How Do Wholesale Businesses Work?

In retail, the term “wholesale” can refer to two different business models. First, a wholesale business could mean buying items in bulk, storing them in a warehouse, and then selling them to other businesses. Alternatively, a wholesale business might refer to a business that manufactures its own products and sells them directly to other suppliers, who then sell those goods to their customers. The two models are similar, but with some significant differences. Let’s take a look at some of the specifics of wholesale businesses.

How are wholesale goods distributed?
Wholesale goods are distributed in a multi-step process.

Typically, a wholesaler buys its products from a manufacturer or distributor and then sells them to another retailer to market to end customers. Many wholesale suppliers look for trending products to ensure that they deliver the most popular goods to their buyers. When a wholesaler identifies a market trend, they will research low-cost goods, compare offers from different manufacturers, and purchase those products that are ready for sale to retailers.

What are the different types of wholesale businesses?
The wholesale environment consists of numerous wholesalers, some work independently while others work with some trusted producers. Usually, a wholesale business falls into one of several categories. These include:

Trade wholesalers
This is the most common type of wholesaler. They buy large quantities of a good or product, which they eventually sell in small quantities at a higher price. Trade wholesalers, as a rule, do not manufacture their own products, But they have a deep understanding of their inventory and know when to sell it to retailers in different industries.

Generally, a broker does not own any of the products they want to sell; they merely serve as a “middle man” between wholesalers and their customer base. Therefore, a good broker will negotiate a suitable deal between both parties and usually take a commission cut once the deal is done.

Distribution and sales
In some cases, a manufacturer will forgo finding another wholesaler and instead hire employees to represent their company as a wholesaler. As such, they will contact wholesalers and offer them their goods, creating the best deal for their business.

What are wholesale prices?
The term “wholesale prices” refers to the price that a manufacturer or distributor charges wholesalers who wish to place a bulk order. When a wholesaler buys in bulk, they receive a substantial discount that allows them to make a tidy profit after the retail markup.

For those unaware, Retail markup is the price a wholesaler charges a retailer for their product, minus the price originally paid to the manufacturer. For example, if your wholesaler buys 1000 products for $4,000, each product costs $4. They could then sell these items in batches of 50 to retailers at a price of $400. As such, the price per item has been raised to $8, which means that the wholesaler can make a profit of $4,000 once they have moved the entire shipment.

In short, this is how wholesalers make money and grow their business.

What is the difference between a distributor, retailer, and a wholesaler?
When customers buy a product from an online retailer or a brick-and-mortar shop, they usually don’t think about the process it takes to get that item to market. Wholesalers, retailers, and distributors all play a role in getting the item from the manufacturer to the shelves. Each entity has its own specific responsibilities within this network.

A distributor is an agent who works independently with a manufacturer to sell their items to retailers and wholesalers. They will often enter into an agreement where they cannot sell similar products from competitors.

However, this is not always the case and usually depends on the type of agreement in place. A distributor is usually responsible for a large quantity of product and may very well keep these items in a warehouse for a year. Whenever a manufacturer deals with a potential new customer, that buyer must contact the distributor as the first point of contact.

Secondly, A wholesaler is a person or company that buys large quantities of products from the distributor to sell to other retailers at a wholesale price. Usually, a wholesaler will stick to certain types of goods or markets. However, if they want to diversify, A wholesaler may carry different items willing to explore different industries and grow its business. If a job lot wholesaler only carries products that do not compete with their manufacturer, they are considered to be, distributors. However, they will stock their items for much shorter periods of time, usually no longer than six months.

Some wholesalers even assemble products in advance as part of the resale process.

Finally, retailers are a business that sells the product directly to the customer, usually for consumption and not for resale. Therefore, a retailer must find a distributor or wholesaler who will sell their goods at a fair price and in the appropriate quantity to make money.

Usually, retailers make their money by buying products in relatively small quantities at wholesale price, then selling at a high price that covers all their costs (salaries, electricity bills, rent, advertising costs, other overheads, etc.).

How can Ecwid help you manage your own online wholesale business?
At Ecwid, We are committed to making the e-commerce industry as easy as possible for entrepreneurs and business owners. If you want to build a wholesale business, We offer powerful e-commerce tools that make running your business simple, no matter your needs or level of experience.

You can build your own online wholesale business from scratch, then sync and sell on many platforms, including your own website, social media pages, marketplaces, and more.

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