Going into business is one of the challenges every entrepreneur has to face. There are countless possibilities and you just have to choose the right business model for you. One of the most popular is the wholesale business model. More and more people are going into the wholesale business rather than the retail business.
The Wholesale Business Background
Before delving into this business model, you must arm yourself with enough knowledge to help you get started.
In a nutshell, being in the wholesale business means that you buy large amounts of inventory, stock them in a warehouse, and sell them to retailers or suppliers. This is also called the B2B (Business-to-Business) Model.
There are also two types of wholesale business models. First, a wholesaler may buy large quantities of goods from manufacturers, store them in warehouses, and resell them to consumers or suppliers. Second, wholesalers may also produce their own products then sell them to other retailers, who in turn sell them to consumers.
The second option is the most popular and is the business model employed by popular clothing brands such as Adidas, Calvin Klein, Gucci, and Guess among others.
Wholesale vs Retail vs Dropshipping
There are also other sales business models out there that may be right for you. Here’s an idea of how they differ from one another:
- Wholesale – Business buys in large amounts, stores them in a warehouse, and resells them to retailers or suppliers.
- Retail – A business or business entity buys products and sells them directly to consumers. Examples are small businesses such as bakeries and mini groceries.
- Drop shipping – Business entity serves as the middle man between the supplier and the consumer. When somebody orders an item, that is the only time that the business pays for the item from the merchant, then sends it to the consumer. The dropshipper only gains a sales commission.
Reasons Why You Should Go Into the Wholesale Business
Now that you know all about the basics, you should also know why it’s better to dive into the wholesale business. Here are the top 15 reasons why you should not ignore the wholesale business model:
- Saves money– Buying in bulk means greater discounts as opposed to buying in a few items.
- Reaches consumers faster – Since the items are already in-stock, the fulfilment company will just ship out the items to the buyer.
- Consumer goods are sold in appropriate quantities – Wholesale sellers can control the amount of stock that a retailer can buy. Thus, it would be impossible for just one seller to control the market for your goods.
- Diversity and wider geographical access – Your products will be available to a larger area and can even reach other states and countries.
- Quality Control – Wholesale sellers ensure that the quality of goods that are being sold are maintained. Bad quality leads to bad customer reviews which affects the sales. Thus, the inventory goes through strict inspections to ensure that they are of high quality.
- Cost Effective – Reduces the number of producer contacts. The products come from a specific wholesale seller, as opposed to retail wherein there are plenty of sellers and there will be additional costs such as shipping and handling. It also reduces the cost of transportation since large amounts of goods are transported from the warehouse to the retailer.
- Goods are readily available – A steady supply of products are provided to consumers via the wholesale business and the retailer.
- Business Expansion – You can easily expand your business and make your brand well-known just by building a network of retailers and suppliers. Your goods will also reach more consumers in different locations.
- Inventory Control – Keeps you in control of your inventory based on the buying trends and shopping behavior of consumers.
- Business Stability– Opens up new revenue streams and widens your network. Your products are made available to consumers via the retailers. This will also allow you to add value to your brand by promoting it to a larger market.
There will be challenges as you start up and build your business, but this should not deter you from moving forward. Careful planning is your first step. Once you have the logistics ready you can move on to other areas such as marketing your brand to retailers. The most important aspect is that you are equipped with knowledge and you have a wide network that you can turn to when problems arise.
Now that you know all about wholesale, maybe it’s time to find a third party reseller to help you out. Check out our blog What You Need to Know About Third Party Sellers.
We built that into a wholesale business that became, really, one of the largest companies in the United States. We had success in building new markets, opening markets for competition, and that takes a personal toll.— Jeffrey Skilling, CEO of Enron Corporation
Learned something new today. I will coordinate with my business partners and see if we can try this business model. Thank you!
This wholesale business model is definitely helpful for start-ups like me.