How To Navigate the World of Wholesale
You’ve set up your business entity. Your branding is on point and maybe you have a marketing plan laid out. Whew! You’ve put in a ton of work to get to this point. Simply put, you’re stoked and you’re proud of how far you’ve come.
But now you have to order products for your store, which feels somewhat mysterious and maybe even a little scary, so you freeze.
Or maybe you have an established store but want to increase your profit margin.
Unsure where to start?
Don’t worry, you’re not the only one.
Nobody likes to feel lost, but if you keep reading, we’ll demystify the process of finding the best wholesale products for your retail store.
- What Is Wholesale?
- What Is Wholesale Pricing?
- The Benefits of Buying Wholesale Products
- Assess Your Needs
- Finding a Wholesaler
- Choosing A Wholesaler
- Other Things To Consider Before Purchasing Wholesale Products
What Is Wholesale?
Wholesale purchasing occurs when retailers buy products at a reduced price. The supplier offers a reduced price because the retailer isn’t buying just one item, but a bunch. Wholesale purchasing is just one step in the larger product supply chain. Knowing your industry and where your business sits within this supply chain will help you find the right wholesaler.
(Most of us know what retail price is, but for clarity’s sake: It’s the price you pay when purchasing something at a store or online. In other words, it is the price that is charged to an individual customer in a store setting, whether that store is brick-and-mortar or online.)
What Is Wholesale Pricing?
Wholesalers, sometimes referred to as suppliers, either purchase products from a manufacturer or create products themselves. Once you receive your wholesale product, you sell it in your store for a higher price. The act of increasing the price is called a markup, and the higher price in your store is called the retail price.
Maybe you’ve heard the saying “buy low, sell high.” That’s exactly what wholesale purchasing is. Most of the time, wholesale product purchases are made in bulk, so you end up ordering a large quantity of an item at a discounted price. Wholesale product suppliers frequently operate on a sliding scale, so the more you purchase, the bigger the discount. They also tend to have minimum order quantities, which is the minimum amount that you can order from a wholesaler in order to do business. The sliding scale and minimum order quantity helps the wholesaler hit their own revenue goals.
The difference between retail and wholesale product prices is referred to as the margin. Once you decide on a retail price, you can use the margin to determine your gross profit. Gross profit is the amount of money you make off a sale. In the formula below, revenue is the total amount that you charge for the product, and the cost of goods sold (COGS) is the amount you paid for the product. COGS can become complicated if you are manufacturing or creating your own product, but since you’re ordering from a wholesaler we can keep it simple:
Gross Profit = Revenue – COGS
The reason you markup your prices from the wholesale price is so you can make a profit. This is how you make money when you purchase wholesale products to sell at your retail store. A good example of this is buying handmade soap wholesale for $4 a bar, then selling that same soap at retail for $14 a bar.
Thoughtful pricing strategies will help you stay competitive, increase your gross profit, and retain customer loyalty.
The Benefits of Buying Wholesale Products
You not only reap the benefits of having lower cost-per-unit by purchasing products through wholesalers, but there are other benefits too. Here are some additional benefits to purchasing wholesale products:
- Shipping costs – By purchasing enough product through a wholesaler, you may be able to take advantage of lower shipping costs. Ordering enough products to warrant a pallet may reduce the cost of shipping itself, and larger orders in general mean that you don’t have to order as frequently.
- Product Selection – You will likely have a broader selection of products to choose from by purchasing from wholesalers.
- Scaling Your Business – Purchasing from wholesalers allows you to scale your business because all you have to do is increase your purchase size. As your business grows, you simply order more wholesale products from the same distributors that you’ve been using.
Assess Your Needs
Before spending a ton of time and effort diving into the world of wholesale products, you should first assess your need for ordering from a wholesaler. This can be done quickly and in a few short steps:
Storage Space and Warehousing
This is pretty obvious, but you’d be surprised at how many business owners get so excited about ordering wholesale products in bulk that they don’t take into account how much storage they have available. It’s important to be aware of how much space you have, and to make sure you can keep your excess inventory tidy while it’s being stored.
Purchase And Order History
Your point of sale system does more than just process money. It should also track your sales history and give you the ability to create sales reports. These reports can give you insights into whether or not your sales history warrants purchasing in bulk. Wholesalers usually have minimum order quantities, so you need to identify which products are best suited for bulk orders.
Your point of sale software may also allow you to create reports for projected sales of certain products. Gathering and analyzing this information will help you decide which items in your inventory you should buy in bulk. Use your best judgement to determine these items as well. Ordering a pallet’s worth of swimsuits at the end of summer will just take up precious storage space as you house it over the winter. Same goes with items with a limited lifespan, such as yearly planners or items with an expiration date.
Finding a Wholesaler
Finding and choosing the best wholesaler for your retail store takes a little finesse. The right wholesaler becomes a partner and you form a functional – and hopefully long-term – relationship with them. Remember that not every wholesaler serves every market. This is why it is so important to do your research and find a wholesaler that fits your needs and your style. Don’t rush into signing any contracts or agreements, and take your time doing your research.
You have to find wholesalers before you can choose the one that’s best for your retail store. Finding wholesalers can be a little tricky, but there are several ways to do it. Decide what kind of wholesaler you want first; do you prefer wholesalers that are located in the United States, or are you looking to purchase products from overseas? Once you make this decision you can start narrowing down your potential wholesale distributor.
Online searches can be fruitful, but can also lead to an overwhelming amount of information to sift through. Sometimes it’s hard to tell whether or not the available wholesale products are high enough quality. Get specific with your online searches and be sure to include keywords from your niche in order to narrow down the search. Keep in mind that here at Handshake we can connect you with unique, high quality wholesale products.
Wholesalers aren’t mysterious entities that wait in the dark for you to find them. Wholesalers want to find you to, so it’s a good idea to look in the places where they might advertise such as trade magazines and publications. This is also a great way to stay up to date on industry news and find a wholesaler that specializes in your industry at the same time.
With the explosion of online wholesale marketplaces, this might sound like a 19th-century suggestion. But it’s still valid.
Networking is a great way to get to know other business owners within your industry who may be able to help you find wholesalers that specialize in the products you need. You can start with your local chamber of commerce, or you can find local events and trade shows in your area. Trade shows are great because there are usually vendors and advertisements that may help you find a wholesaler. Another simple option to network with business owners on a larger scale is to join national trade associations and find online forums specific to your industry. Facebook and LinkedIn are great places to start looking for forums.
Choosing A Wholesaler
Choosing who you order your wholesale products from can be a daunting task. You can try making a list of your potential wholesalers and write down the pros and cons of each one. Ask yourself if you can order everything you need from just one wholesaler? Or do you need to source wholesale products from multiple wholesalers?
Here are a few things to keep in mind when choosing a wholesaler:
What Products Do You Sell?
Okay, we realize that this seems obvious, but you need to make sure the wholesaler you choose actually carries the merchandise that you need. Maybe you carry a wide array of different products, or maybe you have a very limited and specialized inventory. These are important distinctions to make when you’re choosing your wholesale partners. You can certainly work with multiple wholesalers, just make sure that you are able to keep your brand consistent and aligned.
How Knowledgeable Is The Wholesaler?
Not only does the wholesaler need to carry the products that are aligned with your brand and your vision, but it’s important to know how knowledgeable they are about their wholesale products. Can they convey to you the quality of the products that they are offering? Your wholesale partner should be able to stand by the quality and value of the products they are offering. Lack of knowledge on the wholesalers part could be a sign that the quality isn’t great, or that they just don’t care.
Does The Wholesaler Meet Your Needs?
The wholesale partner that you choose needs to be reliable and have a customer service team that is actually reachable. You shouldn’t have to struggle to get through to customer service, and it goes without saying that you shouldn’t work with unreliable companies.
Keep in mind that you are forming a partnership with your chosen wholesalers. Committing yourself to the wrong relationship can be painful and frustrating.
Other Things To Consider Before Purchasing Wholesale Products
Here are a few more actionable items to help you choose a wholesaler:
Stick To Your Budget
According to The Retail Owners Institute, out of control buying is the number two reason that retail stores fail. Remember those point of sale reports that we talked about? You can also utilize your point of sale software to help you create a budget. It’s easy to get overly excited and go overboard with ordering wholesale products, so create a budget and stick to it.
Don’t Be Afraid To Make Mistakes
We all make mistakes. The first wholesaler you start working with may not be the wholesaler that you end up partnering with long term. Don’t feel compelled to remain committed to a wholesaler just because they were the first one you chose.
Consider Going Directly To The Source
Cut out the middleman and go directly to the manufacturer. Sometimes this can be fruitful and you may end up with a greater savings on the products you need.
Finding and working with a wholesaler doesn’t have to be complicated or mysterious. Do your research, make a plan, stick to your budget, and remember that the wholesaler does not hold all the power in your relationship with them. They need to work with you just as much as you need to work with them.
You got this.