Pratikkumar P. Gaikwad | 10 min read | April 10, 2020
Imagine that you could concentrate more of your attention on product design and creativity, brand beautification, or streamlining operations, rather than customer-finding and sales worries.
For some entrepreneurs, these things come more naturally than marketing, which can make it a challenge to maintain and develop a company. Luckily, by establishing a wholesale system, there is a way you can pass on some (or even all) of the burden to other businesses.
2. What is wholesaling?
Wholesaling is the process of selling the goods in bulk, usually at a discounted price, to another seller who then sells the product to their customers.
It’s important to remember that establishing a wholesale platform for your company always lets you market your product to the end consumer.
Big brick-and-mortar department stores, such as Target or Zellers, are usually the only examples of wholesale firms that will come to mind. After all, wholesale is also seen as an old-fashioned business model challenged by modern e-commerce direct-to-consumer companies.
Wholesale, however, has undergone a revolution of its own in more recent years thanks to online marketplaces such as Amazon, Wish and Wayfair. Although e-commerce helps direct-to-consumer brands to prosper by reducing the barrier to shop structure, wholesale still provides customers with a convenient shopping experience where they can find anything they need in one location.
3. Why build a wholesale channel?
Often found in online marketplaces or by smaller boutiques, this newer method of wholesaling also has advantages that attract brands directly to customers. Here are 3 reasons why opening a wholesale channel may be beneficial for your company.
Raising revenue without growing marketing budget
As a direct-to-consumer brand, you need to devote a significant amount of your budget to marketing in order to expand. There is always, after all, a cost to any new customer acquired.
Through selling your goods directly, you will let the burden of attracting customers to be borne by another company and spend your time and resources in other business areas.
Join new markets where there is less uncertainty
Expanding your business into a new country or territory involves a number of related costs such as warehousing and logistics, or starting from scratch selling to a community that hasn’t heard of you. Through reducing the startup costs, finding another retailer with an established footprint and supply chain in a new market will help to reduce the risk of international expansion.
In the end, by generating efficiencies, a wholesale business model helps both the manufacturer and the wholesaler. The manufacturer gets a new, frequently similar, product to sell without investing in research and development, and by having direct access to an established consumer base, the wholesaler saves money to market.
4. Establish a Wholesale Pricing Policy
Pricing is one of the key elements, if not the most, of creating a profitable wholesale company. You can keep whatever profit margin you set for yourself when selling directly to consumers on your own website or in your own retail store, which can often be north of 50%.
Industries usually offer retailers a 50 per cent discount off their normal retail price with wholesale. The steep discount is to encourage retailers to sell their goods to their customers while maintaining a certain profit margin. Below is an example of a balanced pricing strategy in which a wholesale company will maintain a profit margin of 50 per cent on wholesale orders and a profit margin of 75 per cent on direct customer sales.
Therefore, to build a profitable wholesale company, you’ll need to be able to give those who are willing to wholesale your product a big discount off your retail price. Often this can pose growing risks to small businesses like not being profitable.
Fortunately, there are ways you can reward your wholesale commodity to minimize the risk of being unprofitable. Another approach is to offer a discount depending on the quantity of sales orders. Through this way, retailers are encouraged to place larger orders through order to get a better margin when reselling the goods. Many wholesale undertakings also set minimum order quantities (MOQs) that retailers need to buy to carry their merchandise.
If you want to sell the product and have it sold by several different outlets, you can often run into difficulties when it comes to quality, with rival retailers undercutting each other. This is why developing an MSRP (Manufacturer’s Suggested Retail Price) is an important factor of the pricing plan for wholesales.
An MSRP is often part of a contract which a company gives to a seller who wants to sell their goods. It means that the seller adheres to the agreed retail price so that the quality of the product is the same everywhere it is sold in stores or online. The MSRP is usually located on a wholesale shelf alongside individual items, or on a selling sheet or promotional brochure sent to prospective retailers who wish to sell your promotional.
One thing to consider when setting up an MSRP agreement is whether or not you want to encourage consumers to discount during holidays like Black Friday and Cyber Monday or designate other dates on your own website that you may like to discount the product.
As a wholesale provider, you can set the rules that your retailers will comply with, but maintaining a reasonable market balance is key to the success of your retailers. When your retailers can make a profit selling your stuff, they’ll keep coming back and placing bigger orders.
5. Three ways to set up your Wholesale Channel
When it comes to building your online wholesale business, you must first decide whether you want to create a mere wholesale business or provide a wholesale alternative in addition to selling directly from your own website to customers.
You can approach this in many ways and what you want ultimately depends on the context.
Secure your wholesale store by password
If you are just considering selling your goods wholesale to other retailers, you would need to create an online store that is password-protected so that only your customers can place orders at your discount price.
The best way to lock your online store is via the password protection feature of Shopify, which is available in the Shopify admin.
Through creating an online store protected through a password, you can set up all your items for your customers to purchase at a discounted price.
If you run a bigger wholesale company and are worried about getting your password out to unauthorized retailers, you may want to look into a more sophisticated password protection app.
Open a new wholesale shop using Shopify
There are many options available for companies who already have a direct-to-consumer store but want to create a wholesale platform for small businesses to purchase from. The best way to do this will be to set up a second Shopify store with a different URL and use one of the above two methods to protect it with a password.
You may consider upgrading to Shopify Plus and take advantage of its wholesale channel functionality if your business is doing a high volume of sales. On Shopify Plus, you can build a password protected wholesale channel inside your existing store.
The wholesale channel uses your existing goods to build a wholesale marketplace and there is very little additional work involved with setting up this system. Customer groups may also tailor the price, using off percentages or volume-based discounts. Best of all, inside Shopify reports the sales reports are all different from your direct-to-consumer sales.
6. Payments approved for wholesale orders
One way the wholesale varies from the direct-to-consumer transactions is typically expected from the retail partners in terms of payment. Unlike a normal sale, if a vendor orders a large number of your goods, they can request payment terms that are sometimes referred to as “Net X”: an arrangement that the net payment is required to be made in full within a specified number of days (e.g. Net 30 to be charged within 30 days)
When a retailer asks for these preferred terms of payment, this means they want to be able to pay you, as a seller, within a number of days of obtaining their order. You can also be at risk delivering a large order to a retailer before they have paid, particularly for small businesses. That’s why it’s always recommended that you ask for references and do due diligence before you commit to these terms.
How to receive wholesale consumer payments
For companies running their wholesale channel online, there are a few choices when it comes to actually receive a later payment. One is to log wholesale orders as draft orders in your Shopify store, which helps you to send email invoices to your customers through Shopify for them to pay via credit card later. You may also record a payment with draft orders via cheque by marking an order as paid once the payment has been made.
7. Wholesale market exploration
Now that you’ve worked out your wholesale pricing plan, and a wholesale channel setup on your store, it’s time to look for prospective wholesale clients. But where are those retailers that you find?
Usage of the website for direct access to customers
In reality, sometimes a retail client will find you first. If you’ve been successful with direct-to-consumer ads, you may already have received messages from distributors who want to sell your product online or in their physical stores.
When you advertise online to customers, you can also meet other business owners who might be interested in carrying your items. That is why it’s necessary to keep a connection for wholesale inquiries in your website footer. It is a convenient way for someone who browses your website to get in touch with you about future opportunities.
Attendance at trade fairs
Trade Shows are one of the most common locations a wholesale company can go to connect and find retail partners. Speciality trade shows are held for almost every retail segment, from baby apparel and athletic recreation clothing to furniture and home decor. There are also directories of trade fairs that will list top trade shows by category.
But trade shows can be costly. They also involve travelling to the location the show is taking place, and if you want to display there a considerable fee for a booth. Although trade shows are a place to make great connections and meet new clients, it is worth visiting them first and walking the floor to make sure it’s worth it before you agree to exhibit.
Joining a wholesale or drop ship market
Another way to bring the goods to other web sites is through online marketplaces like Doba or Modalyst.
Many retailers are looking for their e-commerce store to dropship items, and are searching for local suppliers. You can list items from your Shopify store in these marketplaces (usually at a small fee) and begin dropshipping orders to retailers as they produce sales for you.
Preparing to move to Complementary Brands
One additional advantage of a wholesale channel is that you don’t necessarily need a large number of customers to expand, unlike the direct-to-consumer. When you have a handful of high-quality retailers who sell your product effectively, they can come back and keep placing larger orders over and over again.
To find these selected partners, it’s worth reaching out directly to a company that you think would be a great match via social media, phone, or email. It would be a good place to start a business which sells complementary products.
Some of the strongest wholesale relationships are made through personal communication and trust- and relationship-building in real life. And if you see a brand that you respect, if you feel that working together will be beneficial to both sides, it’s worth reaching out to them.
8. Wholesale selling: A modern (old) business model
The rise in e-commerce has helped direct-to-consumer brands to launch and digitally expand faster. As a result, many had written off wholesale as a dying phenomenon in retail. In the e-commerce age, however, a new generation of wholesale companies are currently flourishing by rethinking the way wholesale operates.
Wholesale companies are being opened up by both direct-to-consumer brands searching for new distribution outlets, and by entrepreneurs seeking to save on marketing costs. With the right pricing plan and configuration, you can start opening up your company to new revenue-generating collaborations and see your product grow among other complementary brands.