HOW TO GET RICH WITH CD-ROMS!
By Pat Flanagan
CD-ROMs are the way of the future. Not only do the turn your computer into
a super-high-powered knowledge and entertainment machine, they can make a
LOT of money for you, if you have vision and the willingness to try some
new things. This report will explain exactly what CD-ROMs are, and how
they can bring high profits for you.
A CD-ROM is basically a compact disk (like the kind music comes on) that
can be used in a computer. CD stands for Compact Disk, ROM stands for
Read-Only Memory (which means your computer can read what's on the CD, but
it can't write new information to it). In order to use a CD-ROM on your
computer, you must have a CD-ROM unit, much like a disk drive, installed in
your system. These CD-ROM units can either be internal (installed inside
the computer case) or external (hooked to the computer by a cable). Note:
Most CD-ROM units can also play regular music CDs, as well as the new Kodak
Photo CDs.
Why would anyone want a CD-ROM unit? Well, for one thing, a CD-ROM can
hold tons more information and programming than a regular computer disk,
almost 400 times as much, to be exact. For example, there are whole
encyclopedias that come on only one or two CD-ROMs! And these aren't just
plain, boring encyclopedias, either. The high amount of storage on a CD-
ROM allows full-motion video, digitized sound, and other special effects to
be included. For example, if you look up the first moon landing, you might
see an actual short video of Neil Armstrong stepping onto the moon, and you
might hear him say his famous "one small step" speech!
CD-ROM games are incredible! Many CD-ROM games are ultra-realistic, with
real actors, real speech, and thousands of possibilities.
Desktop publishers love CD-ROMs, too. There are CD-ROMs available that
hold thousands of typestyles and clip-art graphics.
The ability to use CD-ROMs is almost essential these days if you run a BBS
(Bulletin Board System, accessible by modem users). There are dozens of
CD-ROMs available that contain hundreds of shareware programs each.
Callers to your BBS can download these programs to their computer, so they
can use them. With a few of these, you can have the largest file base of
any BBS in your area literally overnight!
Major software companies are jumping onto the CD-ROM Catalog bandwagon.
Some companies are now putting all of their programs onto a CD-ROM. These
programs will be hindered in some way from functioning 100% (for example, a
word processing program may not be able to save what you've typed). They
do this so you can try the program and see if it's what you want. If you
like the program, you can call them, give them your credit card number,
they will charge you for the cost of the program, send you the manuals, and
give you a code you can type in to make the program fully functional. They
are discovering that it is very cost effective to operate this way, plus,
people get to try more software out, and potentially purchase more.
So, this is the "why" of CD-ROMs. Just how can they make money for you,
you might ask?
First, you need to know how popular CD-ROMs are becoming. According to an
article in Fortune magazine (February 21, 1994), about 15% of the 5.85
million computers sold last year contained CD-ROM units. That's over
877,000 CD-ROM units, just in 1993. That doesn't count the tens (or
hundreds) of thousands of people who are adding CD-ROM units to
computers they already own. In other words, this is a HUGE market!
Have you ever been to a music store where they sell used music CDs? Used
CDs are as good as new ones, and you can usually buy them for half the
price of new CDs. This has become an industry in and of itself. People
naturally want to save money, but get the same quality of product.
Remember the number of people I mentioned earlier who either bought a
computer containing a CD-ROM or bought one to add on to their current
system? They'll be buying CD-ROMs. After awhile, they'll get tired of the
particular CD-ROM they purchased. They may have finished a game, and not
want to play it again. Or, they may have bought a CD-ROM that they just
plain didn't like.
START YOUR OWN USED CD-ROM BUSINESS! HERE'S AN OVERVIEW...
You can run a used CD-ROM business much like the used music CD business is
run. Here's a nutshell description of what happens in a typical used music
CD store. Almost everything will function the same for CD-ROMs.
A customer brings in a CD that they want to trade-in. If the music store
owner wants it for his or her stock, they'll usually offer the customer $2
to $5, depending on the demand for that particular CD. Then, they'll slap
a price of $6 to $10 on the CD, and put it out for sale.
That's basically all there is to it. The difference with CD-ROMs is the
price. Music CDs, at least in my neck of the woods, retail for around $14
to $16 each. CD-ROMs usually start around $25, and can cost over $150!
The price varies with the type of program on the CD-ROM (games are cheaper
than encyclopedias, for example). If you were looking for an encyclopedia
CD-ROM, and could buy the same one for either $150 new, or $75 used, and
they'd both function the same, which would you buy?
The basic formula for this is to offer the customer who brings in a CD-ROM
20% to 40%of the usual selling price for that particular item. Then, you
retail it for 50% to 75% of the usual selling price, depending on the
demand for that item. If it's a hot new game, give the customer a bit more
and price it higher.
You don't have to give the customer money, either. You can give them
credit toward another CD-ROM from your stock. One used music CD store in
my area might give me $3 for a CD I bring in if I want cash, or one new or
used CD for every two I bring in. This makes a lot of sense. For example,
if they paid $4 for the CD I want and I give them two CDs, they've
basically paid $4 for TWO CDs, which they might sell for $8 each. Thus,
they paid $4 for $16 worth of CDs. Not bad, and you can do this too, with
your used CD-ROM business. Be sure to keep good track of the amount you
paid for the CD-ROM your customer selects in this sort of trade, making
sure that you will profit from the two they bring in.
Well, that's an overview of the used CD-ROM business. Now let's get down
to details. I'll tell you how I would run a business like this. You put
your thinking cap on while you're reading this, and I'm sure you'll think
of some ideas, too.
HOW TO START THIS BUSINESS
First of all, immerse yourself in the CD-ROM world. If you don't already
have a CD-ROM unit, spring for one. Here are two sources for low-priced
CD-ROM units: CRAZY BOB'S (yes, that's the actual name of the place), 50
New Salem St., Wakefield, MA 01880 (800) 776-5685 (an excellent source
for CD-ROM units starting at $259, plus tons of CD-ROMs at low prices -
call for their catalog); and CORPORATE SYSTEMS CENTER, 1294 Hammerwood
Ave., Sunnyvale, CA 94089 (408) 734-3475 (new and refurbished CD-ROM
units from $149). Read the computer magazines, especially ones dealing
with multimedia topics. Many of them will have lists of the top selling
CD-ROMs. Become a frequent visitor at your local computer stores - pay
attention to what people buy. All these will give you clues as to what the
big sellers are. Take good notes, and keep them handy!
Next, decide how you will run this business - in a store, or by mail. This
business can be run equally well both ways, though the methodologies are a
bit different. If you run it retail, you'll need to be in a good, visible
location, with a decent amount of advertising and publicity. If you
operate as a mail order business, you'll need to put together a catalog of
what you have to offer and get it out to CD-ROM buyers.
Now, put together a starting inventory. You can do this by advertising in
local and national magazines. Put a classified ad out saying something
like this: "CASH FOR YOUR CD-ROMS!!! Excellent condition only, must have
all manuals. Send your list for quote. (Your name and address)." Good
places to put this ad include Computer Shopper Magazine, Computer Monthly,
PC Magazine, multimedia-oriented magazines, BBSs, and local computer user
group newsletters. When you receive lists in the mail, compare them to the
information you compiled earlier. Find out what your local dealers and
national mail order retailers are selling the titles for. Offer the person
an average of 25% of the normal selling price. Most of them will take it,
rather than have the CD-ROMs sitting around on a shelf, gathering dust.
You should try to compile at least one to two hundred CD-ROMs before you
advertise them for sale.
When you DO start advertising, emphasize that you will take trade-ins
(remember the two for one deal described earlier) in addition to selling
for cash. This is a very cheap way to build inventory. Remember to get at
least double what you paid for each CD you sell.
If you want to run your business as a retail store, you should consider
stocking some new CD-ROMs. Allow customers to trade their old CD-ROMs in
for new ones, keeping your costs in mind. There's no reason why you have
to have a hard set concrete rule, such as "you get one new CD-ROM for every
three used ones you bring in." You can set a certain dollar credit amount
for each CD-ROM they bring in, if some are more desireable than others.
Also, you don't have to take EVERY CD-ROM that people bring in. Like any
other product, some CD-ROMs will be total dogs that no one will want to
buy, except someone who's never heard how awful it is. Don't take these.
If you manage to pass one off on an unsuspecting customer, good for you,
but you'll probably never see them again. You want customers to return,
and return, and return. You want them to buy a CD-ROM from you, come back
and trade it in, then do the same again and again. That's where the real
money is.
After all, say a customer buys a CD-ROM from you for $50 that you paid $25
for. You've made $25 profit. That customer comes back in a few months
later to trade it in. Now, that CD-ROM might only be able to bring in $35,
so you offer $17 for it. You still have $8 profit. You'll make $17 profit
on it when someone else buys it, bringing the profit amount back up to $25.
The customer now buys another $50 CD-ROM, giving you another $25 profit.
And so on...
If you're running a retail walk-in store, you won't need a huge one. In
fact, a smaller store can be better than a large one. Your products are
small, so a large store will just look empty, even when fully stocked.
Plus, get four or five people into a small store and it looks busy. Put
four or five people in a huge store, and it looks dead. You want your
store to at least LOOK busy, don't you?
The best way to display your stock is to put the CD cases out and keep the
disks behind the counter. You can either put cheap racks on the walls to
put the cases on, or build some cheap bins for people to flip through. The
advantage to the racks is that people can see the artwork on the front of
the case, which draws their attention. The bin advantage is that you can
store more CD cases in less space. Plus, it appeals to human curiosity to
rummage through the bins. I'd have bins in my store.
If you build your own bins, all you need to do is make a wood box that's
16.5 inches wide and anywhere from 10 to 15 inches deep. Now, divide the
box into three compartments that are 5.5 inches wide. You will be able to
stack the cases in each compartment so that the spine with the CD-ROM title
is showing on the top. That will make it easy for customers to flip
through them. Arrange them alphabetically by title in the bins.
To keep the disks, get some 5 inch wide strips of 2 inch thick high-density
foam (not the styrofoam that flakes apart - you want the tough stuff that
can be sawed). Glue this foam to strips of plywood that you have nailed
either under your counter or on shelves. Next, saw slots 3/4 of the way
into the foam every 1/2 to 3/4 inch. Use a vacuum to get rid of any foam
dust. Now, you can insert the disks into the slots, where they will take
up little space. You may want to put labels on the foam and corresponding
labels on the CD cases, so the disks are easy to locate when a customer
wants to buy one.
A good idea, if you can afford it, is to have a computer or two out, so
customers can try out the CD-ROMs. This will drastically increase your
business, because customers will be less warry of being "taken". Plus,
when it isn't busy, you can play some games...!
Where to advertise? Use your head when buying advertising. You want your
ads to be seen by people who will actually be interested in buying your
products. You'd be better off to contact every BBS in town and offer to
pay maybe $25/month for a full screen ad that everyone who calls in sees,
than to pay the same total amount for a few newspaper and radio ads. Why
is this? Because the BBS ads are TARGETED ads. They will only be seen by
people who own computers. The newspaper and radio ads will be seen by a
higher total number of people, but most of those people probably won't own
computers or even know what a CD-ROM is. Good avenues for targeted local
advertising are: BBSs; computer user group newsletters; computer
stores; high school and college newspapers (students are big CD-ROM
freaks, especially games!); and other media that appeals directly to
computer users. Be sure to put flyers up around school campuses,
especially in computer labs, if possible.
It may have occurred to you that there is a hidden possibility for profit
in the used CD-ROM business... CD-ROM RENTALS! Why not? Video rentals
brought forth video game cartridge rentals, which have exploded nationwide.
Rent your stock of CD-ROM disks.
You'll get the student who needs an encyclopedia for the big term paper;
rent them an interactive CD-ROM encyclopedia.
You'll get the game freak who just has to play something new; rent them
your newest and most exciting CD-ROM games.
You'll get the parent who's looking for a new educational program for their
kids; there are hundreds of educational CD-ROMs out there.
You'll get the business person who needs special reference material; rent
that CD-ROM in your stock that contains the names and phone numbers of
every buyer for every large company in the U.S.
How much to rent your CD-ROMs for? Well, it's pretty much an open market,
since there aren't many (if any!) CD-ROM rental stores around. I'd say,
start your rentals at $3.50/day, and see how it goes. You need to find the
highest price the market will bear, without damaging your business. For
example, if you can rent 100 of your CD-ROMS per day for $3.00 ($300), or
75 for $3.50 ($262.50), it should be easy to see which price to charge.
As with any rental business, you should get a heavy supply of standard
rental agreements. Standard video rental agreements should do. Your
customer needs to fill one out and sign it before the first time they rent.
Basically, the agreement states that anything they break or steal, they
buy.
Should you charge for memberships to your CD-ROM rental club? I would
answer a resounding NO!!! Many video rental stores charged for a
membership. Those days are over. The smart rental stores realized that
they'd make far more bucks down the line by giving out free memberships and
having many more potential renters, than they would make by having only the
people willing to pay $10 to $25 up front, before they rent. Make up some
inexpensive rental membership cards (plain cardboard will work fine), and
give them out FREE, after the renter fills out the agreement.
A good idea is to stock up on CD-ROMs that contain collections of
specialized programs. For example, get a collection of CD-ROMs with
shareware programs on them. Let BBS owners know you have them available.
Keep in mind that there are over 60,000 BBSs out there, with more starting
every day. Sounds like a good market for rentals and sales.
Or, put together a stock of CD-ROMs containing typestyles and clip art
graphics. Then, do a special mailing to desktop publishers, businesses
that have in-house art departments, schools, etc., any business that could
need these CD-ROMs. Be careful about renting these, though. If you're
dealing with CD-ROMs that contain programs that can be copied, such as
graphics, make sure the contents of the CD-ROM aren't protected by
copyrights. If they are, they are only intended to be used by the
PURCHASER of the CD-ROM. If they are public domain, then you may rent them
as many times as you want.
I hope you can see the profit potential locked inside CD-ROMs. They are
not a fad, they are a coming wave. Look at how CDs revolutionized music...
they WILL do the same for computers. Establish yourself as a source of
quality new and used CD-ROMs, for sale or rent, and you'll do well! This
is a fantastic business that can be easy and fun. Plus, you'll be keeping
up with exciting technology. Be sure you start right away, though. It's
hard to open a profitable video store these days, because everyone's in on
the technology. CD-ROMs are the new technology on the block, waiting to be
picked up and used profitably by you!
