Just Because Someone is a Top Seller, Doesn’t Mean They’re Making Money

by Gail Oliver, Small Business Marketing Consultant

We are quick to be envious of someone else’s success and wonder what we are doing wrong, but sometimes we are not looking at the big picture and their success may not be as great or envious as we think.

Small-business-success

There was a profile recently on a small online business that was a husband and wife shop. The headline read how their home decor products business is about to get a wholesale deal that will bring projected annual revenues of $2 million. There were a ton of comments on the article from other small business owners, in complete awe, wondering how the couple pulled it off and how they too could get that kind of success. But the readers were just seeing the “$2 million”; they weren’t seeing what the deal really involved.

Why This Wholesale Deal May Not Be As Great As You Think

First of all, $2 million in revenue is not $2 million in profit. In order for the couple to meet the wholesale demands they had to rent a production facility, rent office space, hire employees, pay insurance and workman’s compensation and a quazillion other costs associated with it no longer being a two person operation run out of their home. They now have to deal with employees, retail stores, as well as the end customer.  They also have more stress and pressure. It’s one thing to pay yourself. It’s quite another when you are on the hook to pay rent or someone’s salary.

The truth is, after you deduct all of these new costs, along with the original costs of production such as materials, plus they are now selling at a reduced wholesale price instead of a direct marked-up retail price, are they even making more money than before?

Also, there is no guarantee that the products will sell to the end user. Just because the retail stores are buying them, the product still needs to be bought by customers. You no longer have control over the marketing of the product at this level, so if your products don’t sell, the retailers won’t be coming back for more and you have all these new production costs to cover.

Don’t get me wrong, I am not trying to downplay their success. This is what it takes to grow a business, a few lean years. But rather, I want to put it back into perspective so other small business owners understand whether this would really be the best scenario for them.

This comes back to the post I wrote the other day. When you go into business for yourself, you have to decide how much success you want, how much you can handle, and what sort of growth model you aspire to. Before you get envious of someone else’s success, define what “success” really means for your business.

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© 2013 G.B. Oliver. All rights reserved.

Author: Gail Oliver, Online Small Business Consultant

I'm Gail Oliver, an online marketing consultant. Welcome to my blog, chosen one of the Top 10 Small Business Blogs to Follow in 2014 by American Express Open Forum. If you need help with your e-commerce business, be sure to see MY SERVICES, above.

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