What is Wholesale? [Definition, Pros, Cons, Types, & More] (2023)

If you’re considering starting an ecommerce business, you may want to use the wholesale business model. It’s an approach that involves purchasing and reselling products at retail.

By the end of this article, you’ll know about both types of wholesaling businesses that use this approach to sell goods.

Wholesale Definition

Wholesale refers to one of two approaches to business:

A business may purchase goods directly from manufacturers, store them in a warehouse, and then resell them. These are known as warehouse businesses.

Wholesale can also refer to small businesses that make their own products and sell them to suppliers. The suppliers then sell the products to the end-user or the retail customer. These are known as wholesale suppliers.

Wholesaling 101 Guide hide

Wholesale Definition

What is a Wholesale Business?

Types of Wholesale

(Video) Wholesale vs Retail : Which is better for you?

Benefits of Wholesale

Disadvantages of Wholesale

Distributor vs. Wholesale vs. Retail

How to Find Wholesale Products to Sell

Wholesale vs. Dropshipping

Retail Markup: How Much Profit?

What is a Wholesale Business?

A wholesale business is built on selling products in bulk to another retailer. The wholesale price is discounted enough that you can still make a profit. The retailer businesses then put the products in their retail stores with a markup. That markup is where their profit comes from. That price is known as the retail price.

What is Wholesale? [Definition, Pros, Cons, Types, & More] (1)

As a wholesaler, you create a channel that sells to retail businesses that then sell to consumers. Selling large quantities of goods ensures you make money whether the retailer sells the inventory or not. It reduces your handling time and costs.

If you’re wholesaling a product you developed, you can still sell your products directly to consumers, too.

For example, if you create a private label product, you can sell it to other retailers at a wholesale price to get your product in more stores. Then, you can still sell that product directly to consumers on your website, at retail.

Types of Wholesale

The wholesale industry can be rather complex to navigate. Some wholesalers opt to work independently. Others choose to work with one or two producers. Wholesale businesses fall into one of three categories:

Merchant Wholesalers

This arrangement is the most common. Merchant wholesalers don’t manufacture their own products. Instead, they purchase large volumes of products. They sell in smaller amounts at a higher price point. Even though they don’t sell their own products, they have extensive knowledge of products. They know the right time to start selling to retail businesses across varying industries.

(Video) What Are The Advantages And Disadvantages Of A Franchise?

Brokers

Brokers are middlemen between the wholesale operator and their clients. Brokers generally do not own the products they sell. Brokers earn their money by negotiating deals between the two parties. They get a sales commission.

Sales and Distribution

Manufacturers reach out to wholesale operators to offer products. Rather than relying on wholesale businesses finding a manufacturer, manufacturers hire people to represent them to wholesalers. This approach creates wholesale deals customized to each individual case.

Benefits of Wholesale

If you want to open an online store, a wholesale business may be the way to go.

Save Money

Buying a large volume of products or large quantities of a single product helps you save money. You’ll usually get a discount, known as wholesale pricing. The wholesale prices make it easier for you to profit since the retail price is always higher.

Think of it like this. If you use a retail arbitrage business model, you’re already paying retail. Unless you get products on clearance, it’s hard to make a profit. Customers aren’t often willing to pay more than the retail price for something.

Build a Strong Supplier Network

Those who wholesale products from a variety of companies need a solid network of manufacturers and suppliers. For your business to succeed, you must have quality products delivered on time.

When you’re just getting started, it can be challenging to establish your supply chain. But as you continue to work with suppliers, you’ll be able to foster a strong relationship. Maintaining your relationships and working to keep them positive will pay off. Your brand will establish itself as reliable and sustainable.

Establish Expertise

You’ll conduct a lot of market research about the products you want to sell. It doesn’t matter whether you’re selling car parts, party supplies, jewelry, or something else entirely. You’ll end up with an edge that your customers will learn to trust.

Easy to Expand

After you’ve established yourself in the industry, you can make connections with other markets. You may find cross-selling and upselling opportunities that help you grow your business faster.

The expansion itself will be easy since you already have an established brand and established relationships. Anything new you add will be much easier and faster than your business’s initial setup.

Disadvantages of Wholesale

Wholesalers cannot be as responsive to changing market conditions. Retailers are at the front of the line, building relationships with consumers. Wholesalers have to rely on feedback from retailers, as well as research to maintain their competitive advantage.

Difficult to Retain a Brand Identity

Wholesalers trust products to retailers. As such, they must rely on the retailer to retain the product’s brand identity. The last thing you want is to supply a product to Target and for customers to think it’s a Target product.

As a wholesaler, it’s not always possible to control the way your product is merchandised. You won’t have control over the pricing they set or what products they display around it.

Marketing Can Be a Challenge

In the wholesale business, you are still responsible for marketing your product to consumers. You can’t expect that retailers will do all the work.

By handling the marketing yourself, you can support consistency in the messaging, brand identity, and product placement. You can’t expect each retailer to market the products the way they want to while still having any kind of consistency in your messaging.

Retailers have to be able to find you. There are tons of online stores out there offering their products, so you have to stand out. It won’t do you any good to have a better price than your competition, have great product lines or simple distribution channels if no one knows about it.

You Must Have Ample Warehouse Space

Because you’ll have such a large inventory, you’ll need a place to store the items until you sell them. If you don’t have a warehouse, you’ll need to rent one.

Beyond the warehouse space itself, you also needed to have solid, streamlined warehouse processes. If picking and packing aren’t organized and efficient, you’ll find yourself with a customer service issue.

(Video) Wholesale FBA on Amazon: PROS & CONS

If you ship products, but they are what someone ordered, it’s a mistake you’ll have to fix. And that kind of mistake costs money. If it happens occasionally, it’s not that big of a deal. But if it happens often, you’ll not only risk losing customers, but you’ll find that you’re wasting a ton of money unnecessarily.

Your warehouse inventory should seamlessly integrate with your wholesale management platform. This way, you always know how many of each item is in your warehouse. You know what you need to order more of and exactly where you’re going to put it.

Inventory and Capital Risk

After you purchase the inventory from the supplier, it’s yours. That means if you don’t sell it, you’re stuck with it.

And even though you’re not paying as much per piece as you would with retail pricing, you’re still spending a lot of money. Wholesale products require bulk, which means you’ll still pay thousands of dollars for a decent inventory.

Distributor vs. Wholesale vs. Retail

Products have a lot of ground to cover before they ever make it to the final customer. Wholesalers, distributors, and retailers are all part of the supply chain that takes a product from the manufacturer to the end customer.

Distributors

A distributor is an independent entity that enters an agreement with a manufacturer to sell its products to wholesalers and retailers. Distributors aren’t generally allowed to sell competing products or other product lines. However, the terms of the agreement vary from one industry to the next. Distributors can often negotiate the terms of their contracts with manufacturers to create something mutually beneficial.

Generally, distributors carry large amounts of stock. They have the warehouse space to store goods for up to 12 months. When a new potential buyer approaches a manufacturer, they have to deal with the chosen distributor as their main point of contact.

Wholesalers

A wholesaler is someone who makes a bulk purchase from a distributor and then sellers it to a retailer. Wholesalers generally specialize in a particular product, for instance, men’s shoes. Alternatively, they opt to carry a wide range of stock for retailers across a variety of industries. Wholesalers who do not stock competing products are considered distributors.

Beyond breaking bulk orders down into smaller quantities, wholesalers may also opt to assemble goods. Wholesalers don’t generally store products as long as distributors do. They hold products for up to six months at a time.

Retailers

These are for-profit businesses (Amazon, Walmart, Target, etc.) that sell products and services direct to consumers. The products are intended for use rather than resale.

To generate a profit, the retailer has to find a wholesaler or distributor who sells the products at the right price and quantity. Then the retailer marks up the price to cover their expenses and make a profit.

Each product may have a different profit margin, but the markup is intended to cover everything from advertising costs to rent and employee salaries.

Retailers can run online stores or brick-and-mortar stores. Some opt for both. They sell their products across multiple sales channels, including online marketplaces.

How to Find Wholesale Products to Sell

If you want to open an ecommerce store, you need products to sell. There are several ways to do this:

Contact Manufacturers Directly

If you plan on selling branded items, approach the manufacturer directly. Find out more about the minimum order requirements. If they only use an established distribution channel, get a list of distributors to contact.

The fewer channels you have to go through, the lower your costs. This not only allows you to make more money but to be more competitive in the marketplace.

Explore a Wholesale Marketplace

Sites like Alibaba and AliExpress make it easy to find products and research suppliers at once. When you find a product you want to buy, check out the wholesale supplier who offers it. Other wholesalers may provide the same products at the same price. Make sure you take a look at their reputation, lead time, shipping costs, etc.

Join Industry Groups

Many small business owners come together in groups. They’re a great source of information. Take time to build your network and get to know people. If you’re in direct competition with them, don’t be surprised if they don’t want to share much with you.

(Video) What is Amazon Wholesale? How do I find Wholesale Vendors? Profit & Pros / Cons. AMAZON LIVE 009

Attend Trade Shows

Trade shows are events designed specifically to connect distributors and manufacturers to retailers. You can meet multiple wholesalers and manufacturers throughout the day. Face-to-face communication can help you connect in ways that online communication cannot.

Spend time browsing the Trade Show News Network. It’s the largest online directory of trade shows. You’ll be able to find trade shows based on date, location, industry, or event name.

Wholesale vs. Dropshipping

Dropshipping is a business model where a retailer doesn’t keep stock. Wholesalers keep stock and sell it to retailers. The drop shipper earns a commission on orders transferred to the wholesaler.

What is Wholesale? [Definition, Pros, Cons, Types, & More] (2)

As a drop shipper, when you receive a new order, you send it to your wholesale partner, who then ships it to your customer. The wholesaler takes a commission from that.

Retail stores that operate on the dropshipping model heavily rely on wholesale suppliers. Drop shippers must be strategic about choosing the right partner.

Both businesses work well but are meant for different entrepreneurs. As a wholesaler, you could easily work with several drop shippers.

Retail Markup: How Much Profit?

The retail markup is the difference between the cost of a product and the selling price. There is no universal amount or percentage that works across all products. Each product you find will likely have a suggested retail price. It’s up to the retailer to use that as a guide.

Retail Markup = Sales price – Cost

Retail Markup Percentage = Markup Amount / Retail Selling Price

For example, if a product unit costs $5 and the retail price is $10, then the markup is $5. The markup percentage is 50%.

In an industry where costs are consistent and generally low, the markup will be low, too. Grocery stores, for instance, have a markup of 15% or less.

But not all food industries sell products the same way. Restaurants, for instance, typically mark up meals by about 60%. Some drinks may have up to a 500% markup.

When you consider that restaurants have a high overhead, the profit margins are still low. Restaurants average less than 5% profit, with fast food averaging even less.

Jewelry is usually marked up 50%, with clothing marked up as much as 300%. And we’re not just talking about high-end fashion designer brands.

Smartphones only have a markup of about 10%. The industry makes money on usage fees and service contracts. The costs involved will always dictate how much a retailer selling products can make.

You have to consider industry markups when you choose your niche. That said, you don’t want to choose the clothing niche based on its high markup alone.

Is Wholesaling Right for You?

Selling wholesale means, you’ll need to buy an item (or several different items) in bulk. Suppliers will have minimums in each order. Depending on the product, your minimum order amount may be a certain number of merchandise units. Or, it may be a certain dollar amount.

If you can’t afford the capital required for wholesale buying, then it’s likely not right for you. It’s the significant discount on each piece that makes a small business profitable.

(Video) What is a Mutual Fund Wholesaler?

If you want to sell to the end customer who will use the product or service, you want a retail business model.

In either case, you can build your own online store that sells products and earns a profit.

FAQs

What is a wholesaler simple definition? ›

Wholesaling is the act of buying goods in bulk from a manufacturer at a discounted price and selling to a retailer for a higher price, for them to repackage and in turn resell in smaller quantities at an even higher price to consumers.

What are three types of wholesalers? ›

TYPES OF WHOLESALERS

The three categories used in the Census of Wholesale Trade are: 1) merchant wholesalers; 2) agents, brokers, and commission merchants; and manufacturers' sales branches and offices.

What does wholesale only mean? ›

Wholesale refers to two possible business models. A business may buy goods in large quantities directly from manufacturers, warehouse them, and resell them. Or wholesale may refer to businesses that produce their own products and sell them directly to retailers, who then sell products to the end user.

What are the two types of wholesalers? ›

Merchant wholesalers and agent wholesalers are the two main types of intermediaries in indirect sales. The main difference between them is ownership of the products they sell. While merchant wholesalers take the title for the goods they sell, agent wholesalers only earn commission fees for their sales.

What is wholesaler and its types? ›

The common types of wholesalers include merchant, merchandise agents or brokers, manufacturer's mini offices or branches, and specialized. In some cases, producers and service providers can be wholesalers. However, given the cost of manufacturing and machinery, operating expenses.

What is wholesaler give example? ›

A wholesaler acts as an intermediary or middleman in the supply chain. The most common example of a wholesaler is a company that purchases completed products from manufacturers then distributes these products to retailers, which then sell smaller quantities of the product to the end-user.

What are the 6 main types of wholesale? ›

Types of Wholesalers
  • 1) Merchant Wholesalers :– ...
  • 2) General Wholesalers :- ...
  • 3) Speciality Wholesalers :- ...
  • 4) Specific Product Wholesalers :- ...
  • 5) Discount Wholesalers :– ...
  • 6) Drop Ship Wholesalers : -

What is the most common type of wholesaler? ›

Merchant wholesalers are the most common type of wholesalers who buy all sorts of different and profitable items from different manufacturers, store them, and sell them to the retailers.

How many types of wholesale are there? ›

The three types of wholesalers are 1) merchant wholesalers; 2) agents, brokers, and commission merchants; and 3) manufacturers' sales branches and offices.

How does wholesale work? ›

Wholesaling is the act of selling your products in bulk to another retailer, usually at a discount, who then sells the product to its customers at a higher price. It's important to note that creating a wholesale channel for your online business does still allow you to sell your product to the end consumer.

Who is a wholesaler answer? ›

A wholesaler is a person whose business is buying large quantities of goods and selling them in smaller amounts, for example to shops.

How does wholesaling work? ›

Real estate wholesaling is a strategy in which a wholesaler obtains a contract on a property with its seller, and in turn sells the contract to an investor. Wholesalers start by looking for a discounted property to put under contract. Wholesalers will often look for distressed properties priced below market value.

What are five functions of a wholesaler? ›

The Wholesaler/middleman is a merchant who buys goods in bulk from producers/manufacturers and sells them to the retailers. He buys the goods in bulk from the warehouses depots, puts the goods in his own warehouse, breake up the bulk, re-package where necessary, and sells the goods in smaller quantities to retailers.

What are the benefits of wholesaling? ›

Because wholesale distribution simplifies operations for manufacturers and retailers, it can also reduce their operating costs. Retailers that buy from wholesalers may also pay lower prices than when buying small quantities directly from manufacturers.

Who is wholesaler in one sentence? ›

Anyone who sells goods to other businesses, rather than directly to customers, is a wholesaler.

What type of word is wholesale? ›

Adjective The crops originated from wholesale growers.

Is Walmart a wholesaler or retailer? ›

Walmart engages in both the retail and wholesale business, selling an assortment of merchandise and services worldwide at stores and online at everyday low prices.

What are the 4 types of suppliers? ›

ITIL describes four categories of suppliers:
  • Strategic Suppliers. These are suppliers that provide goods and services that are a key aspect of the purchasing organization's overall delivery of services. ...
  • Tactical Suppliers. ...
  • Operational Suppliers. ...
  • Commodity Suppliers.

What are the main features of wholesale? ›

Main characteristics of Wholesale Trade:
  • Wholesaler acts as a link between producer and retailer.
  • A wholesaler works with big amounts of products.
  • A wholesaler is usually focused on a single product line. ...
  • Wholesaler invests large amounts of capital in maintaining a stock of goods.

Who is Class 7 wholesaler? ›

Who is Wholesaler? A wholesaler is a person who operates as a mediator between the distributor and retailer. These people buy a product in a considerable quantity from the distributor or manufacturer at a cheaper rate, and resell it to the retailers at a higher price to make profits.

What are the three great challenges in wholesaling? ›

Both manufacturers and customers have a troubling tendency to underestimate the three great challenges of wholesaling: Doing the job correctly (no errors) Doing the job effectively (maximum service) Doing the job efficiently (low costs)

What is the best wholesale? ›

Top 20+ online wholesale vendors/ suppliers
  • eBay.
  • Costco.
  • SaleHoo.
  • Worldwide Brands.
  • BrandsGateway.
  • Alibaba.
  • DHgate.
  • Inventory Source.
Dec 1, 2022

What is the biggest advantage of wholesale trade? ›

Wholesale markets therefore play a crucial role in the vertical coordination of food markets, equilibrating supply with demand and facilitating price formation. Their role reduces per unit marketing costs, promotes stable markets for local produce and encourages increased output and productivity.

How do you successfully wholesale? ›

How to Run A Successful WholeSale Business | Startups.com
  1. Be the GURU of your Cash Flow position daily. ...
  2. Know your Customer. ...
  3. Keep inventory super organized. ...
  4. Give your team what they need to succeed. ...
  5. Don't compete on price, compete on customer service. ...
  6. Speed up order fulfillment. ...
  7. Build long-term customers.

What is true about wholesalers? ›

Wholesalers are able to sell their products for a lower price as they are selling in bulk, which reduces the handling time and costs involved. They usually provide large quantities of goods, but can take on orders for smaller quantities as well.

What happens when you buy from wholesale? ›

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.

Is wholesaling a good idea? ›

Wholesaling is considered one of the best short-term investment strategies and is a great way for individuals to break into the real estate investing industry. This is because wholesaling does not require significant capital to get started.

How easy is wholesaling? ›

Is Wholesaling In California Easy? No, it's not easy because wholesalers need to understand the state and local contracts and real estate laws. However, reading our informative articles here and taking courses will teach you everything you need to know about the wholesaling profession.

Does wholesaling require money? ›

While wholesaling real estate doesn't require a large amount of money, it does require that a wholesaler do the necessary property research, the networking to find the right investors, and the work to craft a financial deal that the investor will accept.

What are the 4 roles of a wholesaler? ›

Some of the functions of wholesalers are:

Assembling of Goods 2. Breaking in the 'Bulk' 3. Warehousing or Storing 4. Transporting 5.

What skills do I need to be a wholesaler? ›

Three common soft skills for a wholesaler are customer-service skills, interpersonal skills and self-confidence.
...
Real Examples Of Wholesaler Resumes That Use These Skills
  • Risk Tolerance.
  • Financial Advisor.
  • Life Insurance.
  • Procedures.
  • Financial Situation.
  • Portfolio.
  • Risk Management.
  • Communication.
Dec 12, 2022

What are challenges of wholesaling? ›

5 Current Challenges in Wholesaling.
  • Margin Pressures. The rise of online selling and the ability for end users to shop around for the best price means that wholesalers have seen real margin pressures on the items they sell. ...
  • Buying Groups. End users have become wiser. ...
  • Customization.
Oct 26, 2021

What are the risks of wholesaling? ›

Wholesaling Real Estate Risks
  • #1 Deal failure. As an investor in real estate wholesaling, you should be ready for worst-case scenarios. ...
  • #2 Legalities. ...
  • #3 No guaranteed income. ...
  • #4 The contract. ...
  • #5 Instability of real estate market. ...
  • #6 Not having a buyer. ...
  • #7 The hustle. ...
  • How to Lower Your Risk with Wholesaling Real Estate.

Who do wholesalers buy from? ›

The wholesaler will typically buy goods directly from the manufacturer but could also buy from a reseller. In either case, the wholesaler gets large discounts for buying large quantities of goods. The wholesaler is rarely involved in the actual manufacturing of a product, focusing instead on distribution.

What is the basic role of the wholesaler? ›

Wholesalers buy various types of goods from different manufacturers in advance of demand. They store a large stock and make sure goods are always available for retailers. The time gap between in and out of goods leads wholesalers to another function, which is warehousing.

What is the role of a wholesaler? ›

Wholesalers operate as middlemen between product manufacturers and retailers or other businesses. They make a profit by buying products in bulk at a discount and reselling them in smaller quantities at a higher price to individual retailers.

Who is considered a wholesaler? ›

A wholesaler is a person or company who sells products in bulk to various outlets or retailers for onward sale, either directly or through a middleman. Wholesalers are able to sell their products for a lower price as they are selling in bulk, which reduces the handling time and costs involved.

Why do we say wholesale? ›

The earliest meaning of the word was "in large quantities," combining whole and sale into the phrase "by whole sale."

What are the three functions of wholesalers? ›

The Wholesaler/middleman is a merchant who buys goods in bulk from producers/manufacturers and sells them to the retailers. He buys the goods in bulk from the warehouses depots, puts the goods in his own warehouse, breake up the bulk, re-package where necessary, and sells the goods in smaller quantities to retailers.

What is wholesale and how does it work? ›

Wholesaling is the act of selling your products in bulk to another retailer, usually at a discount, who then sells the product to its customers at a higher price. It's important to note that creating a wholesale channel for your online business does still allow you to sell your product to the end consumer.

What are any five main functions of wholesale market? ›

Various functions performed by a wholesaler are explained below.
  • (i) Buying and Assembling: ...
  • (ii) Warehousing: ...
  • (iii) Grading and Packaging: ...
  • (iv) Transportation: ...
  • (v) Financing: ...
  • (vi) Risk Bearing: ...
  • (vii) Providing Marketing Information: ...
  • (viii) Dispersion of Goods:

What is a real world example of a wholesaler? ›

Companies like Sam's Club and BJ's are wholesalers that buy their products from manufacturers and sell them directly to the public. Wholesalers can sell the products cheaper than the retailers because they were purchased cheaper.

What is difference between retail and wholesale? ›

A key difference between retail and wholesale is who purchases the goods up for sale. In a retail setting, the end user or consumer is purchasing the product directly from the retail store. A wholesaler sells goods to other stores in the retail industry rather than the consumer.

Videos

1. The future of telecommunications: the role of telecom companies and big tech
(The Robert Schuman Centre for Advanced Studies)
2. Grow Your Wholesale Business with Faire : Review Part 2 Pros & Cons for Product Makers
(Easy Sunday Club)
3. Retail vs. Wholesale Explained | How Do I Price My Products | Let’s Chat!
(LadyCIMONNE Candle Co.)
4. HOW TO DEFINE WHOLESALE CLOTHING MANUFACTURERS AND WHOLESALE DISTRIBUTORS | LA Showroom
(Morgan Ashley)
5. Why do competitors open their stores next to one another? - Jac de Haan
(TED-Ed)
6. 10 Streams of Income For Artists and Pros and Cons of Each
(Easy Sunday Club)
Top Articles
Latest Posts
Article information

Author: Lidia Grady

Last Updated: 01/14/2023

Views: 6531

Rating: 4.4 / 5 (65 voted)

Reviews: 88% of readers found this page helpful

Author information

Name: Lidia Grady

Birthday: 1992-01-22

Address: Suite 493 356 Dale Fall, New Wanda, RI 52485

Phone: +29914464387516

Job: Customer Engineer

Hobby: Cryptography, Writing, Dowsing, Stand-up comedy, Calligraphy, Web surfing, Ghost hunting

Introduction: My name is Lidia Grady, I am a thankful, fine, glamorous, lucky, lively, pleasant, shiny person who loves writing and wants to share my knowledge and understanding with you.