Wholesalers are suppliers who connect manufacturers and retailers by buying stock in bulk from the manufacturer for a very low cost per unit, then redistributing it to retail sellers.
They add a small margin to each lot they redistribute to make a profit.
Wholesalers can come in two forms: Light and bulk, each catering to different business's needs.
What Is The Difference Between a Light and Bulk Wholesaler?
Light wholesalers specialize in dealing with smaller clients who spend from around $100-$2000 or so per order. They have established their business especially to cater to the needs of smaller retailers.
Light wholesalers are more than happy to send smaller and sometimes more frequent lots out to their client retailers.
On the other hand, bulk wholesalers are set up to deal with large clients who order in heavy bulk. They often supply to the large chains stores such as K-Mart and Target. These clients will often spend tens of thousands per order which they might distribute across several of their stores.
Some eBay PowerSellers use bulk wholesaler to supply their business. They have reached the point where they can afford a warehouse or large storage space, and invest a lot of capital in their orders!
Wholesalers sell at very low profit margins and rely on selling in heavy bulk to make a decent profit.
Therefore, a bulk wholesaler's business model will often not cater to smaller clients. However, they are certainly something that you could work your way up to using, as they generally offer the best wholesale prices.
Authentic vs. Illegitimate Wholesalers
Be careful when searching the internet for wholesale suppliers, as unfortunately there are a few people out there who pose as wholesalers, when really all they are is discount retailers.
Yes, there is a difference!
A wholesaler is licensed to distribute items at wholesale prices, while a discount retailer is not, so they are not able to give you the best prices possible. While there is really nothing unsafe about using a discount retaileras a supplier, it will usually mean you have a hard time making a profit, due to their higher prices.
Determining whether a supplier is the real deal, and not just a discount supplier isn't that hard once you know what to look for.
First, check that the supplier actually says that they are a wholesaler. Saying "we have wholesale prices" isn't enough to prove that they really are a wholesaler.
Most authentic wholesalers will have a page on their site called something like "wholesale" or "wholesale accounts".
Genuine wholesalers generally won't display their prices. To get access to their price lists, you will usually have to register with them. If they do show prices, it's usually the price for single quantities only and you still have to contact them to get a bulk order price.
Discount retailers, however, will display their prices on their website and won't be able to cater for bulk orders.
The Pros of Dealing With Wholesale Suppliers
- Wholesale prices! A good wholesaler will offer you prices anywhere from 5%-150% below retail - depending on the item. This means you can make a great profit on items you buy from them.
- Access to the latest items. Wholesalers work hard to keep up trends and source the latest products. They attend trade shows and talk with manufacturers to keep abreast of the new and up and coming item trends. With the right wholesaler, you will have access to new hot-off-the-conveyer-belt products that consumers are looking for.
- Once you have established an account with a wholesaler, you have a reliable, long-term supply.
- Many wholesalers are more than happy to deal with small eBay-based businesses. Some newbie sellers out there believe that they need a lot of capital or buying power to be able to deal with wholesalers, but this simply isn't the case with quite a number of wholesalers. In fact, plenty of wholesalers specialize in dealing with smaller eBay businesses these days. By helping eBay sellers get started, these wholesalers can potentially help secure themselves a larger client in the future.
The Cons of Dealing with Wholesale Suppliers
- The main downside is that wholesalers generally have minimum order quantities (MOQ), designed to stop consumers from purchasing single units, which would end up being very unprofitable for the wholesaler. Depending on the wholesaler, this might mean you need to spend a significant amount of money upfront to get started with them.
Some wholesalers will have no MOQs and still offer great prices, while some will require you to spend anywhere from $US100 to US$1,000 on an order. MOQs tend to vary quite a bit, depending on the type of items the wholesaler sells.
- You need to spend a lot of money to get the best deals. Wholesalers offer the best prices to the clients who can order the most, because the larger the order, the more profitable it is for the wholesaler. This means that you can't expect to get rock-bottom prices when you only spend $100 or so. To get the best prices, new retailers simply need to be patient with wholesalers. The wholesaler will give you good deals eventually, but only when you can afford to make a large order and have established a good relationship. Otherwise, it's just not cost-effective for the wholesaler.
So, as a new seller, you should look for a wholesaler of niche items.
This means you won't be selling the latest, most sought after products available. Instead, you will be selling items which are sought after by a smaller number of buyers. A niche could be anything from organic cotton sleepwear, pet bowls, or left-handed can openers. These all sound a bit random, but when you are starting out, niching-up your product range is really important as it helps to keep you away from items where buying in heavy bulk is critical to successfully competiting in the market.
How Do Wholesalers Operate?
A wholesaler's day-to-day operations include:
Replying to client emails, negotiating deals with manufacturers (their suppliers), organizing and managing their stock, packing and shipping orders, and managing any staff they might have.
Their goals:
The goal of most wholesalers is to have long-term clients who consistently make large orders. Many wholesalers will work with smaller clients to help supplement their pursuit of larger contracts.
This doesn't mean that they won't give you plenty of attention as a smaller seller - but it's useful to know what a wholesaler's goals are so you don't have unreasonable expectations. Think of it like this: As a retailer, you would prefer to have one buyer who regularly made large purchases, rather than 10 individual buyers, each purchasing 1 small item at a time. Dealing with one large buyer is a lot more efficient than dealing with 10 small ones, and it's the same for wholesalers.
If all goes to plan, you will hopefully end up being one of those big clients one day!
Quick Recap
- Wholesalers come in two forms: Light and bulk. Light is best suited for new, small businesses.
- There is a big difference between a discount retailer claiming to sell at 'wholesale prices', and a legitimate wholesaler. Make sure you know that your wholesaler is the real deal before you place an order with them.
- The benefits of dealing with a wholesaler include getting access to wholesale prices, getting access to the latest products and building a strong and long-standing business relationship.
- The downside is that they often have large MOQ's, which can be a setback for some new retailers. You also need to spend a lot of money to get the best unit prices possible. When you use wholesalers, you may not be able to make huge profit margins right away.
- Most wholesalers aim to supply goods to larger, more reliable and long-term clients.
Next time: Drop shipping is a really hyped-up way to start an online business - but is it really that good? Find out if it's the right option for you in next week's newsletter when we dissect drop ship suppliers and lay their secrets bare!
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