Wholesaler - What is a wholesaler?
A wholesaler is a company that earns money by buying large quantities of goods then selling in bulk to smaller businesses.
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In short, 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.
Some wholesalers might also buy from or sell to other wholesale companies. For example, a national wholesaler might purchase products from a manufacture then distribute these goods to regional wholesalers.
How do wholesalers make money?
When a wholesaler purchases goods from a retailer, it is able to pay a lower price per unit because it purchases such a large quantity of the product. It then sells a smaller quantity of the product onto retailers at a higher price. Because retailers usually only sell individual units or very small quantities of products to consumers, they can increase the price even more. Increasing the price of a product is known as a markup.
In addition, wholesalers generally have lower overhead than retailers or manufacturers. Because wholesalers don’t produce their own goods, they do not require the expensive equipment needed by manufacturers and, because they typically sell online, from a warehouse, or out of a storage facility, they don’t need expensive shop space that retailers often need to attract customers.
Different types of wholesalers
There are a few different types of wholesalers, including:
- Merchant wholesalers: following the standard approach for wholesaling, merchant wholesalers purchase large quantities of products, store them, then sell smaller quantities to another company. This type of wholesaler might also be referred to as a distributor, supplier, or supply house.
- Manufacturing distributors: some manufacturers might have their own sales teams that sell to smaller wholesalers or retailers. If the sales and production areas of the company are located and managed separately, the sales department could be considered a type of wholesaler.
- Agents or brokers: while they don’t usually own the products they’re selling, agents and brokers may sometimes earn commission by negotiating deals on bulk-bought goods. This is only common in a few industries
Should I use a wholesaler?
For small retail businesses, there’s a few advantages of purchasing goods from wholesalers. The main benefit of using a wholesaler is the potential savings, as buying products in bulk is often much cheaper per unit than buying smaller quantities of goods. As well as this, wholesalers may offer access to more products; some manufacturers won’t sell small volumes directly to retailers, so wholesalers often offer a better range of goods.
However, wholesalers might not be the best option for everyone. For example, if your business has limited cash flow and cannot afford to buy or store a lot of products at once, it might be better to source your products from somewhere else. In addition, specialist or niche retailers might not be able to find suitable products from wholesalers, who usually sell more generic products that appeal to multiple retailers.