When you start a retail business, one of the first things to figure out is where you’re going to find products to sell.
You might not realize this, but most retailers don’t make and sell their own merchandise. So where do they source their products? That’s where wholesalers come in. Not only are wholesalers a great source of merchandise, but as your business grows and evolves, they often have the flexibility to support you along the way. This can make them a true partner in your success.
Unfortunately, buying wholesale can feel a little mysterious when you’re first starting out. In this post, we’ll work to correct that by sharing everything you need to know about how to buy wholesale.
What Does It Mean to Buy Wholesale?
Buying retail and wholesale are two different things. When you buy merchandise from a wholesaler, you’re shopping from the middleman between your retail store and the manufacturer. A wholesale purchase is almost always made in bulk, and because of that, you pay a discounted price for the purchase. You can then take those products and sell them at your own store at a higher price. This higher price is called the retail price, and it’s what customers will pay when they shop in your store.
The difference between the retail and the wholesale prices is called the margin. It’s the amount of profit that a retailer gets from a sale. The retail price typically varies between businesses, and there are a few different pricing strategies that can be used to determine the best retail price for you. Once you do this, you can then determine your gross profit.
Gross Profit = Revenue – Cost of Goods Sold (COGS)
In the above formula, revenue is equal to the retail price you charge to your customers. COGS is a high-level metric that covers all of the variable costs associated with producing and selling goods. Fixed costs are not accounted for in gross profit calculations. For the sake of simplicity, since you’re buying from a wholesaler instead of producing a product yourself, you can estimate that your COGS is the price you pay for a product.
This means that gross profit is the amount of money you make off of a sale. Retailers typically “markup” or raise the price of goods they bought wholesale so that they can make a profit. A good example is buying a t-shirt at a wholesale price of $2 and then selling the shirt in your store for $10.
In this case, the markup is $8, and gross profit of that sale is $8. Keep this in mind when buying inventory for your store. If your wholesaler’s prices are too high, it will affect the overall profitability of your business.
Likewise, the prices you offer your customers have to be consistent with the market you’re in. Otherwise, you run the risk of customers not buying your products. It’s easy for customers to find alternatives online or in other stores. Pricing is one of the ways you can stay competitive and retain customer loyalty.
Pricing is a factor for wholesalers as well, and many will have a minimum order requirement set before you can do business. A minimum order is the minimum amount of products a retailer can purchase from a wholesaler to do business. Minimums allow a wholesaler to hit their revenue and profitability targets.
How to Find a Wholesaler
Finding wholesale suppliers can seem like a difficult task, but it can be done if you know where to look. Networking is a great way to meet fellow businesses owners and works exceptionally well if you know of events where other retailers gather. Look for trade shows or industry events happening in your area. Your local chamber of commerce is often a good place to start. If you’re looking into manufacturers overseas, Alibaba is a popular online marketplace with thousands of retailers, wholesalers, and manufacturers.
Similarly, there are plenty of manufacturers on websites like eBay and Etsy. While those marketplaces can generally serve different audiences, there certainly is an overlap, and they both feature messaging platforms that make it easy for people to get in contact with suppliers from around the world.
Be aware that not every wholesaler serves every market. It’s best to know where your business sits on the supply chain to reach out to the right kind of wholesale supplier. This makes it much easier to choose a wholesaler to do business with and saves time in your search.
How to Choose a Wholesaler
When making decisions about what wholesalers to work with, keep the best interests of your business at heart. This is a relationship and making the wrong choice can potentially hurt you. Wholesalers can be just as varied and specialized as retailers, so choosing which wholesalers to work with is a big responsibility. If you’ve never worked with a wholesaler before, getting started can be a bit confusing. To make the process less daunting, here are a few things to keep in mind when choosing a wholesaler to work with:
What Merchandise Do You Sell?
If you’re selling a wide range of items or if you plan on keeping your store very specific, you have to choose wholesale partners that distribute what you need. Choose as many wholesalers as you need to to make your store what you want it to be. There’s no minimum or maximum requirement. However, ensure that the kind of merchandise these wholesalers offer aligns with the kind of store you run so your brand is consistent.
What Is Your Price Point?
The merchandise you sell from your wholesale suppliers is what brings money into your business. That means the amount of money you spend to get the merchandise helps determine how much you profit when you sell it. When choosing a supplier, make sure you can get pricing that allows you to hit your desired profit margins.
Is the Wholesaler Reliable?
This one probably seems obvious, but it’s important to state that you shouldn’t work with people you can’t rely on. Wholesalers who deliver merchandise late, not at all, or consistently show up with damaged goods aren’t good for business.
Does Their Customer Service Meet Your Needs?
Make sure any company you work with has a reliable customer service team you can easily reach when needed. If you have to jump through hoops to have your questions answered or their customer service is never around when you need them, you may need a new wholesale partner.
How Much Do They Know About the Product?
The wholesale partner you choose should have a strong understanding of the products they sell. Not only can share that information with your customers, but it also gives you the chance to make sure you know you have a partner who stands by the quality and performance of what they’re selling you. Wholesalers who can’t answer your questions about their product may be aware their merchandise isn’t the best, or a lack of knowledge may mean they just don’t care. Either way, a good business partner will be able to answer your questions adequately.
When it comes to buying wholesale, you have to remember to keep your customers and target audience in mind. As a retailer, you’re buying merchandise for the public to buy. They’re less likely to buy from a business that seems disorganized.
What Are Some Additional Factors to Consider When Buying Wholesale?
Now that you know how to choose which wholesalers to partner with, there are other factors you should consider. Pricing is a factor, but it’s not the only one. You also have to consider how much product you’re going to buy for your business. When buying wholesale, you’re typically buying items in bulk. So if you’re buying lots of different items in bulk at one time, you may overestimate how much you’re purchasing and have too much merchandise than you expected.
That is why organization is key. Having a storage room with adequate shelving makes finding different parts of your inventory that much easier. Keeping things labeled will make sure you don’t lose track of anything. Make a plan and budget on how much money you plan to spend.
Being mindful of the money you spend on merchandise and staying on a budget also means negotiating the price of goods when you need to. Know the value of what you want to buy and have a price point in mind you’re willing to pay based on your researched knowledge of the products.
With that in mind, research the supplier before you agree to work with them. Google them and look into other retailers who have also worked with them. That can give you a solid understanding of what their prices are and help you determine how to move forward. Look into what they can offer you and what you plan on providing them in this partnership. For example, let the supplier know if your sales are doing well and how much business they can expect from you. Be honest and fair in your negotiations to form a longstanding relationship with your wholesalers.
Figuring out how to buy wholesale merchandise is a crucial step in figuring out how much you make at the end of each sale. Take the time to do the math and make sure you’re selling merchandise at prices that will work for you and your business.