There are times when Ben Federman loses six figures on his website's deals. And he's OK with that. The 28-year-old is founder of Brooklyn, N.Y.-based 1SaleADay.com, which offers one deeply discounted item every 24 hours.
Federman typically purchases electronics, jewelry, watches and other goods in large lots--or, preferably, in their entirety--and is thus able to negotiate the best possible price with the seller, which allows him to offer the items at as much as 90 percent off the suggested retail value and still turn a profit.
"I look at it as the best form of marketing," he says. "Everyone is out there trying to spend advertising dollars. But when we go and list a GPS for $30 that sells at Best Buy for $300, people are going to spread the word to everyone they know."
A self-proclaimed "gadget geek" who learned electronics profit margins from working in the field after leaving the Army in 2003, Federman was intrigued by the possibility of launching an online venture but decided to buck the conventional model of sites like Amazon.com and Buy.com, which "try to be everything to everyone." Instead, he would just give people the cool stuff they wanted for eye-popping, tongue-wagging prices.
He scraped together $100,000 in startup money from savings, maxed-out credit cards and loans from family and friends, and in 2007 he launched his site with a focus on electronics. Word started to get around about the fantastic deals, and when Federman's suppliers saw that he had the ability to move product, they began to give him credit and higher limits, which eased the pressure of having so much money tied up in inventory.
Meanwhile, Federman lived frugally (even today, his office "uniform" is sweaters and shorts, which he wears year-round) and reinvested all revenues back into the business. It turned profitable in 24 months, driven primarily by word-of-mouth and a strong social media presence, including a Facebook page that's closing in on 185,000 "likes."
Sometimes, in the interest of marketing, he takes a bath. "We will give away a piece of electronics for free or for $1 to get people talking about us and to invest in the customer," he says. "When they get a deal like that, they keep coming back."
Over the past few years, the company has given away 100,000 earbuds that retail at $19.99 each and has sold $39.99 digital picture keychains for $1 each.
In late 2010, 1SaleADay.com closed on a round of private equity investment from Optima Ventures that was reported to be in the high eight figures. Today the company employs approximately 80 people and, in addition to 1SaleADay.com, has specialized sites for jewelry ( Shadora.com ), paper ( PaperGoods.com ), watches ( DynamiteTime.com ) and eyeglasses ( GlassesUnlimited.com ). Federman says sites for children's products and household goods are in the works. He has also launched BensOutlet.com, where he shares multiple deals he finds on smaller lots.
Federman claims 100 percent revenue growth every year, and says he donates a substantial portion of his profits to programs for educating children with special needs, as well as to community centers, veterans' groups and others.
"When it comes to charity, there's no limit to how wide you can go," he says. "The more you grow your business, the more you can help others. That's so important."
This article originally posted on Entrepreneur.com