“Ask an Expert“ is an occasional feature where we ask ecommerce experts questions from online merchants. For this installment, we address a question about the pros and cons of selling products on a retail basis, versus wholesale. The question comes from Jan Hansen, co-owner of Jewels by Jan, a producer of handcrafted gifts that the company sells to retail consumers on its own website and, also, drop ships — on a wholesale basis — to resellers.
For the answer, we turn to Shirley Tan. She is a consultant to ecommerce merchants, and the founder and past owner of American Bridal, a leading provider of bridal gifts and accessories.
If you’d like to submit a question, email David Maier, staff writer, at firstname.lastname@example.org and we’ll attempt to address it.
Jan Hansen: We offer our handcrafted products at retail prices on our website. We also drop ship them for other websites that sell our products for us. Our yearly sales are 50 percent from each source. Should we protect our brand and be the only sellers of our products and not allow anyone else to post our images and sell our products? Or, should we continue to increase the potential for additional sales by drop shipping for other websites that sell our products? Or, should we do both?
Shirley Tan: “Jan, I would continue to do both retail and drop shipping until you figure out the answers to the following questions.
- Do your resellers compete with you?
“If your resellers are competing with you — such as with pay-per-click advertising and organic search optimization — then perhaps you might have been able to convert these customers on your own. But if the resellers are generating these sales through other means that your company isn’t focusing on, then it’s business that you wouldn’t have received otherwise.
- Can you afford to sell at wholesale prices?
“Assuming that your handcrafted items take a significant amount of effort to produce, do wholesale prices cover your total costs? You’ll need to determine your margin and labor expense to answer this question. Remember that your resellers provide you with repeat business that you can count on. Having a steady reliable stream of reorders, even with lesser margins, may help keep the lights on.
- What business are you in?
“Ask yourself the basic question, ‘Are you in the wholesale business or retail business?’ If you’re in the wholesale business, then your top priority is to service your retailers, provide them with the best merchandise and help them grow their business with your exclusive, beautiful designs that they can’t get anywhere else. The retail side of your current business is all just gravy and icing on the cake.
“Conversely, if your focus in on retail, then you need to figure out how to grow your traffic so that you can be less reliant — much less than the current 50 percent — on the resellers to bring in revenue. Determine what you need to do to shift the volume to more retail and less wholesale.
“You can also consider alternative strategies to encourage retail sales without losing all of your resellers. You could, for example, have a few key items exclusive available only your site and offer older designs to your resellers. Also, you can take multiple images of your items and watermark the ones on your retail site. Provide non-watermarked photos to your resellers. The photos on your site would be unique. When consumers visit your site, they wouldn’t see the same photos that appear elsewhere.
“Good luck to you. I look forward to following your decisions.”