Are you looking to expand your market by developing a wholesale branch of your company, or thinking about starting a wholesaling company on your own, but don’t know where to start? But what is a wholesaling company responsible for, and what are some of the roles you would have to fill to get the job done? This guide aims to give you a game plan of how to start, fund, and run a wholesaling business.
Wholesalers are generally distribution companies that sell products– typically from a distributor to a business, or from one company to another. Wholesalers, whether they sell durable or non-durable goods, and regardless of the industries that they work in, don’t sell products directly to consumers. As someone in the wholesale business, you are buying goods to turn a profit, much like any other retailer. Additional skills essential to your success in the wholesale business are excellent negotiating skills, a sense of what is hot in the market, financial skills related to business management, and shipping knowledge. If you have all of those skills or at the very least, avenues for you to learn those skills, you will do very well to consider becoming a wholesaler.
Getting Started as a Wholesale Distributor
If you are planning to get started in a wholesale, retail business, try first determining your industry of choice– be it electronics, schools, or grocery stores. Once you have a target in mind, search out large, inexpensive plots of land or locations with warehouse space for rent.
Once you have the logistics of the warehouse itself figured out, consider how you will proceed– will you buy into an existing wholesale company, start your own company, or buy out another company? Each option comes with its own costs and benefits– ultimately making that choice up to you. When you decide how you will proceed financially, also consider the time that you have– will this be a part-time or a full-time commitment? Full time means a quicker return but can be risky depending on your financial situation.
Special Ops: Operations and Operating Costs
Now that you’ve decided to become a part of the wholesaling business, the first significant aspect that you have to consider are your operations. Before you make even one sale, you first must know your customer base and the companies you will purchase from, called suppliers or vendors. These two groups of people are incredibly relevant to your business! Also, when considering startup investments or research, be sure to include operating costs. When you first start out, your operating costs often aren’t much– a personal computer or two, maybe a telephone, and some office space to fit both of these (which usually ends up being a corner of your bedroom or the kitchen table.) You don’t have to splurge on office space right away! The same goes for warehouse space– rent if you can help it to avoid liability.
Stocking Struggles: How to Inventory Your Warehouse
Sure, you’ve got a warehouse, but how do you know what to put in it? Stocking is an essential facet of being a wholesaler. Generally, wholesale companies overstock on shorter lifespan items (like food, which can spoil.) Try, if at all possible, to gauge the needs of your customers before making any significant purchases, especially if they are shorter lifespan products. It is safer to go a little cheaper, especially at first– and it’s always better to be a tad understocked than to pay out of pocket for products that you don’t really need. In short– invest in higher lifespan products, stock later rather than earlier, think first and buy later, as well as consider the needs of your customers above all other factors.
Daily Dose: The Day to Day Activities of a Wholesaler
The wholesaler tends to lack a regular routine– the diversity in the job means different activities every single day, perfect for those that crave a break from routine. Generally, though, wholesalers perform some combination of sales and marketing, accounting, operations, industrial engineering, and customer service. Wholesalers generally lighten this crazy workload with the aid of computer programs that track shipments, allow for customer feedback, and provide for quicker counts on inventory.
Mad Markups: Learning to Play the Markup Game
If you are struggling to negotiate with your clients or even your suppliers, learn to manage your ‘spread.’ The ‘spread,’ or change in the purchase price to the selling price for your customers, differs for services and goods. On average, your typical distributor would make around 25 percent margin range, while those offering ‘value-added’ services can make a bit more, up to around 35 or 40 percent. Some wholesale distributors aim for about 50 percent markup for some of the highest-tier items. To calculate the profit margin from the distributor to wholesaler to a smaller business all the way to an eventual consumer, you can divide the manufacturing costs of the product by the consumer’s price of the product and multiply that by 100. For example, if it cost a manufacturer four dollars to make a water bottle that a customer bought for $16, that would result in an eventual 400 percent markup, which is around average.