If you want to be your own boss, starting your own liquidation business is a great, doable option. Plus with the rising rate of inventory available, the ability to get your hands on quality, brand-name merchandise at bargain-basement prices, has never been easier. While companies liquidate their merchandise when they’re about to shut down, liquidation is also a smart part of any retailer’s or manufacturer’s reverse logistics business plan. And this is great news for anyone wanting to start a liquidation business.
There are a couple of key highlights in starting your own liquidation business. First, you don’t need a huge chunk of money to get started. In fact, you can begin with a fairly small amount of capital. Second, you can find brand-name liquidation inventory at a low price. With the availability of different lot sizes and product conditions, you can find pallets of goods to fit your budget. Finally, with the right resources in place, it’s easy to turn a profit. In this article, we’ll break down what you need to know along with the right steps to start a liquidation business.
Why Liquidation vs. Wholesale
In your search to find inventory to start a liquidation business, you’ve likely come across the term ‘wholesale.’ While liquidation and wholesale are similar, there are definitely key differences. For example, wholesale is the sale of goods and merchandise to resellers and businesses. The wholesale price is usually fixed and the amount of product can vary substantially. On the other hand, liquidation typically means an organization is trying to turn excess, overstock, or obsolete goods into cash, quickly.
When it comes to buying liquidation merchandise to resell, the opportunity has never been better. Many retailers are bypassing traditional liquidation methods and launching customized B2B online auction marketplaces that connect returned and excess merchandise directly to business buyers. This creates a level playing field for all buyers, big and small, to compete for the inventory. What’s more, the inventory is generally listed at a fraction of MSRP.
Steps to Starting a Liquidation Business
Retail arbitrage…have you heard of it? Simply put, it’s the process of buying goods at a discounted price and selling them higher, for a profit. While many people do this as an independent practice, entire businesses such as flea markets or off-price stores, like TJ Maxx and Ross, are built on this business model. So whether you want to resell online, open a discount store, or become a flea market vendor, this list will help you to start acquiring inventory and begin your liquidation reselling business.
Find reputable liquidation sites or wholesalers
To be successful in reselling you must do research every step of the way. Do your homework on the different companies offering liquidation and wholesale inventory. Decide whether you’d rather source direct liquidation or from a wholesaler. Additionally, decide what type of merchandise you want to source. Is there a particular category (home & garden, apparel, consumer electronics, etc.) of goods you’d like to sell? Is there a specific condition (ie. brand new/overstock vs. refurbished vs. salvage for parts) you want to specialize in? When you’re just starting out, we recommend sticking to brand new inventory as it’s usually easier to resell. And when it comes to sourcing inventory options, A Guide to Liquidation Sites is a great article comparing top companies.
Become an authorized reseller
The first thing you need to do to begin sourcing liquidation inventory is to become a legit company. Once you’ve registered your business, you need to obtain a resale certificate. This certificate exempts you from paying taxes when you purchase the goods to resell. Nearly every reputable, large liquidation or wholesale company requires a resale certificate to purchase pallets of goods.
Buy liquidation pallets
A great way to begin buying liquidation pallets from retailers is to shop their online B2B liquidation marketplace. Most big-box stores like Target, Walmart, The Home Depot, Macy’s, and more, have private online marketplaces. Registered business buyers can purchase retailers’ overstock, customer-returned, and other liquidation inventory directly from them –– eliminating a middleman. Typically, online marketplaces use an auction-based format, allowing you to browse current auction lots for sale and bid the amount you feel comfortable with. Dozens of retailers and manufacturers (including nine of the top 10 in the U.S.) use online auction sites like B-Stock to offload their liquidation merchandise –– for pennies on the dollar.
So you’ve got your goods and you’re ready to resell! Hopefully, you’ve already researched and scoped out potential sites to sell your goods. If not, sites like Amazon, eBay, and B-Stock Supply are great places to begin reselling. If you want to take your business offline to eliminate shipping costs, you can always sell at flea markets, thrift stores, or in a brick-and-mortar shop.
Tips for Making a Profit Selling Online
So you’re moving your merchandise and reselling successfully online –– that’s awesome! But, are you turning a profit? To make sure you’re actually making more than breaking even, let’s talk about liquidation business strategy. Here are nine things you should do to help beef up your bottom line:
- Create a business plan. You’ll want to know your costs of doing business. Account for things like acquiring new inventory, shipping expenses, new equipment needed, extra help, etc.
- Conduct market research to determine who your customers are. Know your audience and market to them accordingly.
- Understand your selling options. If you’re going to sell on multiple platforms, familiarize yourself with the rules, processes, fee structure, etc. of each one.
- Learn new skills. Gain knowledge in things like online marketing, photography, and SEO to boost your sales.
- Research your competition. See what they’re selling the same or similar products for. You must be competitive to move your inventory.
- Establish a reputation. It’s simple, provide a great customer experience and you’ll get good reviews! If you’re consistent, responsive, and engaging, people will want to buy from you.
- Read the manifests. Understand what you’re potentially buying before you place a bid. Use the manifest to research current pricing on items and to see what sizes, models, colors, conditions, etc. are included in the auction lot.
- Learn condition codes. Since each retailer categorizes their product conditions a little differently you must read the retailer’s condition codes before placing a bid.
- Factor in shipping. Whether it’s buyer arranged or binding shipping, this will be in addition to the final bid price. Be sure to read Buying Basics: Auction Lot Shipping Methods to learn more.
While this may seem like a lot of tasks to get your liquidation business off the ground, it’s actually pretty straightforward. Your first step is to create a registered business and get a resale certificate; the rest you can tackle one step at a time. To keep step-by-step reselling information handy, be sure to bookmark our ultimate playbook, How to Buy Liquidation Merchandise.