Key takeaways:
- Wholesale buys goods in bulk and sells them at lower prices.
- Retail, on the other hand, buys the products from wholesale and sells them to the consumers.
- There are plenty of benefits in being a wholesaler, but its main benefit is its low start-up costs and steady cashflow.
Do you ever wonder how the items you buy in your local store get to the shelves? Chances are those products were bought wholesale.
Wholesale is crucial in the supply chain as it connects manufacturers with retailers. Without wholesalers, our favorite products could be pricier or less accessible.
This article will explain how wholesale can offer new opportunities and help you make better decisions, whether running an online store, starting your first business, or being an experienced entrepreneur.
What is wholesale?
Wholesale is a business model that sells products in large quantities for lower prices to resellers. Just think of Costco, a well-known wholesaler in the US. While you can shop there for personal use, Costco actually operates as a membership-based wholesale club.
They offer bulk quantities of products at lower prices, so small businesses often buy to stock up on items like office supplies, snacks, or cleaning products.
How does wholesale work?
- Manufacturers create large quantities of products.
- Wholesalers buy those products in bulk at lower prices.
- Retailers then buy from wholesalers—still in bulk, but in smaller amounts.
This way, wholesalers don’t need to find individual customers to buy their products and make a significant profit.
Meanwhile, retailers don’t need to deal with multiple manufacturers—they get their inventory from wholesalers.
Wholesale vs. retail: What’s the difference?
| Aspect | Wholesale | Retail |
| Pricing | Lower prices due to bulk purchasing | Higher prices due to additional costs and profit margins |
| Quantity | Large quantities, sold in bulk | Individual items or smaller quantities |
| Target market | Businesses (retailers, distributors, etc.) | Consumers (end users) |
| Example | Sell in bulk to a retailer or other business at a lower price | Sell to customers at a marked-up price for individual items |
| Profit margins | Slimmer margins per item, but profit comes from volume | Higher margins per item, but fewer units sold |
| Customer relationship | B2B (business-to-business) | B2C (business-to-consumer) |
| Inventory handling | Large warehouses with big stock shipments | Smaller, more frequent inventory restocks |
| Marketing | Focus on networking and B2B relationships | Use ads, promotions, and social media to attract customers |
Wholesale
Wholesalers buy in bulk directly and then sell those products to other businesses. They usually don’t sell to regular consumers—they focus on businesses that need to stock up on inventory.
Retail
Retailers sell directly to individual buyers. They buy products in smaller quantities from wholesalers and then mark up the price before selling them to the public. Retail businesses are the ones you’re familiar with when shopping—whether online or in a store.
Retail price vs. wholesale price
Wholesale price refers to the cost of items when purchased in bulk, typically by a business planning to resell them. This price is lower because manufacturers can make a significant profit from selling large quantities at once rather than individual sales. In many cases, buying in bulk even allows for discounts.
Retail price, on the other hand, is what you pay when you shop in stores or online. This price includes extra costs like the store’s expenses, staff wages, shipping costs, and a bit of profit.
So, if a store buys t-shirts at a wholesale price and then sells them to customers, they add a bit on top of that wholesale price to cover their costs and make some money.
Why does it matter?
- For shoppers. Understanding the difference helps you see why items are priced the way they are when you buy them. It also helps you find better deals when buying in bulk yourself.
- For businesses. If you’re starting or running a business, buying at wholesale prices and selling at retail prices is how you make your business profitable. Plus, it gives insight into pricing your products and managing your inventory.
Who is a wholesaler?
A wholesaler is a person or company that buys large quantities of products and sells them to other businesses. Note that many participants are involved in the supply chain, and plenty buy in bulk as well. So, let’s break down the supply chain and see exactly how wholesalers fit into the picture:
- Raw material suppliers. They provide the basic materials—such as cotton for clothes, metal for electronics, or flour for baked goods.
- Manufacturers. They take those raw materials and turn them into finished products.
- Wholesalers. They buy large quantities of finished goods and then sell them in smaller bulk quantities.
- Retailers. Sell products directly to customers.
- Consumer. You’re the final stop in the supply chain. You buy products for personal use, not for resale.
Types of wholesalers
Given the flexible nature of the supply chain, several entities can function as wholesalers.
Here are the primary types:
- Manufacturers. Sometimes, manufacturers act as wholesalers themselves. Instead of going through a third party, they sell their products in bulk directly to retailers or large buyers. This is common in industries where companies want more control over how their products are priced and distributed.
- Distributors. Work directly with manufacturers and help get products into stores. They usually handle storage, shipping, and sometimes even marketing. If a manufacturer wants to get their product into as many stores as possible, they’ll usually team up with a distributor. Distributors can sometimes have exclusive rights to sell a particular product in a specific region.
- Merchant wholesalers. These are the traditional wholesalers most people think of. Merchant wholesalers buy products in large quantities, store them in warehouses, and then sell them to retailers or other businesses. They take ownership of the goods and may offer extra services like packaging, shipping, and product bundling.
- Agents or brokers. Agents and brokers don’t own the products—they act as middlemen who negotiate deals between buyers and sellers. They earn a commission for each transaction they facilitate. This type of wholesaler is common in industries like agriculture, real estate, and import/export businesses.
- Cash and carry wholesalers. Operate on a self-service model, requiring retailers to pay in cash and handle transportation themselves, thereby reducing costs.
- Dropshippers. Dropshippers don’t actually store products—they sell products and ship them directly to the consumer once a retailer makes a sale. This model is particularly attractive for online retailers since they don’t need to deal with inventory, but they do have lower profit margins since they rely on third-party fulfillment.
- Rack jobbers. Rack jobbers are experts in non-food items and take care of display units inside stores. They manage the inventory, pricing, and signage on their racks, making it easy for retailers to keep their shelves stocked without putting in extra effort
- Producers’ cooperatives. Owned collectively by producers (such as farmers or artisans) who pool resources to streamline sales and act as their own wholesalers.
- Mail order wholesalers. These wholesalers sell products through catalogs or online platforms, shipping directly to retailers or even consumers. They’re a great option for specialized products or niches, helping businesses get exactly what they need without dealing with large inventories.
Benefits of becoming a wholesaler
Lower startup costs
One of the biggest advantages of becoming a wholesaler is the low startup costs compared to other business models. Wholesalers focus on sourcing products from manufacturers or suppliers, eliminating the need for costly product development or branding. Essentially, all you need is a solid relationship with suppliers, a place to store inventory, and a good understanding of your products’ market demand.
Increased sales volume
As a wholesaler, you’ll be selling products in large quantities. Selling in bulk leads to quicker inventory turnover and a steady flow of orders. For example, instead of selling a single unit to a consumer, you’ll be dealing with orders from retail businesses that need to stock up on hundreds or thousands of units.
Steady cash flow
Since you’re turning over large quantities from a steady flow of orders, you also enjoy consistent and steady cash flow. Retailers and distributors will frequently order from you to keep their own inventories stocked. As a wholesaler, you don’t just rely on sporadic sales to individual customers. Instead, you’re generating ongoing business-to-business (B2B) sales. No need to chase new customers constantly—you can build long-term relationships with retailers and businesses who will rely on you for their supply needs.
Access to a larger market
From small retail stores to large distributors, wholesale can supply products to a broad range of customers, which allows more opportunities for business growth since you’re not reliant on a single customer or sector. The more businesses you cater to, the more expansive your reach becomes.
Scalability
Since you’re dealing with bulk orders and large quantities, expanding your business typically involves increasing order volume or adding new products to your offering. It’s less complicated to do than with other business models, since you don’t need to invest in infrastructure, inventory, or physical stores.
Flexibility in product offering
As a wholesaler, you can offer a wide range of products from different manufacturers or focus on specific niches. You can adapt quickly to consumer trends and respond to what’s popular in the market. If a new trend arises or a product becomes hot, you can easily shift your focus to meet that demand.
Lower risk
Compared to other business models, becoming a wholesaler carries lower risks. Since you’re not directly dealing with end consumers, you’re less exposed to sudden market shifts or changing consumer preferences. Wholesalers focus on B2B transactions, which tend to be more stable than retail transactions. Additionally, working with established suppliers and offering products in bulk reduces the likelihood of sitting on unsold inventory for long periods.
Networking opportunities
Being a wholesaler puts you in a prime position for networking. Since wholesalers deal with multiple businesses, you’ll naturally build a network of clients, suppliers, and industry experts. These relationships can lead to partnerships, collaborations, and further business opportunities. Networking with retailers and other wholesalers also allows you to gain insights into industry trends, pricing strategies, and marketing techniques that can help you refine your business approach.
How to become a wholesaler
Entering the wholesale market can be a rewarding opportunity for growth, whether you’re looking to scale an existing business or start a new one.
Here’s a step-by-step guide to help you successfully launch your wholesale venture:
1. Research your market
Before diving into the wholesale world, it’s crucial to thoroughly research your chosen niche. You need to understand the needs and preferences of your target businesses and track current market trends. Use online resources, market reports, and direct feedback from potential customers to get a clear picture of demand.
It’s also important to keep an eye on your competitors. By examining their product offerings, pricing strategies, and marketing techniques, you can find gaps in the market that your wholesale business can fill. Offer something unique, and you’ll be able to stand out in the competitive wholesale landscape.
2. Find reliable manufacturers and suppliers
A successful wholesaler depends on strong relationships with reliable manufacturers and suppliers. Start by checking websites like Alibaba and ThomasNet, where you can connect with manufacturers from all over the world. Attending trade shows and industry events is also a great way to meet manufacturers in person and see their products. Finally, you can also look at B2B marketplaces or local directories to find suppliers in your area.
3. Evaluate potential suppliers
Once you find a manufacturer, you need to evaluate their reliability, delivery times, and product quality. Read reviews or ask for references from other wholesalers.
Once you’ve verified their reputation, focus on product quality and pricing structures. Don’t hesitate to request samples so you can assess product quality firsthand and negotiate prices if there are volume discounts or favorable payment terms that could improve your margins.
4. Understand legal and regulatory requirements
Ensure that your business is properly registered and that you’ve obtained all necessary licenses to operate legally in your area. Regulations can vary depending on your country or state, so check with local authorities to navigate this process.
Additionally, familiarize yourself with any industry-specific rules that might apply to your products. This could involve following safety standards, adhering to import/export regulations, or ensuring compliance with labeling laws.
5. Build strong relationships with suppliers
A successful wholesale business thrives on strong supplier relationships. Establish clear, open lines of communication with your suppliers to ensure smooth transactions. Transparent relationships will help you negotiate better pricing, stay informed about new product releases, and secure priority support when needed.
6. Plan your inventory management
Effective inventory management is a key part of becoming a successful wholesaler. Start with a conservative approach to inventory so you avoid overstocking or understocking. Find a balance that allows you to meet demand without overburdening your storage space.
Implementing an inventory tracking system can help monitor stock levels, track sales patterns, and know when to reorder products. You can even use inventory management software to automate this process.
7. Market your wholesale business
Once you’ve set up your wholesale business, it’s time to define your brand. A strong brand identity will help your business stand out. Your brand should communicate the quality of your products and the value you offer to your customers.
Develop a marketing strategy that combines both online and offline efforts. Utilize social media platforms to connect with potential clients, SEO to drive traffic to your website, and email marketing to keep businesses informed about your offerings. Don’t underestimate the power of local advertising to attract nearby businesses who may be in need of wholesale products.
8. Decide on your selling platform
You can sell through an online store if you want to reach more global customers. Network Solutions lets you create a simple and affordable eCommerce site to start right away. You can upscale it later once your business grows.
If you prefer a more traditional approach, you can sell directly to businesses through email or at trade shows. Pick the platform that best fits your business needs and goals, and consider how much time you can devote to managing it.
9. Start small and scale gradually
When you’re starting out, it’s important to test the waters with a small range of products. Use this testing phase to gather feedback and observe which products perform the best.
As you gather data, you’ll have a clearer idea of which products to continue offering and which ones to adjust or phase out. Over time, you can gradually scale your product range, refine your offerings, and expand your business based on insights you’ve gained.
10. Continuously evaluate and adapt
The market is always changing, so staying informed and adaptable is key to long-term success. Keep an eye on industry trends, consumer behavior, and shifts in the market to stay competitive. Be ready to pivot your strategy and explore new opportunities if necessary.
To keep improving, create a feedback loop with your customers. Regularly interact with businesses to understand their needs and use their feedback to refine your products and business operations.
Popular wholesale products
- Fashion and apparel. This includes everything from high-end luxury dresses to everyday casual wear. What makes fashion and apparel particularly interesting in the wholesale market is its sensitivity to trends and seasons. Retailers rely on wholesalers for access to the latest fashion trends to keep their offerings fresh and appealing.
- Electronics. The demand for electronics is insatiable. Wholesalers ensure that retailers can stock the newest gadgets as soon as they hit the market. This so extends to accessories and peripherals, such as cases, chargers, and headphones.
- Groceries and food products. Wholesalers specializing in food products facilitate the movement of goods from producers to supermarkets, restaurants, and small grocers. Since it’s efficient, food products remain high quality and fresh when they reach consumers. Additionally, wholesalers in the food sector have specialized knowledge and equipment that may be too hassle or expensive for small retailers to acquire.
- Health and beauty products. These can be items like cosmetics, skincare, haircare products, and dietary supplements. This sector benefits from a high demand driven by consumer interest in wellness and personal care. Retailers depend on wholesalers to source a wide range of products, from organic skincare lines to the latest in beauty technology.
- Home and garden. The home and garden sector includes furniture, home decor, garden tools, and outdoor living products. It appeals to audiences like homeowners looking to spruce up their living spaces and gardening enthusiasts seeking the latest tools and accessories. Wholesalers provide retailers with access to a diverse selection of products that can transform any home or garden.
- Real estate. Wholesale real estate is different from traditional wholesale because it involves buying the right to purchase a property at a low price and then selling that right to another buyer for a higher price before the original deal is finalized. You need a good understanding of the real estate market, property values, and legal details. While it doesn’t involve physical products, wholesale real estate can be a great opportunity if you have the right knowledge and skills.
Basic wholesale terms to know
Here are some of the most common wholesale terminologies with which you should be familiar:
- Minimum order quantity (MOQ). The smallest amount of product a buyer is required to purchase from a wholesaler in one order.
- Bulk buying. The practice of purchasing large quantities of goods at once, often to secure a lower per-unit price.
- Mark-up. The amount added to the wholesale price by the retailer to determine the retail price and cover costs.
- Unit price. The price of one single unit of a product helps businesses determine the cost per item.
- Dropshipping. A wholesale model is where a retailer sells products they don’t keep in stock; the wholesaler ships the product directly to the consumer.
- Net terms. Payment terms for goods are when the buyer has a set number of days (e.g., net 30 or net 60) to pay for their order after the goods are delivered.
- Lead time. The amount of time it takes from placing an order with the wholesaler to receiving the product.
- Reorder point. The inventory level at which a business needs to reorder products from a wholesaler to avoid running out of stock.
- Exclusive distribution. A scenario in which a wholesaler has exclusive rights to sell a specific product in a defined region or to a particular retailer.
- Warehouse fees. Charges are applied by wholesalers for storing goods in their warehouses before they are shipped to retailers.
Seize the numerous opportunities in wholesale
Wholesale has opportunities to create, innovate, and redefine what’s possible in the retail world. If you’re considering building your own business, learning about buying and selling products is a good start. And if you already own a business, this knowledge can help you buy smarter and grow better.
So why not start today? The wholesale market is vast and varied, and it just might hold the key to your next big opportunity. With Network Solutions’ reliable online solutions, you can build the perfect online store to start your business, or you can let our web design experts do the heavy lifting for you.
