Free delivery?

olias

OK, so I may have the possibility of removing the postage costs from the equation of an ebay business. A friend with a distribution business has offered to partner me and they will sort out that side of things gratis, so effectively removing those costs.

Now what I can't get my head round, is what sort of market this arrangement would suit best - low volume, high p&p costs? High volume, low p&p costs? I guess I am trying to find a niche where this removal of distribution costs from my business plan would give me the best edge over any competitors.

Any ideas? or anyone have any comments/suggestions on the best way to maximise the benefit of this 'free' distribution?

Thanks.

Olias

olias

Just bumping...

Olias

Hammyman

How do you get free distribution? Is this just locally? Is your friend part of a national chain?

With the ridiculously low profit margin in haulage and distribution, I can't see how your friend can afford to do more than the odd one off.

You are going to be paying for it one way or another. I have a funny feeling you think your friend is going to be a partner in the business and not take any of the profits.

TBH, you have me really really worried that you are living in some sort of fantasy land at the moment with this.

olias

Definately not fantasy.

Ok so distribution maybe not completely free, but the idea is that we both put money in for stock (very small scale at first, so minimum risk), then I do the ebay side of things and his company do the packing/distribution side, then split the profits 50/50. The way his company is set up, the costs to him will be so minimal as to be negligable in the scheme of things. Hence I can really say that I can look at the p&p side of things as being pretty much close to nothing.

TBH, I think he is just looking it as a 'no work' add on to his business - I will do the ebay, and his company are already involved in packing and distribution, so it will be no extra work for him. We intend to start with a small investment, re-invest the profits into more stock and build things that way. We haven't gone into any great detail yet, so there will obviously be further discussion on things like, who will handle returns etc. At this stage I am just trying to see what others think will be the best market to target where we can exploit this edge that we will have.

Olias

Hammyman

I was in haulage for nearly two decades, including time spent working in national parcel companies so I know a little of what I'm on about.

It isn't free or anything approaching free. Packing materials cost money. I pay 50p to £1 per box and £18 for a 15 cubic litre bag of polystyrene peanut filler which will do about 8 to 10 boxes. It costs me roughly £3 just in packaging for every laptop I ship.

Even if he has an entire fleet of vehicles that cover the entire UK it will cost him money to deliver it. It will cost him in fuel and wages if the vehicle deviates from the route taken to do his main business. It will cost him wages even if the delivery for you is next door to the delivery for him. If he is part of a national pallet or parcel network such as Palletline or Interlink for example, he will have to pay an actual per unit cost to send it through the network - he has no control over what that cost is and whether to pay it as it is done to cover the cost of the franchisee delivering at the other end.

Hell, even the storage of your items in his warehouse isn't free. He pays business rates and rent, if he doesn't own it, based on square footage of his warehouse. So every square foot of his warehouse that your stock takes up which isn't earning money holding goods to do with his main business is costing him money even if it sits there and nobody touches it ever.

So as you see, you cannot say the P&P are virtually nothing because they aren't. I think you really need to pull your head out of your backside and start getting real. Anyone looking at your business plan where you have next to nothing for delivery costs will just look at you as if you are stupid and refuse to accept it. You cannot calculate profits and viability of the business if you don't know the actual real delivery costs.

The problem I have with your idea for a business is that you seem to be hinging a lot of its success on one thing - the ability to undercut based on this completely ridiculous notion of cost free (to you) delivery. You seem to think that if someone is selling something on Ebay for £10 inc free delivery, you can gain an advantage as you can sell it for £8 inc free delivery because you are paying nothing for your delivery. Nothing could be further from the truth.

And here is another thing. Sometimes you can be too cheap. A lot of the time the laptops I sell are some of the most expensive of that particular one on Ebay yet a lot of the time, they're not even up a day before someone buys them. When I am buying parts off Ebay, I am not looking for the cheapest above everything. I need someone who can actually provide what they describe in the timescale they say they will - to me and a lot of my customers, that is as important as the price and sometimes more so.

So stop talking crap, start being realistic and accept that it costs EVERYONE to deliver stuff and come up with a proper realistic business plan.

hcb42

I concur, discounting to stay in business is foolhardy

RFW

hcb42 wrote: »

I concur, discounting to stay in business is foolhardy

I'd generally agree, but it depends what level your business is at. If you can undercut your main competitor and stay profitable with a chance of increasing turnover then it's worth looking at.

As for the OP and even subsequent posts it is difficult to comment without knowing the business. It could be that a company sending a million parcels a week by Royal Mail would have little increase in costs if they added another 1000 a week. If those thousand a week were £20 items, then you have a business with a million pound a year turnover and minimal postage costs.

pitkin2020

I agree with what you say RFW but it appears the OP is deciding what goods to sell based around distribution rather than whats a seller. Its all good and well having free or virtually free distribution but can the person offering this make it sustainable. You may decide to get into a cut throat market place based on the fact you can undercut everyone due to the distribution, plough loads of money in to and find you can no longer get it for free pricing yourself out of the market place.

Word of warning though, if you are setting up with the distributor person get a good contract written up because when he realises its costing him more through his original business than he is getting out of the new business he may decide to pull out. Without your free postage continuing it could make or break the business. Personally I wouldn't decide on what market place to enter based on P&P costs, I would factor those costs in to begin with and if they are free its a bonus but it shouldn't be the basis of what market to enter.

martindow

I suppose the best best is for something fairly heavy but of lowish value. A 10kg item worth £10 would almost double in cost with the delivery charge added. If you are getting the carriage free or for a minimal charge you could undercut competitors.

I too have doubts about how long your friend will be willing to lose money on his business to help you. It doesn't seem like a long term business model.

olias

Well firstly, thankyou to Hammyman for his constructive comments that I'm talking crap and have my head up my ar5e, they have been most helpful.

Secondly, thanks to RFW, who has the right idea. This potential partner has a large volume business with staff, vehicles, premises all in place and paid for, there will therefore be very little increase in cost to him to add a (relatively) small amount more into his system. I have not discussed the finer details with him, but am guessing their is sufficient spare capacity in his system to allow him to do this at minimal cost.

So say for example, I bought 100 widgets at £10 each, and sold them at £20 with £5 p%P costs, then I would make £1500, or 50% profit (for the purposes of this example, and for simplicity, I'm leaving out all other costs such as ebay fees etc).

If, with what is being proposed, we buy the same 100 widgets jointly at £10 each and sold them at £20 with only say £1 p&p costs, then we would make £1900, which would work out at 90% profit.

If we then looked at selling cheaper to undercut the competition at say £17.50, we would still make £650, or 65%, but would in all likelyhood sell in increased volume due to our price.

Please no pedantic replies re the above calculations, they are just a few rough calcs to make a point, not any actual genuine figures.

I'm just interested in peoples constructive comments or suggestions. Thanks.

Olias

milfhunter

I once read on here "who wins a race to the bottom of the market?"

Just a thought.