How to Open an Online Store Using Wholesalers & Distributors

When creating an online store using wholesalers and distributors, which are synonymous terms, consider competing retail venues. The more competitors that are selling your selected product, the sooner you will reach your earning ceiling and need to select a new product. Whenever possible, test the market. This may mean buying limited quantities from your wholesale provider and testing its value on a site like eBay before completing your online storefront.

Step 1

Create a business name. Consider a generalized name should you decide to switch product lines. This is especially important for stores selling one item or a specific type of item. Sales will begin to decrease as the market becomes saturated online or at brick-and-mortar retail venues. According to Timothy Farris, author of "The 4-Hour Work Week," once competitors start price wars and the profit margin falls, it is time to seek a new product.

Step 2

Register your business with your state. After registration, you will be assigned a tax identification number. Visit your state website or utilize service providers, such as Legal Zoom. You will need this tax identification number before contacting wholesalers.

Step 3

Open a business bank account. This will allow you to streamline accounting as well as received payments from online customers paying with PayPal or credit cards. Ensure you procure a credit card processor.

Step 4

Find a market. Farris recommends finding a niche market and then finding a product to fill a need. Stay within niche market in which you are familiar. If you are a man who loves the rodeo, consider finding a product for this market instead of seeking a product for urbanites in New York City. A niche market can provide a larger profit margin than an over-saturated market. If you decide to cater to a population outside of niche markets with which you are familiar, conduct research to learn of their spending habits, values and needs.

Step 5

Select a product. Ensure that the product fulfills a need of your selected niche market and is convenient to ship unless your wholesaler provides shipping. Farris recommends selecting a product that will cost the customer between $50 to $200 dollars. He suggests this pricing margin attracts lower-maintenance customers. He also suggests, whenever possible, buy the product wholesales at approximately 10 percent of the retail price. This will allow you a larger profit margin.

Step 6

Research wholesale companies that sell your selected product. This may include manufacturers or importers. You can look at labels of in-store products to find the manufacturer and contact them directly or you can utilize a paid service, such as Worldwide Brands. Resources such as Worldwide Brands provide access to thousands of wholesalers, logically categorized.

Step 7

Contact your chosen company directly for wholesale pricing. Few wholesalers post true wholesale prices on their sites. Search the wholesaler website for contact information and wholesale inquiry guidelines or utilize contact forms if available. Often, online store owners will be required to complete an application or provide a tax identification number in order to receive wholesale pricing information. Wholesale prices are typically 40 percent off retail prices.

Step 8

Set up an account with your chosen wholesale provider. Often small business owners are required to complete an application to work with a wholesale distributor. Learn the details of your agreement. Some wholesalers will extend credit. Others will need payment at time of purchase.

Step 9

Learn about drop shipping options. Drop shipping will allow you to eliminate the need for product storage and create a positive cash-flow cycle, meaning that you only pay for the product after you have received payment from your customer.

Step 10

Choose online store hosting. For instance, the store may be hosted on Amazon, eBay or Yahoo. Another option is to host your own website. If you choose this route, you will need to register your domain name with a domain registrar. You will also need a host for your website. A quick search of "domain registrar" and "website hosting" will provide numerous providers.

Step 11

Design the online store. If registering and hosting your own niche site, consider building an informational webpage first. For instance, if you decided to sell kite surfing equipment, you would build a page that has informative articles for those who kite surf. You may be able to glean some subject information from the wholesaler.

Step 12

Use search engine optimization, or SEO, terms. These are search words that people will utilize in search engines, such as Google and Yahoo!, to find this sort of information. This will assist in bringing traffic to your site. Highlight your products on your page and provide links to your store pages. Ensure your store pages provide pictures and product descriptions. Your wholesaler should be able to provide both.

Step 13

Set up online shopping cart including credit card processor. There are many companies that process credit cards. However, your bank and PayPal are two viable options.

Step 14

Purchase inventory or set up drop shipping with your wholesaler.

Step 15

Advertise and market your product. This can include distributing press releases, using Google Ad Words, purchasing Facebook advertisement, utilizing social media and posting blogs rich in SEO words.

Retail Store Vs. an Online Store

With the popularity of online shopping, someone with an idea for a new retail business no longer has to open a storefront. That does not mean, however, that there is no longer a need for retail stores or that all business ideas work well online. If you are looking to open a store, you must consider your product, the consumer and your overall business goals when decided whether a retail storefront or online store will work best for your small business.

Costs

In general, opening a business as an online store is much cheaper than a retail storefront. Unlike a retail storefront, there is no rent to pay or other utility bills directly related to the store, except for web hosting and technical support. You do not have to decorate the inside of the store, purchase inside and outside signage or display units. Since you can manage the work yourself, you do not have to hire additional employees. With an online store, your costs are directly related to your website, shipping and accepting online payments. You must pay for your desired domain name and may pay someone develop your website and e-commerce platform, which can be expensive, but is less expensive than opening a retail storefront.

Inventory

A study completed by the California Institute of Technology found that consumers pay significantly more for products they can view in person. For high-value items such as designer clothing, antiques, jewelry, furniture and cars, a retail storefront will appeal more to customers and generate a higher profit margin on individual items. In addition to the price of items that you can sell, you must consider the number of items you wish to sell. A retail storefront will perform better for a business that sells a select amount of products, while an online store may work better for a business that carries an extensive selection.

Competition

Anyone who wants to open a business should examine the competition before jumping into the process. With an online business, the amount of instant competition is much greater than with a retail storefront. When you want to open a retail storefront, you can easily survey an area and determine what other stores are selling the products you want to offer or choose to open in a location where those stores do no exist. Online, there are usually multiple businesses selling the product you offer and many of them are already established, making it difficult for a new start-up to break in and find success. If what you are offering is not unique, then a retail storefront will be more successful at trying to earn new customers than trying to break into an already saturated online market.

Marketing

Building a customer base is one of the most-essential components of starting a successful retail business, online or offline. With a retail store, the potential customer base is limited to the surrounding area. Online, the customer base is vast. Once you open up a retail store, your options for attracting new customers are limited. You are confined to the retail space that you chose and changing logos, signs, shelving and the overall marketing strategy can be expensive. When you work online, changing signs and logos takes mere minutes and you can quickly and easily change the products that you sell and the way you present them on your website.