How to Become a Reseller: A Guide for Small Business Owners

From beauty products to collectibles to eBay consignments, the opportunities for becoming a reseller are endless.

But what exactly is a reseller? A reseller refers to a business or business owner that buys a product from a manufacturer, vendor, or wholesaler at a lower cost and "resells" that product at a higher cost, either online or through traditional offline direct channels.

While some companies require you to carry an inventory, others may ship goods directly to the end customer, with you acting as the transactional/order processing interface, which makes reselling a popular startup entrepreneurial opportunity for home-based businesses.

What should I resell?

The resale business model is almost limitless in its scope and opportunity. Some businesses focus exclusively on resale as their main source of income. Others choose to supplement their existing product and revenue streams with resale goods, either by becoming an affiliate or a channel partner of the manufacturer (a common approach for small technology businesses).

There are many channels for reselling goods. Some entrepreneurs resell goods through eBay or via their own websites. Others sell through their stores, or sell directly through B2B or B2C sales channels. Some even buy from eBay and resell through another channel.

While it’s somewhat of a misconception to suggest that becoming a reseller requires little upfront risk, training, or skill, becoming a reseller does offer entrepreneurs a great way to get into business.

If you are interested in becoming a reseller, here are a few things to understand about how the reseller industry works together, along with some pointers for finding, assessing, and securing the right reseller opportunity for you.

Finding the right reselling fit

Finding the right fit means starts with finding the right product(s) or even service to resell. This doesn’t mean you have to be a product expert, but you do need to be able to feel and demonstrate the motivation and emotional investment needed to make your resale business a success.

To assess the potential success of your chosen product, you will also need to research and understand the market landscape (demand, competition, price points, etc.)—something your supplier or affiliate will hope to see you demonstrate, too.

This Market Research guide from the SBA is specifically geared towards small business owners and walks you through each stage of conducting market research.

Finding the right opportunity

If you are looking to supplement your existing products and services with a resale relationship—for example, you specialize in computer repair services, but want to expand your offerings to include computer hardware and peripherals—you might want to consider a resale opportunity with a known brand manufacturer.

On the other hand, if you are a startup and are interested in becoming an Internet reseller, you may need to dig a little deeper. Read "Step One to Becoming an Internet Reseller: Choosing the Right Product," in which startup expert Erika Wilde offers tips for not only finding the right product to sell, but also how to find and approach the source of that product, whether it’s a manufacturer or Internet wholesaler.

Avoid scams

Be mindful of business opportunity scams, many of which prey on home-based business owners with enticing work-at-home schemes. The government keeps a keen eye on much of this activity, and the FTC website offers advice about evaluating business opportunities and looking out for scams.

Have a business plan

As you start to research reseller business opportunities, start to think about formalizing your ambition with a business plan. Writing a business plan not only makes you think long and hard about the market opportunity, it will also help you build a clear view of your goals, and, most important, how you are going to reach them. It will show potential affiliates, wholesalers, and lending institutions that you are serious about your venture.

The application process

Most reseller opportunities start with an online application. Be prepared to submit information about your business profile including your company size, years in business, number of employees, region of service coverage, selling channels, web presence, online merchant tools, and so on.

From here the manufacturer will determine whether they believe you are a good fit for their program.

Understand the compensation model

Resellers are typically compensated by either a "buy rate" or a "percentage" model.

The buy rate model involves the reseller purchasing from the vendor at a wholesale price and reselling on at a retail market rate. Your net revenue is the difference between the two.

The percentage model involves an agreement whereby the reseller sells the product at a retail price set by the vendor. Compensation is then paid as a fixed percentage off each unit sold. To ensure profitability and competitiveness, this model will require upfront and possibly ongoing negotiation on your part.

Read the T&Cs carefully

Before you sign any reseller agreement, make sure you are aware of your rights. Read, or have your lawyer read, the contract terms and conditions. You can also ask to talk to other resellers or reference customers to get the bigger picture.

Reseller as business owner

Don’t forget that becoming a reseller also involves becoming a business owner. As such, there are some fundamentals of starting a business that you need to observe. Read 15 Success Tips for First-Time Entrepreneurs to better understand and navigate the key planning, financial, and regulatory factors involved in starting a business.

You will also need a business license and certain permits. The SBA website has information on what type of licenses and permits you will need and how to apply for them.

Reseller marketing and market development funds

If you're reselling brand names, you'll have a head start in the market, but this doesn’t mean you won’t need to pull your marketing weight, too. Affiliate reseller programs and wholesale distributors often require insight and reporting into marketing activity carried out by resellers, so be sure to have a marketing plan that you can execute and measure.

Some larger manufacturers support their affiliate resellers by providing Market Development Funds (MDF). Under an MDF program, a reseller receives marketing dollars to promote the product and brand that they are selling. These dollars are usually skimmed off as a percentage of net sales revenue once you reach a particular sales goal and awarded as a rebate towards an approved marketing program.

RELATED: 101 Secrets to Running a Successful Home-Based Business

FAQs about becoming a reseller

Below we have summarized the most important questions and answers on the subject.