The resale of used goods has always been a popular side hustle or even a full-time job. From shrewd buyers at antique fairs to flipping goods on eBay or Craigslist, people have always found ways to turn a bargain into profit. However, reselling is going through a resurgence thanks to the proliferation of online platforms connecting consumers with both new and used goods.
Starting a reselling business is a great way to make money if you have an eye for a deal and a flair for marketing. Let's explore the finer points of the reseller business model to see if it could work for you.
Definition and basics of the reseller business model
Before we take a deep dive into how to run a reselling business, we should define reselling to ensure there is no confusion.
What exactly is the reseller business model?
A reseller buys goods from one party and sells them to another. In essence, resellers are intermediaries that get goods from one place to another and take a cut of the action along the way.
Reselling is a great way to start your own eCommerce business. You don't need a novel idea, produce goods, or even have a load of starting capital to get started. All you need to be able to do is attract customers for your resale goods.
The used goods resale market is one of the fastest-growing resale business areas and expected to reach $188.5 billion by the end of 2023. Consumers have become more discerning about the impact of fast fashion and other consumer goods on the environment. As such, they are looking at alternative business models that fit within the circular economy. Reselling makes this possible with the added attraction of more competitive pricing.
It should also be noted that reselling is also a popular model in software and telecoms. In these situations, the reseller acts as an intermediary between a vendor and the consumer. However, it's important to note that the goods are not used. The reasons why vendors and resellers conduct these relationships include increasing marketing reach and passing on duties like customer support and service to the intermediary or reseller.
Comparison with traditional retail
Traditional retail stores typically operate within brick-and-mortar premises. They use point-of-sale (POS) systems, have vast storage facilities, and have close relationships with suppliers and distributors. Their profit margins typically come from the scale of their operations. For example, a national or multinational retailer can come to the negotiating table with the advantage of making substantial bulk orders. Manufacturers find this appealing because it's a guarantee of sales, so they are more amenable to discounts.
Online reseller businesses, on the other hand, operate differently. While they may take advantage of things like bulk discounts, they can't do it at the scale of traditional retailers. Instead, they act as intermediaries between retailers, manufacturers, wholesalers, liquidators, and private individuals, finding areas where they can find a profit by selling to end users.
Here is a good example that highlights the difference between the two models.
Retailer: During a Black Friday sale, a large retail chain offers a limited number of home stereo systems at a 60% discount from the recommended retail price. Andrea queues up and secures one of these home stereo systems.
Reseller: Andrea keeps the home stereo system packed and unopened and waits for the sale to end. Once the deal has expired, and the price of the home stereo system returns to its previous levels, Andrea posts the item on to an online marketplace and sells it to another person for something nearer the original price.
While retailers and resellers have similarities, resellers have more flexibility about what items they buy. They don't need to buy in bulk or commit to contracts, and they have fewer overheads and fewer expectations when it comes to warranties.
Types of reselling models
There are lots of different online resale business models that you can use to sell items for a profit.
Dropshipping is one of the most popular reselling business models. One of the significant advantages of dropshipping as a reseller is that you don't own the goods and, therefore, don't need to worry about storage, inventory costs, and management.
Dropshippers operate exclusively online. They research goods and then use online websites or platforms to market these items to their audience. When a user buys an item from the drop shipper, the drop shipper places the order with the manufacturer or company. They provide the user's address, and the manufacturer sends the goods.
The drop shipper pockets the difference between the selling company prices and what they charge the end users. In essence, they are an intermediary.
Of course, unless you have some exclusivity agreement with the manufacturer, your business is vulnerable to competitors. For example, let's say you're operating in a niche market like pet supplies. There is little stopping your rivals or customers from discovering your supplier and buying directly from them, eliminating your role as an intermediary.
Consignment selling is popular in fashion, antiques, and home decor. Essentially, the model works when an individual entrusts their goods to a consignee or online store that sells the items on their behalf in return for a cut of the profit. The advantage of this model is that you don't have to make significant investments in inventory.
Consignment reselling offers two potential points of interest for entrepreneurs. They can concentrate on sourcing goods and partnering with online stores that offer consignment services. Alternatively, they can build their shop and work with sellers, taking a cut of the profits.
Liquidation resale business models seek to take advantage of situations where a retailer or wholesaler is stuck with goods they can't sell. There are various reasons why an opportunity like this could spring up, such as a company bankruptcy, overstocking, damaged goods, or returns.
The potential profit margins for buying bulk liquidated goods are immense. However, while buying something at 90% off the retail price means higher profit margins, there are also risks to consider when purchasing damaged or unwanted stock.
White labeling or Private labeling
White labeling is an interesting form of reselling. The practice has been around for a long time in supermarkets, where big chains will buy products and attach their name to them. However, this model has become popular with private eCommerce resellers in recent years.
One of the more appealing aspects of white labeling is that it is adjacent to product development but without a hefty R&D budget or associated risks. Here are two ends of the white labeling model.
a) A brand buys an existing product and adds its own packaging and labeling. They then add it to their online store and market and promote the product.
b) The reselling business works with a producer to customize a generic product and add their own labeling.
Examples of this reseller business model include things like celebrity-fronted alcoholic drinks, vitamin supplements, and foods of different kinds.
Arbitrage as a concept comes from the financial markets. It basically describes the process of taking advantage of price differences between one place and another. Here is a simple example.
A store near your home is selling TVs for $400. Everywhere else sells them for $500. You buy one for $400, sell it for $450, and pocket the remaining $50.
Arbitrage opportunities can exist anywhere. Sometimes, a retailer might be overstocked with specific items, forcing them to offload at knock-down prices.
Subscription boxes are a type of resale business. You buy various goods, curate and package them, and sell them for a profit. This type of reselling business is an example of how you can use an excellent customer experience to add value to your offer.
For example, if you run a wine or hot sauce subscription service, you must work to find suppliers offering interesting wines or sauces. Your customers are prepared to pay a premium for novel selections that they can't necessarily access locally.
Vintage or used reselling
One of the most time-honored reselling business models involves going to thrift stores or garage sales and finding items you understand are inaccurately priced. For decades, people have been doing this with clothes, antiques, records, electrical equipment, furniture, and more. Ensuring this becomes profitable requires you to have niche expertise to value the goods and predict they will sell online.
Economics of reselling
Most successful reselling businesses thrive because of the "buy low, sell high" business model. However, it's not just about having access to goods that you can flip for a profit. Some customers are prepared to pay a premium for excellent service and access to a curated selection of goods.
Let's take an antique reselling business as an example. A customer is in the market for a Mid-century modern vase. They know that these antiques are out there in shops, car boot sales, thrift stores, and more. However, they don't have time to access these places. And what's more, they don't know how to tell if these goods are authentic or replicas. As such, they are prepared to pay above market value to a trustworthy store that can find and authenticate these pieces. This example is just one of many ways to add value to your service.
Costs of running a successful reselling business
Like any venture, if you want to start a reselling business, you must invest some starting capital. How much you'll need depends on the industry or niche, your business model, and other factors.
Here are a few start-up costs for a reselling business.
All the necessary documentation to run a business, such as a business license, registration fees, resale permit
Inventory costs and storage space, where applicable
Website or eCommerce platform subscriptions
Initial marketing costs and materials
Of course, there are also day-to-day business expenses to consider, too.
You'll need to pay sales tax on your profits
Ongoing marketing costs to attract customers
Continued inventory investment
Is being a reseller profitable?
As a general rule, resellers look to make a 15% to 40% profit on each sale. However, some reseller business ideas allow for an even bigger profit. Marketing and operating costs eat into these profits, but you can make good returns if you're disciplined, smart, and patient.
In addition to appropriately pricing your resale goods, a big determining factor for the profitability of your resale business is sourcing products at the right price. You can achieve this by developing relationships with manufacturers, monitoring online prices, or finding places for steady bargains, such as yard sales, liquidations, or online sites.
The other side of the coin is finding ways to add value that prompts your customers to pay enough to allow you to profit. You can appeal to a specific target market with an eye for quality, great marketing, and an exciting mix of products. Adding other perks, such as a customer loyalty program, excellent shipping and delivery, and a hassle-free shopping experience, can help build a loyal consumer base.
So, yes, being a reseller is profitable, but you need to find an edge. Offering competitive prices can land you sales, but you need to ensure something is left when you take out your expenses.
Pros and Cons of reselling
Like any business, reselling has its advantages and disadvantages.
Pros of reselling
Sustainable: A reselling business means that you can become part of the circular economy and ensure that used or unwanted goods find a home, reducing the impact of production on finite resources.
Low startup costs: You don't necessarily need deep pockets to start a reselling business. Many models, like dropshipping or consignment, allow you to get paid upfront before passing on a portion of the sale to the individual or business. All you need to invest in are the marketing costs and a platform to start selling online.
Lower inventory storage costs: If you don't need to carry inventory, you can immediately lower one of the high costs of starting your online store.
It can align with your interests: If you're a fashion, literature, art, or antique lover, you can start your own business in a space you love.
Flexibility: Reselling offers a lot of flexibility in terms of the goods that you sell. You can choose between suppliers if you're not tied to agreements or purchase obligations. Moreover, if you operate primarily online, you can work from different locations.
Scalability: If you don't store inventory or use a fulfillment center, you can scale your business quickly. Additionally, specific resale business models like dropshipping mean you only buy goods once you have an order, meaning cash flow shouldn't be a big issue.
Cons of reselling
Competition: Manufacturers have an advantage over competitors because they have exclusive rights to goods. However, if you resell products, you need to find alternative points of differentiation. The problem here is that if you're not competing on price, you need to spend a lot on marketing to get ahead of your competitors. Customer acquisition costs (CAC) are constantly rising, so getting an edge can be pretty expensive.
It can be a very involved business: Finding a steady supply of resale goods can take a lot of work. You must also negotiate with buyers and sellers, ship goods, deal with returns or customer complaints, handle marketing, track inventory, etc. It's not exactly a passive income type of business.
Lack of control over products: Typical reseller businesses place you as an intermediary between a manufacturer and the end customers. However, you don't have much oversight into quality control. Furthermore, if you run a dropshipping business, you might be unable to choose shipping lines. If problems occur, you can find yourself resolving issues while dealing with multiple companies and an angry customer demanding you take responsibility.
Popular industries for reselling
Here are some of the most popular industries for reselling. It's important to note that many of these niches are very crowded. So, they're not always the best reseller business ideas for small business owners trying to break into the game.
However, they have a lot of demand and potential stock circulating in the wild. So, opportunities are there if you know what to look for.
Fashion is a popular resale business idea. Many apps and platforms like eBay have a massive demand for low-priced clothing, shoes, and accessories.
The surging living costs have not dampened people's appetite for luxury goods, but it has made them less affordable. Luxury goods, at discounted rates, are very appealing to the modern consumer.
Designer clothing and jewelry are two of the most popular luxury goods resale markets. Customers will pay a premium if you can ensure the provenance of these goods.
Sports and concert tickets
Consumers are prepared to pay inflated fees for concert and sporting event tickets. If you can secure early ticket access, you can make huge profits on secondary markets and social media platforms.
Books & Records
Books and records are popular resale items. In particular, there is good money to be made from rare or first-edition books. Again, the success of this model hinges on finding books and records in good condition at low prices. Big stores like Amazon have cornered most of this market, so finding a profitable niche can be challenging.
Home decor, like furniture and vintage antiques, can be excellent money spinners. However, these niche markets require a constant supply of quality items at a low price. Expertise in the area is a huge advantage.
The sneaker resale industry is remarkable. The proliferation of limited-edition trainers means people are prepared to spend astronomical sums to secure the right pair.
To a large extent, a profitable sneaker resale business is about access. Many sneaker retailers have run app lotteries when new pairs are released. Sneaker resellers use bots or multiple accounts to give themselves a better chance of getting the winning ticket. Generally, these methods violate terms and conditions. However, there are ways of operating a legal and profitable business model in the sneaker resale market.
For example, you can get an advantage by understanding which trends and sneakers will grow in value. This skill requires an excellent understanding of your target customers and the sneaker industry.
The used phone market is massive. With new phones retailing at up to $1000, selling less recent models at lower prices is definitely a business opportunity. Again, accessing a steady stream of used phones can make or break this reseller business idea. If you can add a phone repair element to your business, you can truly buy low and sell high.
Supply chains and the resale model
Resale models have become so popular in recent years that some significant chains are pivoting towards re-commerce. Big names like Target and Ikea have programs that support the idea. An important reason behind these changes is a commitment towards a more sustainable, kinder type of business. Another significant factor is well-publicized supply chain issues experienced by retailers worldwide.
Circular supply chain strategies within the resale model typically can't benefit from economies of scale. However, they don't need dedicated HGV trucks ferrying goods from one country to the next. Sourcing pre-loved items involves pickups and drop-offs. However, many deliveries can be done locally, through the national post office, or via courier services.
How to become a reseller
Here is a quick step-by-step guide to starting a reselling business.
Think about a niche or target market that you could serve
Form a business plan and research a resale business model that you think could work
Register your business, secure a business license, and set up a business bank account
Research local laws and regulations and apply for a resale permit where applicable
Set up a website or an account for a reselling or eCommerce platform
Start marketing to get the word out
Tools and resources of the resale age
Thankfully, there is a lot of technology that helps you when purchasing products for resale. Some of them help resellers find bargains, keep on top of market prices, store and manage inventory, and market their online store to prospective users.
Web scraping technology
In the past, you needed to be a developer to make these tools. However, these days, you can buy software bots that constantly scan websites for low prices. For example, you could set a bot to look for consumer electronics that dip below a specific threshold and provide a notification.
Reseller inventory management tools
Inventory management tools help you record where your inventory is stored and all the electronic details you need to run an online business. These tools can integrate into your content management system (CRM), ensuring your website always stays up to date.
Marketing automation tools
AI-assisted marketing automation tools can help you with product photos and descriptions and even manage Google and Meta ads, ensuring your marketing gets the best results at the best prices.
The future of resale in the digital age
Several trends in the retail and eCommerce business space point towards the growth of resale in the digital age. Some of these trends include:
Online sales are growing each year
The taboo around used goods has become almost non-existent
Customers want to engage in more sustainable or circular business models
Customers desire a more personalized and curated experience that larger retailers can't offer
Technological advances like automation mean small businesses can compete with larger operators by reducing staffing overheads.
When we consider the above, it demonstrates that resale businesses can thrive in the digital age. Perhaps the most notable aspect of digital transformation involves increasing connectivity between people. This connectivity allows an online business to reach and connect with customers in novel ways and across various channels.
Starting a resale business is an opportunity to work in a niche you love. Indeed, knowing your market can give you an edge because you'll know what people want and have a strong sense of what items will sell and at what prices.
There are lots of different resale business models. Some minimize the risk of spending on inventory, allowing you to make sales and pay for the resale of goods. Others require investing in bulk items and hoping you can market them to recoup a profit.
The most important thing to remember is that because you don't sell your own products, you need to find a way to offer value to your users. Competitive pricing can work, but it will only bring rewards with high volume. Great marketing and even better customer service alongside a shrewd purchasing strategy are the road to success. Mix those qualities with knowledge and hard work, and you can become a great reseller.