What Does Wholesale Mean? Everything You Need To Know
What does wholesale mean? Is it purchasing in bulk and at lower prices? What else is there to it?
Whether you’re a retailer looking to broaden your product procurement channels or a manufacturer hoping to acquire a new sales avenue, you’ll come across the term “wholesale” at some point.
In this post, we’ll dive into the definition of wholesale, its different types, and key terms.
There’s plenty of juicy information so let’s get straight to it.
- What Does Wholesale Mean?
- What Does “Wholesale Price” Mean?
- Types of Wholesale
- Wholesale Terms You Need To Know
- What Does Wholesale Mean: Summary
What Does Wholesale Mean?
To understand wholesale, we need to consider what it means from different points of view.
Traditionally, for retail stores, buying wholesale means acquiring goods for your business in large quantities at lower prices. You would then stock these items in your store and resell them to the end customer (individual consumers).
From the vantage point of a manufacturer, selling wholesale would put you at the other end of the process, where you would offer your products in bulk to a middleman (known as a distributor, but more on this later) or directly to retail stores.
Bulk Buying in the Wholesale Definition
It’s important to note that even though nearly all wholesale definitions talk about bulk orders, this is not a rule that’s carved in stone although it is very often the case. There are wholesalers (usually manufacturers themselves) who are happy to sell their items in smaller quantities, especially when they’re dealing with a retailer for the first time.
For instance, some suppliers listed on Handshake have no minimum order requirements.
What’s a Wholesaler?
There are two main types of wholesalers that retail businesses can purchase their merchandise in bulk from – distributors and manufacturers.
Both of these are considered to be suppliers in the realm of wholesale (more on this in a bit).
Distributors acquire products in large volumes from manufacturers and then sell them off (also in bulk) to retailers. They play no role in the production process of the merchandise. Oftentimes, they also own their own storage facilities to hold these products.
Wholesale distributors act as an intermediary between the manufacturer and the retail business.
Wholesalers can also be manufacturers who, as its name suggests, create or produce the goods themselves.
As manufacturers selling wholesale, they’re both the supplier and the maker of their products and they can sell to distributors or deal directly with the retail shop with no middleman involved.
In the context of wholesale, both distributors and manufacturers are suppliers, which are essentially businesses retailers source their products from.
Beyond wholesale, however, a manufacturer may not necessarily be a supplier.
Suppliers typically engage in B2B (business-to-business) ecommerce – that is, they sell to other businesses (like a distributor or a retailer). Meanwhile, some manufacturers also sell B2C (business-to-consumer). In such cases, they would not be considered to be suppliers.
Irrespective of what type of supplier a wholesaler is (a manufacturer or distributor), their customers are businesses and never the individual consumer.
In other words, if you’re a retailer buying wholesale products, you’d get your goods to stock your store from either a distributor or the manufacturer himself.
What Does “Wholesale Price” Mean?
“Wholesale price” refers to the cost at which retailers would secure their goods when buying in bulk from a wholesaler.
As mentioned above, because wholesalers can also be distributors, “wholesale price” also refers to the price distributors pay manufacturers to procure their products in large volumes.
Wholesale prices are always lower than the retail prices a store would set for its consumer. That’s because businesses markup the wholesale price in order to make a profit from the end-sale transaction.
Manufacturers or distributors are able to set their wholesale prices at a reduced rate because of volume buying. This lowers the time and costs involved in the handling/production of each unit, which, in turn, boosts profits.
Wholesale Price vs Retail Price Example
A wholesale candle supplier or manufacturer offers its candles in large volumes at a wholesale price of $19 per unit to a business selling home decor products.
After purchasing from the wholesaler, this retailer then re-sells these candles at $26 per unit to its customers, pocketing $7 in profit for every candle sold.
Setting a Retail Price
One of the easiest methods to decide on a retail price is via keystone pricing. It’s a simple strategy that basically involves doubling the wholesale price.
In most cases, it’s a safe way to ensure all business costs are covered and allow for a healthy profit margin at the same time.
In essence, this is how keystone pricing would work:
- Wholesale price per unit: $25
- Retail price per unit: $25 x 2 = $50
That said, as straightforward as this strategy is, it may not be optimal for all types of business.
For instance, it’s recommended for new candle businesses to list their products at a 25 to 50 percent markup, while those for clothing retailers can range from 100 to 300 percent.
That’s because the amount of mark-up a retailer needs to add to earn a profit depends on a host of factors that can vary greatly according to the product, market, and wholesaler. These include:
- Wholesale cost
- Supplier-to-retailer shipping costs
- Marketing costs
- Product type
- Retailer-to-consumer shipping costs for online businesses
Types of Wholesale
Wholesalers operate differently depending on their setup. These are the three most popular types of wholesale categories.
1. Merchant Wholesalers
Merchant wholesaling is, by and far, what most people think of when coming across the term “wholesale.”
It’s the most popular method of wholesaling, which involves a distributor purchasing goods in volume from a supplier/manufacturer, storing them in their own facilities, and then re-selling them in smaller bulk quantities to retailers.
Since they’re distributors, merchant wholesalers do not produce the goods themselves. They also tend to specialize in certain types of products, which makes them very knowledgeable about the merchandise they trade.
Like merchant wholesalers, agents or brokers are also independent intermediaries. They, however, do not purchase the goods produced by manufacturers.
This means that, unlike merchant wholesalers, agents and brokers never legally own any of the wholesale products they transact.
Instead, their role is to set up a deal between wholesalers and the businesses interested in purchasing from them (be it a distributor or a retailer) while earning a commission in the process – much like a real estate agent.
Agents and brokers are mostly used by manufacturers/suppliers who don’t have the financial power or knowledge to handle their own sales.
3. Manufacturers’ Sales And Distribution Teams
This type of wholesale selling is similar to wholesale agents and brokers in that they are in charge of securing buyers for the manufacturer and have a vested interest in doing so.
However, these sales and distribution teams are not separate entities. They’re owned by the manufacturer themselves and are responsible for distributing the merchandise on a wholesale level (to distributors or retail stores).
The offices of a manufacturer’s sales and distribution teams are usually kept physically apart from the production plant.
Wholesale Terms You Need To Know
If you’ve previously done some research on wholesale, you may have come across certain terms and acronyms that look foreign to you. Don’t let these scare you off.
Even though the world of wholesale may be fairly new to you, these are terms that are easy to understand, once we break them down.
Plus, if you’re serious about wholesale – regardless of whether you’re looking to sell or purchase – you’ll need to get yourself acquainted with them.
In this section, we’ll dive into eleven of the most common and essential wholesale terms you need to know.
MOQ in wholesale stands for Minimum Order Quantity.
Even though it’s not always the case, most wholesalers require a minimum number of unit orders from a buyer to be able to offer their prices at wholesale (lower) rates.
MOV is Minimum Order Value and its concept is similar to MOQ.
The difference between MOV and MOQ is that the latter deals with unit quantities (e.g. an order for at least 500 units of candles) while the former refers to order amount in dollars (e.g. an order of at least $2,000 worth of candles).
Both MOVs and MOQs can vary greatly depending on the manufacturer/distributor you work with, the product, and the sector you’re in.
Tip: As a retailer, if you’re using online wholesale marketplaces to source for suppliers, make sure to check whether their directories provide details on minimum orders for you to sort, filter, and make an informed decision.
MSRP refers to the Manufacturer’s Suggested Retail Price.
This is the price a wholesaler recommends its products to be sold at by the retail business to the end consumer (i.e. the price listed in the retail store), which is higher than the wholesale price as it takes into consideration mark-ups by retailers.
Note that this is only a recommendation and it is up to retailers to decide whether or not they want to abide by it.
For instance, they are free to list their prices higher than the MSRP for products in high demand to boost profits, or set them lower during sale seasons.
The MSRP is also commonly referred to as the RRP (Recommended Retail Price).
4. White/Private Label
White or private labeling is when a store agrees with a manufacturer to sell its product(s) under the retailer’s brand name and logo.
This can either be for items that the manufacturer is already producing or a new product that the retailer commissions the manufacturer to develop. In both cases, the retailer would almost always have exclusive rights to the product(s).
5. Wholesale Only
This term may be confusing. We’re deep into the definitions of wholesale and its related terms, so what does “wholesale only” mean?
In simple words, it’s a term that suppliers would use when they’re only selling B2B and not to the general consumer.
6. Back Order
Back orders refer to purchases from retailers that have been placed but yet to be shipped.
This is usually due to the lack of inventory from the wholesaler/manufacturer, which can also be because the order was placed before the start of the production process.
Buybacks take place when a wholesaler re-purchases unsold products that were originally bought by the retailer.
Conditions for buyback are usually set in advance and agreed upon by both parties. This includes time limit, re-purchase price, circumstance, and more.
8. Purchase Order
A purchase order is a document containing the details of the items being purchased.
It usually includes:
- Item quantity
- Item description
- Price per unit
- Total price
- Payment terms
A purchase order is used to generate an invoice.
9. Net Payment Terms
This refers to a type of payment plan agreed upon by the retailer and the wholesaler.
It allows the retailer to make payment only after having received the goods and time to sell them.
The most common payment terms are 30, 60, and 90 days, although it can also be as short as seven days and as long as 180 days.
A consignment is a special arrangement between the retailer and wholesaler in which the retailer only pays for the products after they’re sold.
Under this arrangement, retailers do not purchase the items from the wholesaler. Instead, they simply place the manufacturer’s merchandise in their store and take a small cut from any sales that may happen.
Any unsold products are returned to the wholesaler.
11. Lead Time
Lead time is the length of time between the moment a retailer places an order with a wholesaler and the goods’ arrival.
This is also known as turn-around time.
What Does Wholesale Mean: Summary
In short, wholesale can be summarized in the following points:
- Wholesale almost always involves bulk purchases
- Wholesale prices are lower than retail prices
- As a retailer, buying wholesale means securing goods either from a distributor or directly from the manufacturer
- Likewise, as a manufacturer, you can sell wholesale to distributors, who’d then resell your goods in bulk, or to retail businesses
We hope this post has been useful in shedding some light on the ins and outs of wholesale buying and selling.
If you’re interested in learning more about wholesale, we recommend you check out our posts on Wholesale vs Retail: Everything You Need to Know and Dropshipping or Wholesale: Which Sourcing Method is Better.
Have any questions about wholesale? Leave them below and we’ll get to them!