My Mobile Phone Newbie Buying Guide!!!
I feel like I have to write this article to educate the general masses who are enamored by the lure of iphones, n95s, HTC diamonds etc. thinking they are going to turn their $5k into $100k selling these items.
To give you a background about myself, I've been in this business for a few years now and run a mobile phone import/export company here in the US. We are directly contracted with Nokia, as well as import numerous other brands of phones in large quantities including motorola, lg, sony ericsson, samsung, and HTC just to name a few with our partner companies around the world. I'm not saying that I "know it all", but I can confidently say I know more than most. If anyone would like to challenge what I write, I am open to hear what you say. To the more experienced traders this may seem like common sense, to the newbies it may dash your dreams! Ok here we go!
Jabong82's rules of mobile phones:
1. AUTHENTIC IS NOT CHEAP!!!
2. BRANDED ELECTRONICS DON'T COME FROM ASIA!!!
3. PROFIT MARGINS ARE SMALL!!!
4. MONEY IS MADE ON VOLUME!!!
5. PAYPAL IS NOT SAFE!!!
6. WIRE TRANSFER IS THE NORM!!!
7. ESCROW AND LC ARE NOT PRACTICAL FOR LARGE ORDERS!!!
8. HEY NEWBIE, DON'T SELL ON EBAY!!!
9. ELECTRONICS CAN BE PROFITABLE!!!
1. Authentic is not cheap:
If you think you are going to buy an iphone for $300 and resell it on ebay for $1000 you are an idiot. Think of it this way, if you were the guy with the iphones, would you sell it for that cheap? Always put the shoe on the other foot. A lot of prices offered by these scammers are also ridiculously low, i mean there have been studies for some of the popular models of phones estimating what they cost to manufacture (though we never really know for sure, but its in the ballpark). Quality phones aren't cheap to make. Its not like apple makes an iphone for $50 and then sells it to you for $400. Use your brain.
2, Branded Electronics Don't Come From Asia:
China in particular is a HUGE scam area when it comes to consumer electronics. My advice to you, DON'T BUY FROM CHINA OR ANY ASIAN COUNTRY PERIOD. You will be much better off, lets leave it at that.
3. Profit Margins Are Small:
In this industry profit margins are small. If you think you are going to buy something for $200 and sell it for $400, get out of the business before you western union all your money away to China. From wholesale to the end buyer, for the most part it is under 10%. For example, if you can buy a mobile phone for $500 and resell for $550, you are DOING PHENOMENAL!!!! Usually on a $500 phone, you probably will make AT MOST $50, with the norm probably closer to the $30 range.
4. Money Is Made On Volume:
WHY?!?!?! Because a wholesaler like me can't give you a good price if you only buy 10 units. BY THE WAY A BULK ORDER IS NOT 10 pieces. You don't know how many emails I get asking me "well what is the price for 1, 5, 10 units??? Um let me see... If you buy 1 its $500, 5 its $475, and 10 its $450. NOT!!!! GET REAL PEOPLE!!! Don't expect "bulk" pricing if you don't buy a "bulk" order.
In mobiles, bulk start to begin at around 100 pieces. Why? Because legitimate sellers will have a hard time making ANY MONEY on small orders. Lets break it down by example.
Say you have a phone that retails for $100. A wholesale price at LOWEST will probably be $80 (which would leave an amazing 25% margin for the buyer). That being said, someone who is selling wholesale for the most part his price is probably $75. The wholesaler is not sitting on a $50 per phone cost in this example and marking it up 50% to you with a $25 markup. Usually wholesale mark ups are in the 1-3% range.
That being said, on this transaction if the wholesaler's cost is $75 and sells to you at $80, his profit is $5/phone. Now if you only buy 10 phones, that leaves only a $50 profit for the wholesaler. Then he has to still pack, ship, insure, etc. which will eat up all his profits. Even worse if he has to pay paypal or a credit card company 2-3%, its not worth it at all. Now if the same scenario occurred where you bought 100 pcs instead of 10 (and paid via a bankwire to minimize payment processing fees), now through economies of scale it may be worth it for the wholesaler (ie. cheaper per unit cost on shipping etc).
Now on the flip side of the coin, the wholesaler could just raise his price to you, however if he does that YOU WON'T BUY. So as you can see, it becomes a struggle on small orders to make the sale MUTUALLY BENEFICIAL. And usually for the most part that is not possible as outlined by the example above when the volume is low.
5. Paypal Is Not Safe:
Whenever I am asked "if I accept Paypal" (which we do by the way, for samples) I know I am dealing with a Newbie. Why? Because PAYPAL IS NOT SAFE!!!. Seriously, just wire me the money and save the 3% processing fee, you are protected just about the same. Let me explain to you why.
Say I was a dishonest seller. You pay by paypal. I withdraw the money and close the paypal account. YOU ARE THEN SCREWED. The end.
Paypal is only safe when you are using it in conjunction with ebay, and even then you have guidelines to follow. Outside of ebay you are basically unprotected.
Lets go back to the above example. Say I withdrew all the money and closed the paypal account. By the time you realized you were scammed, probably a week has gone by already (and scammer is long gone). Thinking you are protected by Paypal, you will file a claim with them. After a month or so, Paypal will come back and say "You won your claim however there is no money to recover, sorry". That is fact. For more information go to paypalsucks.com
6. Wire transfer is the norm:
Wow this is gonna blow your mind! YES WIRE TRANSFER IS THE NORM. Why? BECAUSE OF FEES!!! If a wholesaler is legitimate, his markup to you will be in the 1-3% range. That being said, how can he operate if his profit is 1-3% but he has to pay Paypal 3% and thats even before shipping? Now I am not saying you go and wire everyone, as wire is used by a lot of scammers. Wires should only be used after trust has been established. However don't be quick to judge a company because they only accept wire. In this industry where margins are small, wire is really the only practical way of payment. For example, a wire transfer of $50,000 may only cost the buyer $40 at the bank, however $50,000 through paypal will cost close to $1500. Its just not practical.
7. Escrow and L/Cs are not practical for larger orders:
Yes I said it! And let me explain why! I get a lot of people asking "well can you send the order through escrow?". NOPE! Let me explain from the seller's prospective.
Aside from the 1% fee, I understand a lot of buyers want escrow because of seller fraud, but what about BUYER FRAUD? Why should I send someone I never met $50,000 worth of merchandise half way across the world, and PRAY that he is honest and tells escrow.com (or whatever service) that I sent LEGIT GOODS? Bait and switches happen more often than you think.
On the flip side of the coin, what if I sent you a box of rocks instead of your mobile phones and told escrow.com that you are lying and I sent you the goods??? It becomes a he said / she said game (I've seen it happen), and thats just not pretty. Our suggestion to customers who request these services is to start with small orders. It really is safer for both parties involved.
Now with regards to L/Cs, I particularly write these because of all the Bogus Production runs being touted out there. For LARGE ORDERS (with regards to mobiles), L/C is HARDLY IF EVER USED BY LEGIT COMPANIES. Why? Because it is HUGE risk to the seller. Even with irrevocable POs etc. the full risk is placed on the seller. Why? Because the seller is the one fronting the money for the merchandise. The buyer can do all he can to wiggle out of the agreement from refusing shipments, lying, breaking contract etc. If somebody really wants 10k units, we tell them to start small and work your way up. If you SERIOUSLY want that many units, ALL DISTRIBUTORS WHO ARE CAPABLE OF GETTING THEIR HANDS ON THAT AMOUNT WILL TELL YOU THE SAME THING. MONEY TALKS / BS WALKS. THEY WILL SAY I WILL SHOW YOU MY CREDENTIALS, YOU SHOW ME YOU AREN'T FULL OF *****.
When L/Cs are used, its usually in the case where the seller is in possession of the units already, as he is more willing to do an L/C because he has already made the cash outlay for the goods. But even in that case, he will probably do a fly and buy and just have the buyer come down and pick the units up as L/Cs are rather labor intensive to create.
SO FOR THE MOST PART, FOR LARGE ORDERS ESCROW AND L/C IS NOT USED. EVEN AT THESE LEVELS BANK WIRES ARE THE NORM.
8. Hey Newbie Don't Sell On Ebay:
If you don't have a lot of cash, you won't be able to get very good pricing discounts on electronics. Margins are slim in this industry, why the heck would you want to give ebay and paypal 5-7% of your cut? Basically after final sale fees and payment processing, you aren't going to make squat selling on ebay or amazon. My advice to you is if you don't have a lot of cash (and therefore not a lot of units to sell). when you buy your goods sell them locally. Put an ad in a newspaper or craigslist or whatever. You will often see that you can make 2-3 times as much profit selling in person than online. Don't think you are gonna buy 10 phones a week and sell them on ebay and you'll be able to quit your day job etc. Get back to reality. If you don't have a lot of cash, maximize your profit, sell locally rather than online. You will see that you can get much more money per phone. A lot of people still don't like online purchasing (particularly older generation), and they will be more than willing to pay a premium because your price should still be cheaper than what they pay at a retail store.
9. Electronics Can Be Profitable:
Yes despite everything I say electronics can be profitable! How? Well if you have realistic expectations, a little bit of money, and some channels of distribution you will make money. Even though profit margins are small, they are there, and they are constant. If you can find authentic goods cheap enough, you should always be able to make a small profit. Just have realistic expectations, use common sense, and don't be greedy and you will go far.
I know I have said a lot of stuff here that some people may not agree with so I am open to your criticisms and opinions. Anybody with questions or comments please fire away! I hope by writing this article it prevents some people from being scammed, as well as make it a little easier for people who actually try to do honest business.
Last edited by Jabong82; 18-08-2008 at 08:14 AM..
Linear Mode
December 2008
