Just about any product can be sold online. But let’s be quite clear; some products sell much better than others. Let’s think about some product characteristics that both help and hurt products when selling online:
- Price: weight ratio The price: weight ratio needs to be high; that is, the price, in comparison to the weight, needs to be increased. Books have a very high price: weight ratio— a book might be worth, say, $30/lb. Sugar might be around 35 cents/lb. The price: weight ratio issue is why it’s hard to sell sugar, cement, and charcoal online.
- Availability Less availability is good. Available everywhere is bad. That’s why it’s hard to sell candy bars online.
- Information products Products that are essential information sell well online. Books, reports, reference materials . . . even music is an information product. Why do they do well online? Because online technology provides a very efficient way to deliver information. It’s fast, and it’s cheap. It’s no wonder that books were the first major product category online and remained one of the primary categories.
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Complicated products require research. The Internet is the perfect research tool, of course. Products that need careful selection—products with many different features— often do well online.
- Wide selection of specialty products An example is one of the earliest small-biz successes, HotHotHot, an online success for over a decade. Sure, you can find hot sauce in any grocery store. But can you find Jamaican Hell Fire, Rigor Mortis Hot Sauce, 99%, or 3:00 AM? (The company provides 100 different brands.) Have you ever heard of these? Another example is RedWagons.com. Certainly, you can find two or three various Radio Flyer wagons in most toy stores, but where else can you find every Radio Flyer product made—steel wagons, plastic wagons, trikes, scooters, retro rockets, roadsters, and everything else?
- Deals There’s a class of goods that crosses all types and even covers products that you might think of as Not Good Internet Products. If you can sell a particular product at a very low price, you may have a good Internet product. Hey, if you can get the price of sugar down low enough, you might be able to sell that online.
- “Cool” products sell themselves through word of mouth. Some products are just so cool people tell their friends. One company that gets fantastic word of mouth is ThinkGeek, which sells tons of really cool stuff. Another example of a great word-of-mouth site is Despair. This company sells products people put on their office walls and laugh about with their friends.
- No need to touch, smell, or even see clearly. Products that require a close view generally don’t sell well online. That’s why it’s hard to sell Furniture online and difficult to sell unique works of art or perfume. And that’s why well-known brands can sell online . . . because people know what they’re getting. In other words, although it’s hard to sell a perfume that your potential buyers have never smelled, it’s not hard to sell from Christian Dior.
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High-value products are good. You may sell a $500 product better than a $5 product. You’ll have less competition—making it easier to compete using Pay Per Click and in natural search—and will create much higher “margins” (gross profit). Low-price products can be very difficult to deal with online. Think very seriously before selling anything below, say, $50 unless you’re pretty sure you can pump out high volumes.
- Junk is hard to sell. It’s amazing how many merchants post any trash online and hopes to make a business out of it. Mass-produced statuettes of kittens from China, junk jewelry, and handicrafts from the wilds of Wisconsin, you can do better!
- Products you understand and love. These are easier to sell. If you have a passion for skydiving, there are natural businesses for you, skydiving or selling products.
Having said all that, it’s important to realize that every rule can be broken. Groceries can be sold online, for instance. Diamonds, products that most jewelers would say need to be looked at
carefully before purchase, are selling very well online. And though Furniture crashed and the big grocery-store sites (PeaPod and WebVan) went down, some companies offer Furniture for sale online, and some sell groceries online. So, you can break the rules. But you’d better have a good reason to believe it will work.
Q: “If I am selling stuff on eBay for a drop shipper, when do I charge sales tax, or is this the drop shipper’s responsibility?”
A:When you work for a drop shipper, you must charge sales tax if the buyer or successful bidder is a resident of the same state as you or a resident of a state where the drop shipper has an office, physical site, or nexus. Here are a couple such examples:
- You live in Maine and work for an Ohio drop shipper. You must charge Maine sales tax if you sell to a Maine resident, and Ohio sales tax if you sell to an Ohio resident.
- You live in New York and work for a Vermont-based drop shipper with offices or warehouses in California, Georgia, Montana, and Illinois. If you sell to a resident of any of the states indicated in this example, you must collect sales tax from that state.
When working with a drop shipper, make sure they provide you with a complete list of all states where they currently charge sales taxes to their own buyers. When you post your eBay listings, include the following line in the Terms and Conditions section: "Attention Residents of the Following States: [List them alphabetically]. State and local sales taxes will be added to the price of your purchase or winning bid." Make sure the text is in boldface type or all capital letters so that your buyers see it before they buy or bid on your drop shipper's merchandise.
Q: “When I buy inventory for resale on eBay, the vendor sometimes insists that I pay sales taxes. Are they right to do that?”
A:No. Purchases taxes are solely levied on retail sales in the United States, not on wholesale transactions. When purchasing wholesale, you should not be required to pay sales tax. Some retailers, however, levy sales tax because they are not sure that you are purchasing the things for resale. You must provide them with a resale certificate to set their concerns at ease. If you do this, they will not charge you sales tax. The form of resale certificate for your state can be found on the website of your state tax office. Go to www.taxsites.com/state.html and click on your state when the map of the United States appears. Search for "resale certificate" in the Forms and Publications area of your state tax authority's website.
The resale certificate is essentially an affidavit in which you swear to your vendor that you are purchasing his or her things with the aim of reselling them on eBay, rather than for your own use. To complete the resale certificate, you will need a resale number, which is the same as your state tax ID number. You will not be able to utilize a resale certificate if you have not registered with your state tax department and got this number. Vendors are exempt from charging sales tax if you provide them resale certificates. If they ever are audited by your state tax authorities for failing to pay sales taxes, they will wave your resale certificate in the auditor's face and then tell the auditor exactly where you live.
Another thing regarding resale certificates: delivering a counterfeit or fraudulent resale certificate to a vendor is a felony in most states. If you're buying a container of ten thousand bobble-head dolls for personal use, don't tell the vendor it's a wholesale transaction. That is punishable by imprisonment. Save your sales tax money and enjoy your new collection (if you can find enough room in your home to store it).
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