Give some advice to a new business

[vince1015]

Hey everyone,
I'm starting a new business selling gun accessories online. My plan is to one day open a storefront and get an FFL, maybe do some gunsmith work. But for now I'm starting small. I have filled out all the ridiculous paperwork for the business, found a wholesaler and am in process of being registered with them so I can get some pricing quotes. I was hoping one of you grizzled veterans might be able to recommend a good wholesaler. Also, if someone could send me a PM with what kind of profit margins I should expect, that would be helpful too. I have no idea whether the wholesaler I registered with is going to offer me any kind of a deal, or simply charge me near retail, leaving me to fall on my face and take my ball home.

Thanks in advance for the help,

Vince

[ugimports]

It's going to be rough just selling online if you can't compete with folks like midwestpx.com, joeboboutfitters.com, or even people selling direct on amazon.com or ebay.com.

That being said, be prepared to purchase in volume from whomever you are going to buy from. I would suggest on focusing on a few brands at first and find out what minimum volumes are to purchase wholesale direct.

Many of the firearm distributors will let you purchase accessories only, but minimum orders are very high. The only accessory only distributor I'm aware of (there may be others) is gunaccessorysupply.com, but I heard (can't confirm) that they are only accepting storefronts now. Also, they have high minimum order amounts for non-FFLs.

In a store you might expect margins anywhere 30-50% (depending on your location and market conditions). Online it's going to be less. I don't know the exact amount but probably in the 20-30% range AND you have to compete with the big boys to start getting brand recognition.

Good luck!

[Brian Nussbaum CO]

Margins will be 25% or less. Keep in mind that you will get charged shipping to you from the wholesaler.

Most online sale outfits work on about 15%.

Also you will be paying a lot more for product then they do until you can buy 20 or 30 K a month.

[vince1015]

Ouch! 15%! That's a pretty tiny margin. I realize volume is the key buy how the hell do retailers cover operating costs? I'd have to sell $30k a month just to make $4500. Then subtract operating costs. I was expecting about 30% profit. For a brick and mortar ffl it's my understanding that the profit margins are in the accessories but the guns drive foot traffic. At such low gains, it's difficult to see how anyone makes any money.

[tleeocinca]

Welcome to the world of starting a business. Most people who start a small business don't make a profit for a few years at least

[Brian Nussbaum CO]

Ouch! 15%! That's a pretty tiny margin. I realize volume is the key buy how the hell do retailers cover operating costs? I'd have to sell $30k a month just to make $4500. Then subtract operating costs. I was expecting about 30% profit. For a brick and mortar ffl it's my understanding that the profit margins are in the accessories but the guns drive foot traffic. At such low gains, it's difficult to see how anyone makes any money.

The only way to do it is to jump in with both feet.
You will need to place a LARGE $100,000+ first order to get any type of price brake. If you think you can just buy stuff as you sell it you are never going to make any $$ as you will be paying to much for it.

[JoeBobOutfitters.com]

Ouch! 15%! That's a pretty tiny margin. I realize volume is the key buy how the hell do retailers cover operating costs? I'd have to sell $30k a month just to make $4500. Then subtract operating costs. I was expecting about 30% profit. For a brick and mortar ffl it's my understanding that the profit margins are in the accessories but the guns drive foot traffic. At such low gains, it's difficult to see how anyone makes any money.

Honestly, when starting out you'll be lucky to realize a 10% net profit margin not including any cashflow allocated towards growth. You should expect to spend at least 1-3 years without pulling any cash out of the business if you intend to make it a profitable business. The business will need the cash to grow and continue to operate.

Many manufacturers only sell through distribution. Those who will sell direct typically have some barriers to entry that market. Some may have a $5k buy in while others may have a $40k buy in to get that product line. The margins on firearms and ammo are pretty weak, especially in a market like now.

I'm not a CPA or financial adviser but I do understand the market better than most, and I have been in the business for a handful of years. I'll give my $.02.

Assume your gross profit margin won't be over 20% gross if you are selling a large number of accessories, or closer to 15% gross if you are selling primarily firearms and ammo, if that. Your net profit will be much less once you factor in credit card fees of 2-3%, any labor you may pay, CPA fees, inbound and outbound shipping costs, utilities, etc.

Assume you will need to maintain approx 10-15% of your gross sales in inventory levels and 5-10% should be on hand for operating cash flow. This is assuming you have a well marketed business with a quick turnover. You may need to hold more inventory or sell at a lower profit margin than proposed to maintain higher sales and cash flow properly.

If you plan to sell $1mil/yr then you'll need to hold ~$150k in inventory and ~$100k in cash reserves. Assuming your net profit is approx 8% that means you'll have ~$250k tied up plus be working quite a bit more than fulltime in order to net $80k. Most of that $80k will be tied up in reinvestment into the business to grow it so it will be tighter than it looks on the surface.

[Bobula]

Replies like the one above from joeboboutfitters are the reason why that company will always have my business!

[THT]

Honestly, when starting out you'll be lucky to realize a 10% net profit margin not including any cashflow allocated towards growth. You should expect to spend at least 1-3 years without pulling any cash out of the business if you intend to make it a profitable business. The business will need the cash to grow and continue to operate.

Many manufacturers only sell through distribution. Those who will sell direct typically have some barriers to entry that market. Some may have a $5k buy in while others may have a $40k buy in to get that product line. The margins on firearms and ammo are pretty weak, especially in a market like now.

I'm not a CPA or financial adviser but I do understand the market better than most, and I have been in the business for a handful of years. I'll give my $.02.

Assume your gross profit margin won't be over 20% gross if you are selling a large number of accessories, or closer to 15% gross if you are selling primarily firearms and ammo, if that. Your net profit will be much less once you factor in credit card fees of 2-3%, any labor you may pay, CPA fees, inbound and outbound shipping costs, utilities, etc.

Assume you will need to maintain approx 10-15% of your gross sales in inventory levels and 5-10% should be on hand for operating cash flow. This is assuming you have a well marketed business with a quick turnover. You may need to hold more inventory or sell at a lower profit margin than proposed to maintain higher sales and cash flow properly.

If you plan to sell $1mil/yr then you'll need to hold ~$150k in inventory and ~$100k in cash reserves. Assuming your net profit is approx 8% that means you'll have ~$250k tied up plus be working quite a bit more than fulltime in order to net $80k. Most of that $80k will be tied up in reinvestment into the business to grow it so it will be tighter than it looks on the surface.

20% gross on accessories purchased through distribution may even be optimistic as there are more than a handful of dropshippers who show a distributor's inventory as their own for just a few points over cost as a means of competing.

[zfields]

20% gross on accessories purchased through distribution may even be optimistic as there are more than a handful of dropshippers who show a distributor's inventory as their own for just a few points over cost as a means of competing.

This. Trying to compete with drop shippers or amazon sellers is hard. I was considering trying to get into it, but 5-10% markup just wasn't worth it for average items. Markup on a lot of the more popular items (read:magpul) is absolutely terrible.

sent from my damn tappy device...

[JoeBobOutfitters.com]

This. Trying to compete with drop shippers or amazon sellers is hard. I was considering trying to get into it, but 5-10% markup just wasn't worth it for average items. Markup on a lot of the more popular items (read:magpul) is absolutely terrible.

sent from my damn tappy device...

Yep. There are a number of fly by night businesses and home FFLs trying to sell inventory pennies above cost which hurts the market as a whole. There's not any real "easy" money to be had. The best way to make a million in the firearms industry is to start with 10million.

If you compare some items such as a gerber knife or a maglite you may be able to get it cheaper from Amazon than buying the item through distributors. Some product line margins are razor thin or loss leaders once overhead and shipping costs are factored in.

[DaveInOroValley]

My best advice I can give having been in my own business many years past is to be sure to hire the best accountant you can.

[zfields]

Yep. There are a number of fly by night businesses and home FFLs trying to sell inventory pennies above cost which hurts the market as a whole. There's not any real "easy" money to be had. The best way to make a million in the firearms industry is to start with 10million.

If you compare some items such as a gerber knife or a maglite you may be able to get it cheaper from Amazon than buying the item through distributors. Some product line margins are razor thin or loss leaders once overhead and shipping costs are factored in.

And no offence, but large internet retailers who don't house much if any product can be attributed to the death of mom and pop shops.

Not saying that's your biz model (ive bought from you and got great service) but it is a couple other large retailers.

sent from my damn tappy device...

[THT]

And no offence, but large internet retailers who don't house much if any product can be attributed to the death of mom and pop shops.

Not saying that's your biz model (ive bought from you and got great service) but it is a couple other large retailers.

sent from my damn tappy device...

A good way to combat it is to get in on the stuff that isn't sold through distribution. Problem is that stuff usually has a buy-in which makes it difficult to get started if your capital is limited. But that does keep the fly-by-nighters and dropshippers out. Those manufacturers also tend to police MAP/MSP more stringently, taking price-based competition out of the decision making process.

[ojisan]

Since everyone sells, for example, Magpul stuff, the only reason a customer would buy Magpul stuff from you is that you have the lowest price with free shipping, etc....so it will be hard to make a fair profit on any of these kinds of items.

You are better off, if possible, selling things that are unique that you can't get everywhere.