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
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.
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. They may have bought a CD-ROM that they just plain didn't like.
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 desirable 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 big
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
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 wary 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 is easy and fun. 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!