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How to Make Money from Customer Returns and Reduce Risks

For entrepreneurs who are looking for a good business to invest in, buying low-cost returned merchandise to resell can be amazingly lucrative. However, deciding to opt for this business will also require that you spend some time and effort on the process. For this reason, this post will discuss not only the way you can make money from customer returns, but also some factors that will help you reduce many of the risks associated with it.

Why do Retailers Sell Customer Returns?

The reason why retailers are not able to put their customer returns back on the shelf is that they can no longer be called new. As a result, these returns are sent to vendors, disposed of or liquidated. In some cases, even if there is a vendor issuing credit for the merchandise, the original retailer will decide to keep the product because they wish to avoid the high freight and processing costs.

So, even though the disposal of customer returns was quite common some years ago, particularly in the case of electronics, the remarketing and liquidation businesses have made it possible for these products to be used again.

Manufacturers and retailers around the world now know that there is a high demand for customer return pallets. This is why they try to maximize their profits on these products by liquidating them.

One critical factor that you need to consider before stepping into this business is that retailers are always looking for the best deal and a way to liquidate customer returned products as quickly as possible.

The reason for this is simple; when the product sits at the retailer’s warehouse, it will require costs for taxes, inventory, financing, and storage. In fact, the customer returns that do not get sold are also depreciating in value on a daily basis, which is why these retailers want to get them out as soon as possible.

This is something you can use to your advantage. The retailer wants to get rid of their customer returns and will be willing to sell it for a fraction of its retail price. This will allow you to buy good-quality retail pallets of returned merchandise for a low price and then sell it for a profit. Because you bought it originally for a low price, even with your additional expenses and profit margin added to it, the final price for your customer will still be considerably cheaper than usual retail prices. 

Why Buy Pallets of Returned Merchandise?

If you are starting a liquidation business, returned merchandise can be a good source because it is cheaper than other newer products and because it is available in abundance wherever you go. Other benefits of buying pallets of returned merchandise are mentioned below.

Pay Less for Goods that Appear New: Even though your competitors may be paying more for closeouts, shelf pulls and defected items, you can make a better decision by buying something that is as good as new and is not even half the price. If you carry out a little research, you will find that wholesale buyers will often pay 15% to 50% more for new products as compared to customer returns. Therefore, as long as you opt for the right customer return pallets, you can generate a very high profit margin.

A Steady Stream of Supply: One of the reasons many people have started to opt for retail return pallets is because they provide a steady stream of supply. Just think: the more the new technology and products introduced, the more the chances of customers returning the products that they initially bought. This is the reason why these returns represent the majority of the liquidation inventory. Therefore, you will always have a regular flow of retail customer return pallets that you can sell your customers.

Why Are Customer Returns Sold at a Low Price?

One of the reasons why customer returns are sold for as low as 5% of the original retail price is because they are offered exactly as they are. Even though most of these products will be in a relatively new condition, some of them may have been returned because they were the wrong size or color.

Moreover, it may be possible that these products are broken, missing a part or have some other defect. Therefore, while buying customer returns, make sure to invest only if you are absolutely positive that you will be able to repair the item without making the final price more than what you hope to sell it for.

This is why it might also make sense for you to equip your business with the ability to repair broken and defective customer return products. For a small expense, you can potentially add a lot of value to the retail return pallets you have bought, and therefore increase the final price and your profits.

Key Considerations in Buying and Selling Customer Returns

Now that you are aware of the basics of customer returns, here are some crucial tips and considerations that you need to think about.

Analyze Your Market Carefully

The most successful of wholesale customer return product buyers have been known to be in the business for at least ten years. Over time, these people have developed a very good understanding of their market and the direct or indirect costs which they can get for certain items. As a result, they know and understand the target price and are aware of the profits which they will be able to achieve in return.

If you’re new to the business, you have yet to acquire this degree of experience. However, with research and careful preparation, you can begin to understand the market and acquire insights on how to make the best decisions for your business. Remember that experience is more than just time gone by. You need hard work, intelligent research and a good brain for business to get as savvy as many of your more experienced competitors are. 

Think about Long Term Value

Not all customer returns will be ideal for you. In fact, there are some retail return pallets that will flush your money down the drain. This is why it is important that you think about the commitment and financial resources that you are spending on the merchandise. With time, as you become more familiar with the market, prices and the merchandise your customers demand, you can start to yield a healthy profit over a longer period. However, if you are only looking to make a quick buck, this may not be the best option for you.

Go for Diverse Products and Suppliers

As long as you are in the liquidation business, there is no guarantee that the product will be available or that you can buy it. This is why it is wise to start off with a category or product that you are familiar with, work your way up and then diversify your line of products. For the same reasons, you should also start building relationships with multiple (but not too many) vendors or suppliers. Because there are so many sources available in the market, it would not make sense if you relied on just a single provider.

Maintain Good Relationships with Suppliers

The most successful of buyers do not wait for merchandise liquidators and retailers to call them. Instead, they are proactive in building relationships with their liquidators, a trait that can allow them to identify and purchase the best customer return pallets for other competing buyers.

How to Reduce Risks & Increase Profits in Your Liquidation Business

The success of your liquidation business depends on your ability to find quality products from wholesale liquidators and retailers at a good price. Even though there are some really great deals that you could decide on, it will be helpful if you become an informed buyer. To give you a nudge in the right direction, here are a few tips which you may find helpful when it comes to reducing risks and increasing profits for your liquidation business.

Always Source from Stable and Sound Companies or Suppliers

There is no doubt that there are some boundaries to entry in the liquidation business industry. This is why there will be some instances where you will meet companies or vendors who want nothing but to earn a quick buck.

To avoid such unprofessional companies, you must look for liquidation companies that have a track record of ethical behavior and long-term strategies that leave their customers satisfied and happy. This is crucial because you will want someone who stands behind your transactions with honesty and integrity if problems arise. The last thing you need is someone who suddenly stops answering the phone.

Buy Pallets of Returned Merchandise Directly From Retailers

In the secondary market, it is not unusual for you to get customer returns or liquidation products after they have passed a couple of brokers or vendors. However, it would be best if you avoid going down that path.

First off, buying products indirectly will increase the risks of the merchandise being damaged because it has been handled by different users. Next, when you buy directly, you will avoid the costs that accompany the product after it has been moved through several brokers. Finally, dealing directly with the vendor or manufacturer will help you save a lot of time since instead of requesting for the product over and over again, you will only need to pick up the phone and ask the retailer for what you need without the middleman.

Search for Pallets with Detailed Manifests

A manifest is a list or sheet of paper that has a description of the items for sale in the particular pallet or lot. This manifest will include information such as the quantity, cost, and description of the products. Unfortunately, most of the products sold in the secondary market are without this manifest and so you cannot rely on their quality.

Therefore, if you want to lower your costs, you must make sure that you purchase lots that come with a manifest. This is crucial because it will help you confirm what you have received. In fact, many experts suggest that you should look for websites or suppliers who also allow you to examine the manifest before you decide to purchase them for your business.

Read the Terms and Conditions Properly

There are a lot of manufacturers and retailers who have some restrictions when it comes to remarketing their products to protect their brand. For example, while some of them will require that you remove the label from the product, others will not allow you to sell the merchandise within a certain radius of their store locations. These are the retailers or companies that ask you to export the liquidation merchandise.

Therefore, if you do not understand the terms and conditions clearly, you may run the risk of encountering fines or other such legal actions. Moreover, if you fail to abide by the restrictions, you will lose future opportunities of reselling the company’s merchandise and products.

Know the Freight Costs

When you are buying merchandise from the retailer, you will be responsible for the freight costs from their warehouse to your own. Even though you may not realize it immediately, these costs will mean the difference when it comes to the profit or loss of that particular load. When you are buying from a single, small product liquidation company, there will almost always be a hefty price which will not cut your profit margin.

However, if you find and buy from a larger supplier, you will be able to cut this additional cost because these liquidators mostly have multiple warehouses throughout the country. This will allow you to find a warehouse closer to your own base, thereby making shipping less expensive for you.

Do Not Rush into It

If you want to reduce the risks of your liquidation business, you must also make sure that you do not rush into buying any customer return or wholesale products. Like any other business, liquidation will also require a considerable amount of your time and effort. 

Therefore, if you rush into things and do not take time to carefully think about the transactions that you are making, you will only end up regretting your decision in later. Giving your business the time it requires will help you make more profit and grow a larger, more successful company.

The Final Word

When all’s said and done, it is important to note that making money from customer returns and reducing the risks will require a lot of effort from you. However, the plus side is that once you are used to these points and tips, you will be able to build a business that has a high chance of success and growth. Even though it may seem a little challenging right now, understand and implement the things that have been mentioned here to help you in more than one way.

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