How do I pre-selling physical product that don't exist yet?

Tony,

Preselling physical products only works if A:The products are already in production, or B:You have already secured the funding for production. This is true on several fronts, but the most obvious is that you will need to provide a delivery date for the products, and you won't have that until you begin production.

Now, the following is not legal advice, but I want you to consider the ramifications of what you are proposing. If you believe that you can presell physical products to raise the money for production you are kidding yourself. You are also exposing yourself to major legal problems if you take the money upfront and can't deliver down the road.

Many credit card companies have policies that frown on this kind of activity, and in fact, prohibit it. So in essence you would need to collect cash, checks, or money orders to make your presell launch work if you are looking for payments in advance. But you would still be risking legal problems such as Mail Fraud here in the US if you used the Postal System for payments sent to you via mail.

Look at it this way, if you fall short of your sales projections, and can't raise the necessary funds to produce the products you will not only incur the expense of refunding the monies, you will also kill your credibility and whatever good will you may have fostered with your customers.

As someone who makes money selling physical products on the internet I can assure that you will need the continuing loyalty of your customers to build a sustainable business. Having to find new customers for every sale is a losing proposition.

One other thing I want to touch on is the mistake that most people make when they launch a new physical product. Basically, they believe that they need to make the product at the largest volume to support the lowest cost. Don't fall into this trap.

When you approach a vendor be sure your Request For Quote (RFQ) always contains quantities that allow you to test the market without filling your garage with unsold merchandise. Lower quantities will mean a higher cost per unit, but there is a trade-off.

Generally, you won't sell 100% of a large order, so all the inventory that is leftover needs to be amortized into the products that you have sold to determine your profit. So, for example, if you make 10,000 units at $3.00 each, and only sell 5,000 units, you could have just as easily paid $6.00 each for 5,000 units and skipped the hassle of storing/warehousing the unsold inventory. In fact, your real profit would have been higher in this example with the smaller quantity order.

Bottom line...go back to the vendors that have given you quotes and give them a RFQ for significantly smaller orders if you haven't done so already. Figure out a reasonable break-even cost and make the first order a small but profitable one.

What you want to do with this initial forey into physical products is to reach a balance where the retail price you sell at allows you to recoup the cost of manufacturing the products and leave you a little profit at the same time. Remember, all physical products have what is called Non-Recurring Charges, and these include such things as artwork and tooling that once paid for do not need to be paid for again. That means that all future reorders will be cheaper than the initial order placed for production.

If you find that it costs you $12.00 each to have 100 units made, and those units sell for a total of $2,000.00, you just made $800.00 profit. Continue rolling the entire procedes of each production run into the next order until you reach a point where your cost per unit is low and your volume is up and you will have reached your goal, albeit in a round about way. This, of course, assumes you do not need the sales proceeds to eat, or pay rent, but only to build your business.

I'm starting to write a book here, so my apologies. Just do this thing right the first time and stop kidding yourself that collecting money upfront will solve the problem. It won't, and you don't deserve the headaches. Adjust your unit numbers until they balance in your favor, or raise working capital.

Best of luck,

KJ

Just remember. There is no substitute for real sales. You can do all the market surveys you want and 100 people may say they love it but when I comes to stroking a check things tend to change. Lots of examples of great market response then poor sales. Also don't trust your friends or family. Talk to strangers. If nothing else get people to commit on paper to buy but don't take their money. When you get enough commitments then approach an Investor or manufacturer and try to strike a deal. Just a thought.

I would have to agree with you. Good point. LMAO!!!