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What Is the Definition of Wholesale?
Wholesale refers to two possible business models. A business may buy goods in large quantities directly from manufacturers, warehouse them, and resell them. Or wholesale may refer to businesses that produce their own products and sell them directly to retailers, who then sell products to the end user. This second option has been popularized by wholesale marketplaces such as Alibaba and Salehoo.
How Are Wholesale Goods Distributed?
Those in wholesale purchase goods from a distributor and pass them to a retailer to be sold to the end-user. Wholesale goods suppliers source trending products to make sure that they can supply the most up-to-date goods to retailers. When a trend is identified, those in wholesale will research and source the most cost-efficient products, choosing from a multitude of manufacturers and distributors. Wholesale operators then supply these products to retail businesses for purchase.
Benefits of Wholesale
- Save Money
By buying products in bulk you can save money through discounts that wholesale get with larger orders. This means that you can get products for less while selling them for more. Depending on how much you invest initially you can get ahead of competitors through buying and selling in sheer volume.
- Build a Network of Suppliers
Those in wholesale need a good network of suppliers and manufacturers that they can rely on. Deliveries must be on time, products must be to a high standard, and relationships honored, to make sure that business runs smoothly for a wholesaler. This means that supplier relationships should be positive and well maintained so that your brand is established and sustainable.
- Become an Expert
Through researching and selling products you become an expert in this field. Whether you are selling car parts, jewelry, or wedding supplies you gain knowledge in your industry that customers will come to trust. Use this knowledge to entice more people to your online store and share information that will help customers make a purchase
- Expand with Ease
Once you have a good foothold on your industry you will start to see connections with other markets. These connections could be upselling or cross-selling opportunities that can help your business gain even more success. This expansion will be easy as you have already set up your brand and established relationships with those offering their products for wholesale. Any new ventures will be quick and simple compared to setting up.
Types of Wholesale
It can be hard to navigate the wholesale environment as some wholesalers work independently, while others work closely with one or two producers. Overall a wholesale businesses can fall into one of three categories, or types. These are:
- Merchant Wholesalers
This is the most common wholesale types. Merchant wholesalers engage in purchasing larger volumes of products which they sell in smaller quantities for a slightly higher price. Merchant wholesalers do not manufacture their own products but they have in-depth knowledge of products to know when is the right time to start selling them to retail businesses in different industries.
Brokers typically don’t own the products they’re selling; they are the intermediary between a wholesale operator and their clients. A broker negotiates a good deal between the two parties and works off a sales commission structure.
- Sales and Distribution
Instead of relying on wholesale businesses finding a manufacturer, a manufacturer could hire people to actively represent them to wholesalers. This means that a manufacturer will reach out to wholesale operators to offer their products to them, creating wholesale deals that are tailored to individual cases.
What is Wholesale Pricing
A wholesale pricing is the price a manufacturer charges a wholesale to bulk order from them. Because wholesale is buying in bulk a significant discount can be sought from the manufacturer making it possible for a wholesaler to make a profit through retail markup.
Retail markup is the pricing on wholesale products a retailer is charged for a product minus the wholesale price of the product. For example, if a wholesale buys 500 products for a total of $2,000 each product cost $4. The wholesaler might decide to sell these products in groups of 50 to retailers for $400 per 50 products. The price per product has now increased to $8 per product meaning that a wholesaler will make $4 profit per product or $2,000 for the whole shipment. This is what makes wholesale profitable.
What Is the Difference Between a Distributor, Wholesaler and Retailer?
A product has to come a long way until it reaches a paying customer. Wholesalers, distributors, and retailers are all middlemen that are featured in the supply chain and make that journey possible. Each has its own purpose and set of responsibilities that define their role in the network.
Distributor is an independent agent that enters into an agreement with a manufacturer to sell their products to wholesalers or retailers. Distributors often face limitations from manufacturers and are not allowed to sell other product lines or competing products, however, that often boils down to the type of industry and agreement that’s put into place. Typically, distributors carry a very large amount of stock and often have the capacity to warehouse goods for up to a year. Whenever a manufacturer is approached by a potential new buyer, they have to deal with the chosen distributor that becomes their direct point of contact.
Wholesaler is a middleman that buys in bulk from a distributor and resells at a wholesale price to a retailer. Wholesalers can specialize in a certain type of product, such as women’s shoes, or carry a wide range of stock destined for retailers in various different industries. Wholesalers who only stock non-competing products are deemed distributors. Besides breaking bulk orders into smaller quantities, wholesalers can also assemble goods as part of the process. Wholesalers typically tend to warehouse products for shorter periods of time compared to distributors, most commonly for up to six months.
Retailers are for-profit businesses that sell directly to consumers for the purpose of consumption and not resale. To make a profit, a retailer needs to find a wholesaler or a distributor that sells products at the right price point and in the right quantities. Generally, retailers make money by purchasing goods from wholesalers in small quantities at a wholesale price and reselling them at a relatively high price to cover for advertising costs and other expenses, such as staff salaries, rent, utility bills, etc.
Wholesale Vs Dropshipping
Wholesaling is great as it gives you the ability to buy and sell when and where you want to. You can even choose how to sell your products, so this is a great option for an entrepreneur with enough startup capital.
A new type of online retailer known as “dropshipper” has become popular among eCommerce entrepreneurs with little startup capital. A dropshipper is a retailer who doesn’t keep any stock but earns commission on orders transferred to his wholesale dealer. The biggest advantage of this retail fulfillment method is that you don’t need to own or keep the stock you’re selling. When you receive a new order, you simply pass it on to your wholesale partner who handles the product shipping and takes a commission on that. eCommerce businesses that run on a dropshipping model are hugely reliant on wholesale suppliers and need to be strategic about choosing the right partner.
Both business models are great options but are suited for different entrepreneurs.
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