Curious to know if buying wholesale is a good fit for you? Buying wholesale isn't just about snagging volume discounts—it's a strategic move that can elevate your brand and boost your bottom line. Imagine the advantage of purchasing products at a fraction of the retail price, allowing you to offer competitive pricing while still enjoying healthy margins.
Dropshipping tends to be mentioned in these conversations as well. Dropshipping offers a different kind of efficiency, eliminating the need for storage and inventory management. But when is buying wholesale the smarter choice, and how can you navigate this landscape to find the most value?
This article will walk you through the nuances of buying wholesale, providing you with actionable insights and best practices to ensure you're making the most informed decisions. Whether you're an established seller looking to optimize your supply chain or a newcomer eager to dive into the world of wholesale, we've got you covered.
Read on to discover the strategies that can transform your approach to sourcing products and scaling your business.
Disclaimer: This content should not be construed as legal or financial advice. Always consult an attorney or financial advisor regarding your specific legal or financial situation.
Is it good to buy wholesale?
You need to know two things before you decide to buy wholesale.
- Whether your business fits into one of three categories.
- Which products, and how many, you want to buy.
What are the three situations?
- You are buying to meet high-volume business needs.
- You are negotiating on behalf of a collective or partnership.
- You aim to resell the goods at a retail price.
1. Meeting high-volume business needs
Some businesses inherently require large quantities of specific goods. Think about it: who needs to buy mass amounts of products regularly? Here are a few examples:
- A catering company needs to stock up on bulk food items to prepare for events.
- A cleaning service needs a constant supply of cleaning products to maintain client properties.
- A construction firm requires a steady influx of building materials for ongoing projects.
2. Bargaining for a collective or partnership
Collaborative buying can offer a strategic advantage for small businesses. Two critical factors make this effective:
- You need sufficient volume to secure a discount once all partners' needs have been aggregated.
- Mutual trust is essential. Everyone must be reliable and committed to paying their share.
Example: Several independent coffee shops band together to purchase wholesale coffee beans, reducing costs for each shop while ensuring a steady supply of high-quality beans.
Truth is, these first two categories often require little research. In many cases, forming alliances or simply heading to bulk suppliers like BJs or Costco can be sufficient. But now, let's dive into the most entrepreneurial approach: buying wholesale for resale.
3. Reselling goods bought at wholesale for retail price
This is where the magic happens. Buy low, sell high. One of the most effective ways to do this is by purchasing large quantities from a wholesaler and selling smaller quantities to individual customers. This can be done through a physical store or an ecommerce platform.
Examples:
- Purchase a thousand plain t-shirts at wholesale prices, customize them with unique designs, and sell them individually online.
- Acquire several pallets of soft drinks from a distributor and sell them chilled and ready for your walk-in customers.
By understanding which category your business falls into and the specific needs you have, you can make informed decisions about buying wholesale. This can lead to significant cost savings and improved profit margins, giving your business the competitive edge it needs.
Identifying specific industries and supply chain levels
Whichever of the three situations you’re in, you need also to know the answers to these questions:
- Which products will you buy? (Or which categories?)
- How much of each product will you buy? (The volume)
Now you know:
- Which supply chains to look at, and
- How far up the supply chain to bargain. (Just how wholesale can you go?)
How do you find the right wholesaler?
The color green is universally appreciated, so for the right sum, someone will take your money. The question is whether that volume discount you want is worth it to the other side.
You just need to know whether you’re in the right range – hitting the Minimum Order Quantity (MOQ).
The MOQ depends on the wholesaler. But here are some typical figures.
Wholesale retailers:
- Examples: BJ’s, Costco, Sam’s Club, and ecommerce stores for many different product categories.
- Small businesses can often get what they need from wholesale retailers. They sell items usually in quantities of a case all the way up to a pallet.
Wholesale distributors sell goods ranging from pallets to truckloads.
Manufacturers usually sell truckloads. A typical MOQ could be 1,000 units.
As you know there are plenty of products that are made and distributed all in house and not necessarily in huge quantities. Like artisanal jam.
How deep into the supply chain can you go?
Calculating how much you’re going to buy
The primary risk with buying wholesale is overestimating the return of value you’ll receive. This can happen for a number of reasons, but usually one of two circumstances.
- You overestimated customer needs in the short run (demand, volume).
- The items “perished” before they would have been used. (Or depreciated in value.)
Keep the risk of overestimating (customer needs or shelf life) in mind when buying from wholesalers.
How much of a discount should you expect?
It depends on the wholesaler, the products, and the quantities. Search around. Experts and news heads give a range of 10-50%. Which is a range so wide, it almost offers no value at all.
I noticed that people lump different wholesaler types together. A spot like Costco–wholesale retailers–will tend to offer at least a 10% discount, often enough more depending on the unit, day, and even time. In contrast, a common expectation for wholesale distributors is at least a 50% discount.
Just remember, the discount is a net benefit of buying wholesale but there’s a downside too. Can you handle and store the extra volume? If you can, then you need to compare different providers.
Find the best price for you with these rules of thumb in mind.
How to buy from wholesalers
Once you know your category of wholesaler, you can find a specific provider. Once you know how much of a discount to expect at a minimum, you have one tool for comparing providers.
Now, you need a list of specific wholesalers to examine. Before we move on to that topic, I want to make a couple of points:
- You are unlikely to buy from a manufacturer. Wholesale distributors get to charge a markup, much like retailers, for a reason: Difficulty of logistics and storage.
- If the right category for you is wholesale retail, they’re easy to find near where you live.
Shoppers are primarily buying for families. Wholesale retailers advertise and market themselves blatantly to reach consumers.
But wholesale distributors require a bit more research to find.
Finding wholesalers to buy from
Online information is an excellent choice when it’s reliable. But when it’s not, the traditional analog method of shaking hands and hitting pavement wins out.
Striking up connections and growing a network takes effort and time. It’s also valuable to have referrals and recommendations. It’s even more valuable to have good information from trusted people.
Actions you could take include:
- Attend trade shows and participate
- Join networks of professionals (local, online)
Online databases make it possible to quickly gather a list of potential suppliers. But beware of an information glut.
Real, actual, factual buyers sometimes provide reviews on these platforms. But so do people with irrelevant things to say. And, if we’re being circumspect, what appear to be competitors. In this context, we should expect self-serving reviews as well.
It is difficult to say that ratings and reviews are regularly and responsibly monitored for authenticity and veracity. (The same unfortunately appears to be true for reviews of wholesalers on other platforms such as Google and Yelp.)
That said, you will certainly be able to compile an initial list that requires further research. Check out:
- Alibaba
- ThomasNet
- TradeKey
- Worldwide Brands
You will also find wholesale retailers on these platforms in addition to wholesale distributors.
If you are looking for manufacturers, you’ll need to make calls directly.
Manufacturers and wholesale distributors require business identification. That likely means business license and tax identification number.
Evaluating a potential wholesaler to buy from
Vetting a supplier takes time and depends on your business, your customers, the industry, and the law. That said, we can speak at a high level.
Avoiding wholesaler scams can be tricky. Do the up-front work to save yourself the trouble.
In terms of remote research, check out the supplier’s:
- Business bureau ratings
- Tax information
- Business license
- Liability policy
Is the product you want branded? Make sure you’re buying from the brand or an authorized distributor. Review their brand authorization letter.
For some feet-to-pavement work, check out:
- The office
- The warehouse
- Product samples
Where applicable, ask for certifications and proof of legal compliance and best practices in quality control.
Additional things to ask about:
- What are the minimum order quantities (MOQs)?
- What is the price per unit? Any other fees?
- How soon can you expect to receive orders?
- How can you track orders?
- What are the warranties?
- What is customer support like?
After negotiations, you’ll receive a draft agreement. Look it over carefully.
If you work hard to get a supplier, keep up the due diligence after closing the deal. Make sure to keep your purchase invoices and if applicable, brand authorization letter, on file.
Conclusion
Key takeaways:
Advantages: Leverage volume discounts to meet high-demand needs, collaborate with partners, or resell goods at a retail price.
Challenges: Accurately estimate customer needs, manage storage logistics, and diligently evaluate potential wholesalers.
Best practices: Understand MOQ, attend trade shows, join professional networks, and thoroughly vet suppliers to minimize risks and maximize benefits.
Buying wholesale offers significant business benefits, provided that the wholesale model fits your individual needs. To capitalize on these advantages, making informed decisions that lead to cost savings and improved profit margins is essential.
