Why do suppliers need a SSN or EIN?

Time for some more Business 101. When you set up a new account with a supplier they should ask for your SSN (if you are a sole proprietor) or your business’ Employers Identification Number (EIN). An EIN is basically your business’ social security number. If they don’t ask for one of these, beware, it could be a red flag that something isn’t right.

Here’s what’s going on. In this country (USA) sales tax must be collected on every consumer sale. Yes, I said consumer sale. The end user, or the person buying the item for their personal use, must pay sales tax. However all the sales in between do not need to be taxed (i.e. selling the item from the manufacturer to distributor, distributor to retailer). Follow me so far?

The IRS requires all of us to track these sales so they can make sure the correct tax is being collected and paid. So, when your supplier sells you an item, they report to the IRS that the item was sold to another business for the purpose of resale. This tells the IRS that a sale was made, but it wasn’t to a consumer. The burden to collect and pay the tax on the item now comes to you, the retailer. Suppliers (or manufactures, or distributors) use your SSN or EIN to prove that they sold the item to a legitimate business and the IRS needs to look to you for the tax. Got it?

What should I charge for shipping

When I first started my first store, this was perhaps the hardest thing to figure out. For most of us, free shipping is very hard to do. My feeling is that you should do your best to break even on shipping. With rising shipping costs, consumers are becoming more and more conscious of it. The store that tries to sell items really cheap only to charge big time for shipping will be out of business fast. Customers simply won’t be fooled and will shop elsewhere.

So how do you find a balance? First of all always be up front with what your fees are. Make sure your store has a FAQ page that explains all of your store’s policies, including how shipping is determined.

One of the most popular ways to charge shipping is with a tiered approach. Almost every catalog that you get in the mail has a shipping table. $0-$25 ships for $x; $25.01-$50 ships for $x; and on. This works really well if you don’t have any heavy or large items. I collected a bunch of catalogs in my industry, looked at all of their shipping tables, and created my own that was similar. This is a pretty good way to do things; you’ll overcharge some, and undercharge some. But hopefully will land somewhere in the middle when all is said and done.

You could use flat rates. If all of your items are pretty much the same size, and you’ve got a pretty good idea what they’ll ship for, make it easy. “All orders ship for $8.99”. Or maybe “The first item ships for $6.99, each additional item ships for only $.50 more”. This can work on big stuff also. Most of the big stuff I carry has flat shipping from the supplier. So I know it’ll cost me $50 to ship every time. I can adjust to make it work.

Finally, there are plenty of third party applications that can help. Yahoo! Merchant Solutions
hosts my stores, and I use accuRATEship from Solid Cactus to configure my shipping. It costs me $75 a month, but I never have to worry about losing my shirt, or losing customers, due to shipping costs. It figures real time shipping costs based on weight, to and from zip code, box sizes, etc. An awesome tool. I’m sure there are other things out there for different store platforms. Search around and see what you can find.

Let’s share our knowledge. How do you configure shipping costs?

When To Fire A Supplier

So I’ve been thinking lately; when is the appropriate time to fire a supplier? I’ve fired some quickly, and some after a long thoughtful process. Before we dig in lets remember a few things:

1. Work to add vendor in the first place. Adding a new vendor, and all their products, is usually a big job in the first place. You’d hate to do all that work and reap no rewards at all. So firing a supplier isn’t something to be taken lightly or a decision to be made quickly.

2. Time for search engines/advertising to work. When you add new items, it does take time for the search engines to find them, and for any advertising methods you use to work. Don’t be too quick to pull the plug just because a supplier’s items aren’t selling; give things some time.

3. Most issues can be worked out with communication. Suppliers want to work with retailers; retailers want to work with suppliers. So if you’re having problems talk with them and express your concerns. Most issues can be worked out.

So, when to fire?

1. Constant customer complaints. This, of course, is one of the biggest ones. Customers complain about all sorts of things. But, when there is a string of complaints that fall upon the supplier, you’ve got a problem. Now, while we all would like to blame all of our problems on the supplier, the truth is that most issues are not their fault. Look internally first. Some things that could be the suppliers fault are: product quality, extremely slow shipping, shipping the wrong item, and shipping damages due to poor packaging.
2. Problems outweigh the benefits. OK, so you’ve got vendor problems. Don’t jump and get rid of them too quickly. If you are selling a ton of their stuff, and making some good margins on it, maybe it’s worth it to you to just take your hits and keep going. Don’t sacrifice good sales for occasional mistakes. Be sure that the problems greatly outweigh your gain before considering a change.
3. Vendor shows no signs of changing. Always give the vendor a chance. Remember, we have spent valuable time and resources to get these products on the site. Express your issues with the vendor and see how they respond. In a perfect world, they’ll do what they can go work with you. If they tell you “tough luck” well then you’ve got some decisions to make.
4. You feel as though you’ve done everything possible to save the relationship. You’ve done everything you can think of and still no improvements. Time to decide if it’s really worth it or not.
5. Almost no sales. This is, of course, after plenty of time has passed. I’ve had suppliers whose stuff has been on the site for 6 months to a year without a single bite, that’s when to re-evaluate. Make sure it’s been long enough, as discussed above.
6. Made a mistake in the first place. All of the above reasons assume that you want to keep the items. Sometimes you don’t. Not all matches are made in heaven. Maybe your system and theirs simply don’t work together. Maybe you thought the items would blend with your site, but they just don’t. Maybe you just need to move on. In these cases, go for it.

Conclusion

The reason that I stress so much to keep the relationship going at all costs is because drop ship items are virtual. That is, once you’ve got the items up on the site it doesn’t cost you anything to keep them there. It’s not like you’re buying inventory, stocking them, and having to dust them when they are in your warehouse forever. In many cases, it’s simply easier to leave the items on the site and see what happens. The book, The Long Tail, by Chris Anderson explains this further. Bottom line is to use caution with all decisions regarding your business. Don’t take anything lightly and hopefully good decisions will follow.