Selling Physical Products Online: The Ultimate Guide
Are you interested in selling physical products online? If so, you're not alone. E-commerce has exploded in popularity over the past decade, and for good reason. With the rise of online shopping, it's easier than ever to start your own e-commerce store and sell products to customers all over the world.
But with so many e-commerce scams and get-rich-quick schemes out there, it can be hard to know where to start. That's why I've put together this ultimate guide to selling physical products online. In this article, I'll answer all the most commonly asked questions about running your own e-commerce store, including the questions that most people won't give you a straight answer on.
Table of Contents
1. Choosing the Right Business Model
2. Drop Shipping: The Worst Business Model
3. Selling Other People's Products with Inventory
4. Selling Your Own Private Label Products
5. Startup Costs for Each Business Model
6. How Long Does It Take to Make Money with an Online Store?
7. Do You Need a Seller's Permit and Business License?
8. Can E-commerce Be Automated?
9. Where Can You Find Suppliers for Your Online Store?
10. Where Can You Find Profitable Products to Sell Online?
11. Is E-commerce a Good Business Model for 2021?
Choosing the Right Business Model
Before you can start selling physical products online, you need to choose the right business model. There are three main business models to choose from:
1. Drop Shipping
2. Selling Other People's Products with Inventory
3. Selling Your Own Private Label Products
Let's take a closer look at each of these business models.
Drop Shipping: The Worst Business Model
Drop shipping is the business model that everyone wants to start out with because it's cheap and easy. But I hate to tell you this: drop shipping is the worst business model out of the three.
The margins suck. Typical drop shipping margins are around 10 to 30%, and because you are selling someone else's product, there are probably hundreds if not thousands of other people selling the exact same thing, which always leads to price erosion. Also, because your margins suck, you can't really afford to run paid advertising profitably.
The people you see online who are making money drop shipping have either developed a large audience on social media or they are hawking cheap trinkets from China for a quick buck. Don't get me wrong, you can make money drop shipping, but it's not the best long-term business model because you don't have any control. You don't control the customer experience or the product. The margins are horrible, and usually, it is a race to the bottom in terms of price.
Selling Other People's Products with Inventory
The traditional business model that most of you are all familiar with is selling other people's products with inventory. You find a product from a brand that you like and sell it in your online store.
This model is better than drop shipping because you can get better pricing from the manufacturer, and typically your margins are around 50%, which allows you to have more flexibility with advertising and traffic generation.
If you don't want to deal with inventory yourself, you can find a 3PL or a third-party logistics firm to handle storage and fulfillment for you, which makes this business model kind of like drop shipping. But overall, it costs more money to start an inventory-based business because you have to purchase your initial products to sell outright. Also, because you're selling other people's products, you will probably be competing against other sellers based on price as well.
Selling Your Own Private Label Products
The final e-commerce business model is selling your own private label products, and it's, in my opinion, the best and only way to go if you want to run a long-term e-commerce business.
I've been running BumblebeeLinen.com for 16 years now. We own our own brand and control a good portion of our entire supply chain. Because we've established a brand over the years, it's much harder to compete with us based on price because no one else sells the exact same products that we do. Our margins are upward of 90% plus, and we have full autonomy to create our own packaging, set our own prices, everything.
If you plan on starting your own e-commerce business, you should work your way up to private label if you want to survive in the long run.
It's important to note that these three business models are not mutually exclusive. You can actually do all three at once. If you are strapped for cash, start out drop shipping and then carry inventory for your best sellers. And if there's a product that's killing it, you can consider making your own private label version of that product under your own brand.
Startup Costs for Each Business Model
How much money do you need to start each of these business models? Well, for drop shipping, you can literally start for $3 a month. By following this tutorial here, as I mentioned earlier, drop shipping is by far the cheapest and easiest way to get started, which is why it's the source of most internet scams.
If you want to sell other people's products and don't mind carrying inventory, the cost to get started is typically a couple of hundred dollars per product for inventory. You will likely be sourcing from wholesalers in your country, and the minimums are usually between $100 to $200 per product.
Finally, if you want to create your own private label products, your minimum startup cost will be around $33,000. Remember, every business model has its own risk-reward ratio. The more you are willing to spend, the more money that you will make. And in general, the students in my class who do private label make significant money way faster than the other business models.
How Long Does It Take to Make Money with an Online Store?
One of the most commonly asked questions that I get is how long does it take to make money with an online store or e-commerce business? The true answer is that it depends on many factors.
What I always tell everyone who joins my class is that you should set your expectations for at least one year. Do not listen to the get-rich-quick scammers out there who tell you it can be done in a couple of weeks or a couple of months because you will be disappointed and give up.
The speed at which you can make significant money also depends on your business model, and private label is the fastest way to make money. For example, my student Amanda, who dropships dollhouse furniture, took several years to make a six-figure income. Contrast that to my student JK, who sells his own private label home goods, who made well over six figures after about one year.
The more money you are willing to risk, the faster your returns will be, and private label is the fastest way to go.
Do You Need a Seller's Permit and Business License?
In the United States, you absolutely need a seller's permit in order to legally sell online. Most states require you to charge sales tax to customers where you have an economic nexus, even if you are drop shipping. And if your locality requires a business license, then you must buy a business license as well.
Remember, e-commerce is simply a method of order fulfillment. Your e-commerce business is a real business and must be registered as such.
Can E-commerce Be Automated?
E-commerce can be more or less automated, except for customer service. If you don't want to handle inventory or ship your own orders, you can find a 3PL or a third-party logistics firm. A 3PL is essentially a fulfillment center that will store and ship orders on your behalf. For example, Amazon FBA is probably one of the largest 3PLs in the world.
Even if you sell your own private label products, you can have your products shipped directly from the factory to Amazon or your 3PL for fulfillment without ever having to touch anything.
Where Can You Find Suppliers for Your Online Store?
The best place to find suppliers for your e-commerce business depends on your business model. If you're looking to start out drop shipping, there are four main ways to find drop shipping suppliers, depending on your budget and the types of products that you want to sell.
First, you can use a drop ship supplier directory. A dropship directory is a quick and easy way to access a library of suppliers organized by category, and by paying a fee, you can perform a search and instantly have access to hundreds of pre-vetted suppliers.
You can also use a drop shipping company. A dropship company acts as a middleman who automatically connects you to a dropship supplier. You simply list the products that the dropship company offers, and they handle the entire fulfillment process. As a result, you do not have to find or interact with any suppliers.
Next, you can go to a trade show. By attending local wholesale trade shows, you can form drop shipping arrangements face to face.
Finally, you can use a print-on-demand company. Print-on-demand companies allow you to print your own designs on select merchandise to sell online without any upfront cost.
In my experience, the easiest way to find drop ship wholesalers is by using Google, a directory like Worldwide Brands, or by attending wholesale trade shows. Many wholesalers are reluctant to drop ship for your store unless they know you can move product. If there's a brand who refuses to drop ship for you at first, you should purchase and sell their products wholesale to start, and then once you've demonstrated a track record of sales, you can request a drop shipping arrangement.
If you want to sell other people's products and carry your own inventory, you can use these exact same methods to find wholesale suppliers as well. Most suppliers who drop ship will give you a discount if you want to purchase their products outright and manage your own inventory.
If you want to sell your own private label products, you have to find a factory or a manufacturer. The easiest place to start to find a factory to create your own branded products is to use a service like Alibaba. Alibaba is a search engine for suppliers in Asia who will make custom products to your exact specifications and place your brand on that product.
You do not need to be a product designer or an inventor to create your own private label products. Most of my students send in pictures of what they want to create to the manufacturer and iterate from there. However, the main thing to keep in mind is that you are responsible for your own quality control. So make sure that you hire an inspection service like Kema to inspect the goods at the factory before you have them shipped to you. Otherwise, you could be sent a bunch of defective goods.
If you want to make private label sourcing infinitely easier, you can also hire a sourcing agent to find a factory for you. A sourcing agent will typically charge you based on a percentage of your cost of goods or bill you hourly, but it is 100% worth it, especially if you want to save time.
Where Can You Find Profitable Products to Sell Online?
More than half the battle of starting a successful e-commerce business involves finding the right products to sell. The best way to find profitable products to sell online is to leverage sales data from Amazon. Because Amazon owns over 50% of e-commerce, you can get an accurate view of the supply and demand for practically any product sold online.
To perform product research on Amazon, I recommend a tool called Jungle Scout. Jungle Scout is a software tool that tells you how much revenue a product listing is generating on Amazon for the last 30 days. All sales information is collated for you in a nice table for your review.
Is E-commerce a Good Business Model for 2021?
The million-dollar question is, is e-commerce a good business model for 2021? And I can say without a doubt that e-commerce is here to stay and will continue to gain market share over brick and mortar stores.
A better question to ask yourself is whether you should start out drop shipping or start your own private label brand. If you are on a budget, start out with drop shipping, find out what sells, and then invest in your own private label product. Because private label is the best way to go if you want to start a long-term business by being in control of the product design and the entire supply chain, you can future-proof your business and command the highest profits.
Highlights
- Drop shipping is the worst business model out of the three.
- Selling your own private label products is the best and only way to go if you want to run a long-term e-commerce business.
- The more money you are willing to risk, the faster your returns will be, and private label is the fastest way to go.
- You absolutely need a seller's permit in order to legally sell online.
- E-commerce can be more or less automated, except for customer service.
- The best way to find profitable products to sell online is to leverage sales data from Amazon.
FAQ
Q: What is the best business model for selling physical products online?
A: Selling your own private label products is the best and only way to go if you want to run a long-term e-commerce business.
Q: Do I need a seller's permit and business license to sell physical products online?
A: Yes, in the United States, you absolutely need a seller's permit in order to legally sell online. Most states require you to charge sales tax to customers where you have an economic nexus, even if you are drop shipping. And if your locality requires a business license, then you must buy a business license as well.
Q: Can e-commerce be automated?
A: E-commerce can be more or less automated, except for customer service. If you don't want to handle inventory or ship your own orders, you can find a 3PL or a third-party logistics firm.
Q: Where can I find profitable products to sell online?
A: The best way to find profitable products to sell online is to leverage sales data from Amazon. To perform product research on Amazon, I recommend a tool called Jungle Scout.
Resources
- BumblebeeLinen.com
- Amazon FBA
- Alibaba
- Jungle Scout
- Worldwide Brands
- Kema
