accept reseller rebates which are lower than 50% but these are very rare circumstances and only may happen in the case that I am the one who started the relationship by me contacting the vendor for being interested to sell his/her products.
So if a vendor who I already work with, reads this: Don’t panic. Everything is OK. This is not about you. Our relationship is intact.