Wholesale - Is It Worth The Cost?
Wholesale is a term used to describe buying goods in bulk. The retailer gets a lower price per unit and customers receive a lower price per unit. Retailers will have a higher minimum order requirement than they would with regular pricing. A $300 wholesale order could yield as little as 100 products on the shelf, with an average of 50 items on the shelf for orders between $500-$800. "Retailers buy at about twice the cost and make up for it by buying more units. When you buy goods wholesale, it can reduce the cost per unit of the product in your store by 1/3 or better, depending on what you buy. So a $12 retail product can be priced at $4-$6 wholesale, a 60-80%+ reduction of your cost for goods to resell. This means you can sell more units and make more profit from each sale." -Dennis Lockhart
Needing to order products to a certain dollar amount can keep small stores from either making any profit or even from being able to carry certain items. Stores with small sales volume will find it difficult if not impossible to make any money buying products and selling them at retail pricing. There are some exceptions to the rule. There are certain stores that will carry items regardless of wholesale pricing. For example, stores like dollar stores and corner stores will sell items even when they have a higher cost per unit than what they are charging the customer. The dollar store is a good example of making up for the lost money with higher sales volume. These type of retailers know what their market can support, so they offer these lower priced items and still make a profit overall since they have such high sales volume. "Retailers buy at about twice the cost and make up for it by buying more units. When you buy goods wholesale, it can reduce the cost per unit of the product in your store by 1/3 or better, depending on what you buy. So a $12 retail product can be priced at $4-$6 wholesale, a 60-80%+ reduction of your cost for goods to resell. This means you can sell more units and make more profit from each sale." -Dennis Lockhart
Once you have established that it is worth buying wholesale here are some ways to get started: The best way to start purchasing products on a regular basis to begin with is to find reliable sources. The next step is to find out what wholesalers really want from their retailers. This is different for each wholesaler, but in general all wholesalers want a reliable retailer that will support their products. Wholesale distributors want to do business with stores that offer product support. Support can be helping them sell more of a certain product, by offering samples, special deals and so on. "Buy from multiple suppliers and promote each of them independently." -Dennis Lockhart
For example, your local spa store may carry products from 5 different wholesalers. Each of the wholesalers may want something different from their retailer. Some may want you to sell their products to your clients, some might want you to host a special event at your store where you bring in 20 of your current clients and offer a free facial, hand lotion or other sample. Some wholesalers may just want the retailer to place an ad in the local newspapers or place an ad on Craigslist. Whatever they ask for make sure it's something you will do and commit yourself to completing. Find out what each wholesaler wants from their retailer.
Another thing that is important is feedback. Remember retailers are not just another account number on the wholesale distributor's sheet. Often wholesalers will give you a special deal for referring them business. Make sure to send thank you letters from time to time and keep the wholesaler informed on what is going on with your account. This can be done in a monthly newsletter or put together an email that is sent out to the wholesaler each month.
Retailers often ask why they should purchase wholesale products when retail products are so much cheaper. What most of them don't understand is that just because retail pricing seems cheaper, it's not always the best way to go. Just because something is cheaper does not mean it will check out at a higher profit for the retailer. The cost of the goods being sold are only half the equation when it comes to pricing products. There are many other costs involved such as product support, promotion and your time that make a difference in how profitable a product is going to be for your store.
"Wholesalers want to do business with retailers who will help them sell product." - Dennis Lockhart
Your time is valuable and so are the supplies you need to run your store. It's important to be careful when buying wholesale on products that you will not be able to mark up enough in price in order to make any kind of profit on. If you go into a wholesaler with a nail polish that retails for $9.99 , the wholesaler may not pay you the same price as what they are selling it to their retailer. Wholesalers need to make money, so they will often pay retailers more money per unit than what is being marked up at retail. "Wholesalers want to do business with retailers who will help them sell product." - Dennis Lockhart
If you plan on purchasing wholesale on an item that you are confident that you will not be able to mark up enough to make any kind of profit, it's best if you just buy retail and sell it through direct sales and order fulfillment services rather than marketing these items through your wholesale account. It may sound like a waste of inventory space and it is not always effective, but it's better than making a loss on inventory that isn't selling. It's OK to have some items in your store that you can't mark up over cost. It helps diversify the products in your store. If you are planning on purchasing wholesale products, make sure to research how much markup you will be able to make and how much product support is needed before buying any product wholesale. When you purchase wholesale, don't just buy product hoping people will buy them just because they are cheap. The best way to know if something will sell or not is by offering sample sizes and doing market research on brands that you have never sold before.
Conclusion
Finding a good wholesaler is difficult and once you are dealing with a wholesaler, it's important to keep them happy by providing them with the kind of support they expect. Always remember that when your business is doing well and you are making lots of money, wholesalers will want to keep working with you.
I hope this article was able to provide you with information that will help your wholesale business succeed. If you have any questions feel free to comment or send me an email through my contact page telling me what you think about this article or if there is any other topic that you would like covered in a future article.
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