There are two ways to describe wholesale.
Wholesale as a product – a product, either partial or complete, when acquired from a manufacturer can be termed as wholesale.
Wholesale as a business strategy – wholesale is a practice that involves the mass purchase of goods and services and then reselling them to a retailer.
In both of these cases, the term wholesale is related to bulk products.
How Does Wholesale Work?
Here is how wholesale works.
It all starts with the manufacturers. A manufacturer is an entity that makes the best possible use of raw materials either to create a complete or product.
These products are then purchased by wholesalers in large quantities.
The wholesalers can sell those products to retailers, other wholesalers, manufacturers (if the products are partially manufactured), and consumers. This mainly depends on the sales model and business network of the wholesaler.
Where does Wholesale Fit into the Supply Chain?
A supply chain is a network of all the individuals and companies that are involved in getting a product to the consumer.
Wholesalers act as the middlemen between the manufacturers and the retailers.
The Supply Chain
Some of the usual steps involved in the supply chain include:
- Raw Materials: The materials required to make a specific product.
- Supplier: An individual or organization that supplies raw materials to the manufacturers.
- Manufacturer: An individual or organization that manufactures a specific product.
- Distributor/Wholesaler: An individual or organization that buys products from the manufacturers and sells them to the retailers.
- Retailer: An individual or organization that buys products from the distributor/wholesaler and sells them to the customer.
- Consumer: An individual or group that purchase products from the retailer for their own consumption.
What are the Types of Wholesalers?
Some of the common types of wholesalers include:
Merchant Wholesaler
Merchant wholesalers are the most common type of wholesalers. These are the people who purchase large volumes of a product and then resell it for a higher price.
Brokers
Brokers do not own the product that they are selling. They often serve as the middlemen between the manufacturers and retailers.
The main difference between merchant wholesalers and brokers is that the merchant wholesalers own the products.
Specific Product Wholesaler
Some wholesalers only supply one single category of product like footwear or apparel.
They might be supplying products to various businesses but they only deal in one product.
How does Wholesale Pricing Work?
Wholesale pricing is a complicated process. Wholesalers need to consider various factors before coming up with a price range for their products.
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Raw Material Cost
Wholesalers either import the product or assemble it by themselves. That is why they include the raw materials cost in the final product price.
However, wholesalers always try to keep the raw material cost as low as possible.
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Labor Cost
If the products are yet to be assembled, then there are laborers involved in the process. Labor cost is one of the most expensive parts of the wholesale pricing model. This is why wholesalers, mostly, prefer less reliance on labor.
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Overhead Cost
Any sort of expense that does not directly relate to either the product or the labor is an overhead cost. Some of the most common examples of overhead costs include:
- Employee benefits
- Office amenities
- Warehouse maintenance
- Product advertisement
- Utilities
Some wholesalers also include packaging and shipping costs in the final product price as well.
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Shrinkage
Shrinkage refers to the percentage of products that get lost, damaged, stolen, or destroyed.
This acts as a major deciding factor for the final product price. Because if you are unable to sell the product, then you’re heading towards a loss.
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Competitor Pricing
The final price should be close to what the other competitors are offering. Because if the price range is low, then there is a chance that the wholesaler is generating less revenue than its competitors.
On the other hand, if the prices are extra high then they are shrinking their own customer base.
What are the Benefits of Wholesale?
Given below are some of the benefits of wholesale that you should know about:
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Saves a lot of money
Businesses usually have to spend a lot of money on advertisements for their products.
But wholesalers don’t have to advertise their products. Their customers, retailers and other businesses, are responsible for the advertisement.
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Fixed Profits
The supply chain is a very streamlined process. It allows wholesalers to receive predictable profits. As wholesalers are not dealing with consumers, they do not have to deal with the consequences of inconsistent sales.
What are the Challenges of Wholesale?
Some challenges that might arise in wholesale include:
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Extensive Storage
Wholesalers deal with products in bulk. Once they have purchased the products from the manufacturers, they have to sell these products to the retailers.
But in order to do so, they first have to spend a lot of money on storing the bulk products in a warehouse.
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Small Profit Margin
Wholesale profits are usually fixed, but their profit margins are small compared to what it could be if the wholesalers were selling the products directly to the consumers.
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Less Communication with Consumers
Wholesalers do not directly deal with consumers. They sell the product to the retailers, who then sell them to consumers.
This means they are not able to understand the demands, interests, and trends of the consumers.
How Should Wholesalers Sell to Retailers?
Wholesalers should keep these things in mind while selling to retailers:
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Identify a Target Market
First things first, you have to identify your potential market. When you are selling your wholesale products to retail stores, identifying the target market is highly important.
This allows wholesalers to have a better understanding of customer pain points and helps them come up with viable solutions.
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Develop a Retail Network
Wholesale is highly dependent on robust relationships between wholesalers and retailers.
Therefore, developing strong relationships with retailers and supplying them with the right products is critical for wholesale businesses.
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Effective Pricing Strategies
Every wholesale business needs sales to survive and expand in the e-commerce market. This can be achieved through an effective pricing model that guarantees profits.
In order to do so, many wholesalers demand a higher price (2.5 times higher) than the manufactured cost.
However, every business can make adjustments that suit their budget and profit margins.
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Offer Your Customers Discounts
As wholesale businesses depend on long-lasting relationships, wholesalers can foster these relationships by providing their customers with periodic discounts.
This can help them form a stable and loyal customer base.
