Wholesaling is a fun, challenging, and financially rewarding eCommerce business model. On the surface, it may look like you can buy raw goods, repackage them, and sell them. However, there’s a lot more to wholesale business operations than this.
Getting familiar with wholesale includes wholesale licensing, how to buy and sell goods, where to find suppliers, marketing and sales strategy, and pricing. Let’s walk through the process of getting a wholesale business set up step-by-step.
There are at least three definitions of the term wholesale. One, the word wholesale itself can refer to a complete or partial product that was acquired from a manufacturer.
Two, wholesale can refer to a business that buys wholesale goods and resells them to another business. Three, wholesale can mean a business that sells wholesale products to individual consumers at a profit.
How Does Wholesale Work?
It’s easy to understand how wholesale works once you become familiar with each of the relationships involved in the process. Here is what it usually looks like:
- The creator of raw materials sells their goods to a manufacturer.
- A manufacturer sells their products or parts to a wholesaler.
- The wholesale broker or merchant sells their goods to another eCommerce or wholesale marketplace, retailer, or consumer.
- Wholesale brokers ship products to retailers who add their own profit margin to the products. Wholesale merchants sell their goods to consumers, and their profit margin is typically adjusted as a result.
How Does Wholesale Distribution Work?
Wholesale distribution refers to the services wholesalers provide between private sellers or manufacturers and retailers. This is a crucial stage in demand management, as each party benefits from the following steps.
First, the wholesaler acquires goods from a private seller. This seller may be a large manufacturing company or a handmade product creator.
Second, the wholesaler identifies relevant retail opportunities through which to sell the manufacturer’s goods. Small manufacturers may not have the resources to sell their products directly to retail.
Third, the wholesaler sells the goods to retail outlets in smaller quantities. They are the link between the original seller of goods and the company providing goods to consumers.
How Does Wholesale Retail Work?
The wholesale retail process involves many steps from the overall wholesale distribution process. Here is a basic overview of how wholesale retail works:
- The retailer communicates with the wholesaler to request the appropriate quantity of products.
- The retailer receives goods, unboxes them, and either repackages or stocks them for sale.
- The retailer sells the products to end users (consumers) at a higher profit than the wholesaler’s selling point.
- The wholesaler continues supplying the retailer with the right amount of products, based on sales data.
- The wholesaler and retailer both watch sales trends on either side of the supply chain.
Getting acquainted with the wholesale industry positions you for long-term success. This knowledge allows you to carve out a niche, develop key relationships, and drive efficient business results.
When you’re ready to start your business there are crucial decisions to make. Let’s examine the basics of starting a wholesale business.
Wholesaling is competitive, but there has rarely been a better time to start a wholesale business than today. The range of digital tools available today has made sourcing, producing, marketing, and selling goods a faster process.
Knowing how to start wholesaling requires industry knowledge, a few financial resources, and an excellent B2B marketing plan. Here is how to start a wholesale business:
- Decide on the type of products you want to sell. Wholesaling includes everything from electronics and mechanical parts to jewelry materials and food.
- Determine the type of wholesaling you want to do. If you’re a broker, you’ll be selling to other producers. If you’re a merchant, you’ll be selling wholesale goods directly to consumers.
- Narrow down your target market. Uncover a pain point amid a wider market and sell directly to those buyers.
- Identify relevant manufacturers or suppliers. Make sure that you’re both getting a good deal and working with a certified vendor.
- Complete relevant paperwork. This is the least fun part of getting a business started, but is necessary and legally protects your work.
- Develop a strong sales and marketing plan. Remember to not spend more than you have available in the beginning and leverage lower-cost strategies, like word-of-mouth and content marketing.
- Organize your retail efforts. Research outlets that are accepting new vendors and match your target audience’s immediate needs.
- Open or rent a physical workspace if you need it. What you need depends on your type of business model, but having physical space is extremely useful.
Hitting your stride as a wholesaler is largely the result of knowing your audience. The more you understand what your customers need and want, the more you’ll be able to create appealing offers that turn into sales.
Now that you’re familiar with wholesaling on the merchant side, it’s important to know about wholesaling on the supplier side. Let’s look at the building blocks of this business model:
- Determine the goods you want to sell. Select products you believe in and won’t be reluctant to sell over and over again.
- Decide if you’ll be selling raw materials or manufactured goods. Suppliers can sell goods that will become part of a manufacturing inventory, or sell to brokers who resell to retail outlets.
- Run a healthy budget. Selling wholesale often means you’ll be selling in bulk. Set initial limits on your purchases so you can profit above your expenses first.
- Build strong relationships with merchants and distribution networks. Being able to get your products in the hands of people who will move your sales forward is key.
- Focus on value. The more your products can stand out on their own merits, the easier time you’ll have making sales.
Once you understand the essentials of starting a wholesale business, you can get your paperwork in order. There are specific legal requirements for operating a wholesale business, and some of the details vary from state to state.
Let’s start with answering, “What is a wholesale license?” A wholesale license legally permits you to purchase from manufacturers and resell products to retailers or consumers.
Your wholesale license is also a means to reduce taxes over the long haul. Since most wholesalers purchase goods in bulk, this license legally removes sales tax. Without a license, you’d be paying sales tax on each supplier purchase, which adds up quickly.
How Much Is a Wholesale License?
The average wholesale license costs about $6,500, though it can be as low as $3,000 or as high as $10,000. The high degree of variance may be because of the state you live in, the laws pertaining to that state, or other case-by-case requirements.
Getting your wholesale license requires existing business information, some dedicated time, and some funding. Here are the key steps to prepare for:
Step one is acquiring your employer identification number (EIN) or your federal tax identification number (FTID). The government uses your FTID or EIN to track all of the transactions your business is engaging in. If you already have this, you can skip to step two.
Step two is getting your sales tax ID. This is the document that allows you to collect sales tax on your products.
Step three is applying for your wholesale license. This step usually looks different from state to state. Consult your state’s tax or revenue office to ensure you’re providing all required information.
Once you’ve invested the necessary funds and completed all legal paperwork, you’re probably eager to start looking for suppliers. Wholesale businesses find products through wholesale directories, which are large lists of suppliers and their goods. Next is a list of prominent directories in popular wholesale niches to help you get started.
What Is a Wholesale Directory?
The hundreds of wholesale directories online all feature different suppliers and advantages. Take the time to familiarize yourself with prominent directories in your niche so you know where to find great opportunities.
Wholesale Beauty Products Directories
The beauty industry generates over $500 billion annually in the United States and is growing at over 10% per year.
Here are three of the top wholesale beauty supply directories:
- Cosmetic Index
Wholesale Pet Supplies Directories
The United States’ pet industry sees over $232 billion in annual revenue with an expected year-over-year (YoY) growth trend of 6%.
Take a look at three of the best wholesale pet supplies directories below:
- King Wholesale
- PIDA (Pet Industry Distributors Association)
Wholesale Food Directories
The grocery and food wholesaling industry generates over $1 trillion annually in the US.
Here are a few prominent general wholesale food directories:
- Wholesale Central
Wholesale Crafts Wholesale Craft Supplies Directory
Homeschoolers, teachers, and community event coordinators all purchase craft supplies and artistic goods regularly. The industry is also growing by 2.7% YoY.
Take a look at some of the top wholesale craft supplies directories:
- Independent Retailer
- Art Materials Retailer
- The Craft Booth
- Fine Crafts Imports
Wholesale Office Supplies Directory
Wholesaling office supplies is a great niche to get into due to ongoing strong demand. This wholesale niche generates at least $230 billion each year and is growing by 2.4% YoY.
Below are some of the top wholesale office supply directories:
- Bulk Office Supply
- Zuma Office
- Office Super Savers
- On Time Supplies
Hardware Wholesalers Directory
The hardware industry in the US generates annual revenue of about $350 billion with an expected 4.1% YoY growth.
Here are some top wholesale hardware directories:
- Reiss Wholesale Hardware
- STAFDA (Specialty Tools and Fasteners Distributors Association)
- Global Sources
Once you settle on a directory that provides the products you need at competitive prices, it can be a game-changer for your business. It’s much easier to grow your sales when you have a supplier you can depend on.
If it hasn’t been as easy as you thought to find quality suppliers, there are ways to narrow down your approach. Keep reading to discover other ways you can partner with best-in-class suppliers and manufacturers.
Knowing where to find wholesale suppliers that will bring your business to the next level is difficult. Before we look at how to find the companies you need, it’s extremely useful to know how vendors, distributors, and suppliers are different:
- A wholesale supplier is a company that first manufactures or produces a part, material, or product.
- A wholesale vendor is a company, service, or website that offers suppliers’ goods for sale.
- A wholesale distributor is a company that purchases wholesale goods and resells them to retailers or consumers.
Now that you know these different types of businesses and what they provide, let’s look at how to find the ones you need:
- Browse online wholesale directories. It’s better to try to contact manufacturers themselves if directories aren’t providing what you need.
- Attend trade shows, either locally or internationally. The Global Sources Expo and Canton Fair are two prominent trade shows that should not be passed up.
- Use supplier databases. Sometimes directories won’t have what you’re looking for, but a database will. Remain diligent in your search and you’ll be pleasantly surprised at the opportunities you uncover.
If you need a vendor instead of a supplier, the process is largely the same. Here are methods to maximize the time and energy you invest:
- Conduct a vendor online search. Popular B2B eCommerce platforms offer detailed info on wholesale suppliers with a few clicks of your mouse.
- Research your competitors’ methods. You can consult the US customs database for a list of what companies imported which goods.
- Subscribe to relevant publications. By seeing what companies are advertising and where, you’ll uncover the right opportunities much faster.
- Browse forums and online groups. Talking in an online forum is a great, flexible way to build new relationships. You never know when the next conversation will lead to a positive business partnership.
Here are some key tips on finding distributors if you need to expand your retail network:
- Determine the kind of distributor you need. The type of distributor you need--like a dedicated reseller or logistics provider--will depend on your business goals.
- Maintain strong visibility at trade shows. Distributors have an active interest in building supplier relationships. The more prominent you are at trade shows, the easier time you’ll have in talking with the right people.
- Browse local business listings and chambers of commerce. Small businesses need to register with their state, so villages and townships have an incentive to make them visible.
- Look through websites like Amazon, eWorldTrade, and eBay. A percentage of individuals who sell goods wholesale do so through these large online marketplaces. Use the contact details of a couple companies to learn more about where they source from and how they’re looking to do business.
The relationships you form are some of the most important decisions to make in business. They can be catalysts for exponential growth or the reason growth isn’t happening quickly. Once you’re working with some quality suppliers and partners, it’s time to get your purchasing down pat.
Buying wholesale goods is easy when you understand how the process goes. Here are the basics:
- Perform market research. Wholesale brands in any niche compete against hundreds of other sellers. You should be closely familiar with what you want to sell so you can produce and maintain a competitive edge.
- Establish a professional brand image upfront. Decide on the type of imagery you want to represent your brand today, then make it happen.
- Decide on a niche. The business adage of being a big fish in a small pond is entirely true. Instead of trying to sell everything at once, focus on a few quality products that you can scale up.
With the essentials covered, you can research more specific niches. Here’s what you need to know about the most prominent wholesale categories.
How to Buy Wholesale Grocery Items
Buying grocery items wholesale begins by making relationships with farmers and growers. Prepare by researching what suppliers expect of partners so you don’t go into a conversation empty-handed. It’s good to have a food storage plan created ahead of time so you don’t lose precious inventory to spoilage.
How to Buy Bulk Wholesale Items
Simply enter a product keyword in a directory and include bulk before or after when searching. When you’ve located a supplier you want to work with, ask what their average and minimum order quantities are.
It’s widely known that wholesaling can be a difficult industry to break into. That’s why you need a marketing strategy that will help you reach customers in relevant ways. Check out the next section for powerful recommendations on wholesale marketing.
What Is Wholesale Marketing?
Successful wholesale marketing is any approach, strategy, or tool that will help you increase the sales and customers for your business. There are dozens of business goals you may have; you need the right strategies to make it happen.
Here are a few effective ways to market your products:
Offer an Appealing Customer Experience
If your shopping experience is effortless, customers will be far more likely to complete their purchase and come back later. Your website should be fast-loading, navigable, and simple to understand. BlueCart offers a lightweight, speedy, and SEO-optimized eCommerce platform that can solve these problems for you.
Use PPC and Advertising Wisely
The modern targeting capabilities of platforms like Pinterest, YouTube, and Facebook make the scaling of a customer base easier than ever before. Make sure you understand how to use a given platform before you spend hundreds or thousands of dollars on it.
Wholesale Social Media Marketing
Setting up social media marketing for your wholesale business is important and has significant returns. Use these best practices:
- Choose an ad platform that matches your target audience. Do your research and pick an avenue that will support the growth of your business.
- Focus on content originality. Invest in someone who can create quality graphic imagery for you if you don’t know how to.
- Create a posting schedule and stick to it. First, make quality content. But second, develop a social media schedule and be consistent.
Wholesale Email Marketing
Email marketing is an indispensable tool for winning in today’s business landscape. Here’s what you need to know:
- Begin an email list now. Email marketing is easy to begin and has massive payoffs once you get it started. Once business owners understand the power of this tool, the only regret they have is not starting an email list sooner.
- Place an emphasis on your subject lines. Your list will never open your emails if your subject lines are boring.
- Use powerful calls-to-action (CTAs). Your CTA is the phrase used to encourage your customer to take action. Tell people what you want them to do and how you want them to do it!
SMS Marketing Wholesale
Texting customers is a surprisingly effective way to keep them engaged and send messages on the go. Here is how to use SMS marketing:
- Employ relevant tools. Use a platform specifically designed to make the collection, organization, and segmenting of text contacts simple.
- Send short texts. SMS stands for short message service, which is exactly the mindset you should use when sending marketing texts.
- Make the sign-up process appealing. People are often reluctant to give out their personal contact information, especially if they don’t get anything in return. Give them a powerful reason for handing over their cell phone number to you.
Having a reliable marketing plan gives you the freedom to keep building incredible products. Growing your customer base will also reveal which products are most popular over time.
If your sales are still lagging despite successful marketing campaigns, you should revisit your sales methods. Next up are some strategies to keep in mind.
How to Make Wholesale Sales
The sales approach you use will depend on the products you sell and your overall wholesale business model. What worked when you started your business may not be an effective or efficient method anymore.
Here are a few flexible sales strategies to test:
Tap Into Your Existing Customer Base
Whether you have 10 buyers or 1,000, the easiest way to increase sales is through your existing customers. Make new and appealing offers that speak to your customers’ needs.
Provide One-Time Deals for New Customers
Offer a great one-time deal for your buyers, like a large discount for signing up, or a free product with their first purchase.
Offer a Subscribe and Save Discount
Give your customers a reason to buy frequently by creating a subscribe and save offer. If you sell products customers can use often, this is a great way to create recurring revenue.
Create a Referral Program
Use a referral program to incentivize customers to share your business. When both they and their friend receive a goodie for mentioning what your business does, this creates an outward ripple effect. More people will continue sharing your business and spreading the word to new customers.
Getting your sales process down pat takes time, and determining an attractive price is a big part of that. Let’s look at what wholesale price is as well as how to achieve maximum pricing leverage.
Wholesale price is the amount of money paid to a manufacturer by a wholesaler or distributor. There is also the price you assign to your products as a wholesaler. The price you use will depend on whether you’re a distributor or manufacturer.
Ask the following questions of the suppliers you’re researching, as well as their pricing:
- What is their customer service like? You want to select a company that prioritizes how they interact with other people and business owners.
- Is their pricing competitive? A price that’s wildly above or below similar products (not including shipping costs) typically means something isn’t right.
- What is their distribution and shipping network like? If your supplier’s turnaround times are lagging, ask them about any alternative distribution solutions they may offer.
- Do they offer bulk discounts? If they aren’t a business that runs promotions, you may be better off with a different company.
If something seems off during your research, it probably is. It’s better to take your time in starting a partnership than wish you hadn’t started one at all.
Control Your Costs and Labor
Keep your costs as low as is reasonable. Your labor and parts expenses (prime cost) tend to be the highest costs. Look for creative ways to reduce existing costs and prevent new expenses.
Consider a Minimum Advertised Price
A minimum advertised price (MAP) is the lowest price point at which a retailer agrees to advertise wholesale goods. It’s used for these reasons:
- Reliable pricing supports wholesalers’ business models. It keeps businesses throughout the entire supply chain operating more predictably with one another.
- Advertised price floors prevent unabated price slashing competition between retailers. Businesses may reduce prices to unreasonably low levels if there isn’t a limit to what is advertised.
- MAPs support brand value. Customers are more likely to assume a brand is of low quality if the price is much lower than expected.
How to Calculate Retail Price from Wholesale and Markup
The average product has a 30-50% higher price when sold in retail compared to wholesale. The added markup covers expenses, attracts the right type of customers, and generates profit for the business. A product may be marked up anywhere between 100% to 500% in retail, depending on the product and brand.
Once your marketing plan is humming, sales are coming in, and customers are recognizing your brand, it’s time to maximize efficiency. An important way to do this is by maintaining an optimal fill rate. The next section explains what fill rate is and how to achieve a good one.
Fill rate is the number of orders that you’re able to fulfill at any given time, as a percentage of your total orders. Optimal fill rate is at or near 100%, and this means you aren’t experiencing a stockout, backorder, or lost sale.
Fill Rate Formula and Fill Rate Calculation
Learning how to use the fill rate formula is straightforward. First, take the number of orders completely fulfilled and divide it by the total number of orders received. Second, multiply that number by 100. The resulting number is your fill rate percentage.
Here’s the total formula written out:
Fill rate = (Fulfilled orders / Total orders) x 100
Download our fill rate spreadsheet template for free to simplify your fill rate calculations.
Improvement Rate Formula
The improvement rate formula shows the percentage increase from one number to another. Improvement rate demonstrates how much a business or operational need is improving month over month.
It’s simple to calculate improvement rate. First, subtract the first month’s number from the second month’s number. Second, take that number and divide it by the first month’s number. Third, take that number and multiply it by 100. That will give you your improvement rate percentage.
Here is the formula written out:
Improvement rate percentage = (Second month’s total - first month’s total) / first month’s total x 100
A wholesale purchase agreement is a document that transfers the ownership of products from a seller to a buyer. In some cases, the seller may be a supplier; in other cases, they may be a wholesaler. The purchase agreement is used to achieve specific outcomes at various stages of the eCommerce supply chain.
To better understand how wholesale purchase agreements work, it’s helpful to know why they’re used. Here is a general overview of a wholesale purchase agreement’s stages:
- A manufacturer sells goods to a wholesaler. This may be raw materials inventory, manufacturing inventory, or merchandise inventory, depending on the wholesale items the business sells. Manufacturers sometimes have their own product assignment or purchase agreements to be signed before wholesaler purchases are complete.
- The wholesaler becomes the owner of the goods upon purchase. They assume all legal liabilities and responsibilities as a result of buying the goods (and often later selling the items to another entity).
- A wholesale purchase agreement is drafted by the wholesaler. The wholesaler may later use this to assign or sell ownership of their products (sometimes finished goods inventory) to a buyer. The buyer may be a distributor, retailer, or a public consumer. This stage influences wholesale vs. retail price, as well.
- The wholesaler later uses the purchase agreement to lawfully transfer product ownership and liability to the buyer. Depending on the type of documentation used, it may be accompanied by an assignment agreement. However, assignment clauses are often present in a singular purchase agreement.
- The entity buying from the wholesaler now owns the goods purchased and all the benefits and liabilities associated with them. This is key in preventing unwanted lawsuits as a wholesaler as well as other legal concerns.
This information is extremely useful if you are currently a wholesaler or are researching how to find wholesalers. First, you should read up on how to get a wholesale license, how to buy wholesale goods, and determine a wholesale directory or wholesale marketplace where you can list your products. Once those steps are complete, developing a purchase agreement will help you protect the wholesale sales you make.
There are additional factors to be aware of when creating or signing a purchase agreement:
- If you are a wholesaler, ensure your supplier’s contract doesn't include the prohibition of future assignments. This would prevent you from selling to various entities in the future and risks legal accidents on your part.
- Make sure the products you’re selling are allowed to be resold, both now and in the future. Some local laws and product restrictions prevent goods from being sold or being resold within a particular period of time.
Wholesale Agreement Example
If it’s your first time learning what is wholesale, you may be surprised by the amount of work involved. There are supplier relationships to build, quality products to source and sell, warehousing to optimize, and inventory management to handle.
With all of these important tasks on your plate, paperwork is often the first to be forgotten. When you do start researching examples of wholesale agreements, it can be difficult to know which kind applies to your business.
The details of any contract will depend on the local laws governing an agreement that is struck as well as the parties executing it. That being said, it’s helpful to have a framework for what your own agreement may look like.
Any wholesale agreement you develop, modify, or enter into should have the following sections at a minimum:
- The goods being purchased, who is buying them, and who is selling them.
- Quality standards for goods and means for seller-provided remedies.
- Shipping policy and services.
- Payment policy and any payment gateway providers.
- Any applicable taxes and governing laws.
- Default policy.
- Conditions, limitations, and means for modification(s) of agreement(s).
Occasionally you may come across a contract that doesn’t seem quite right or makes a request you don’t want to agree to. Most purchase agreement contracts include a section for requesting modifications if need be. This shows that the majority of sellers are equitable and want each buyer they work with to feel assured in working with them.
If you don’t feel comfortable signing an agreement, don’t do it. It’s better to move slowly than move fast and wish you had made different decisions later, especially in business. Always review any legal documentation independently, and seek the counsel of an experienced commercial lawyer if you have questions.
Wholesale Agreement Template
When you’re starting an eCommerce business, there are dozens of things to do. Between developing an eCommerce marketing strategy and working to increase eCommerce sales, giving buyers more paperwork to fill out sounds burdensome.
While it may seem inconsequential, having a wholesale retail agreement template on hand is a wise move. Instead of creating a brand new document from scratch, you can fill in the blanks for each of your clients. This frees up your time for more important responsibilities, like eCommerce marketing automation, keeping your fill rate high, and improving order fulfillment speeds.
Give yourself the easy button with BlueCart’s wholesale agreement template. After downloading the file to your computer, you can print it out and fill in details for as many buyers or sellers as you have.
Putting Together the Perfect Purchase
Working on company paperwork like your eCommerce business plan, wholesale marketing plan, and wholesale purchase agreement isn’t the most exciting, but it is necessary. These documents make it simple for many types of eCommerce businesses to do what they do best--sell phenomenal products to enthusiastic customers.
Finalizing your new purchase agreement contract fulfills multiple needs in one fell swoop. It clearly and concisely assigns product responsibility between parties, protects you from unneeded lawsuits, and gives you all-around peace of mind. For even more strategies on how to get the most out of your wholesale business, read our wholesale management guide.
Disclaimer: This information does not function or serve as a replacement to legal reference materials. It is intended for educational or informational purposes for personal use only. Conduct your own research or consult with a lawyer to make sure your business and any affiliated operations are in full compliance with every federal, state, and local law.
Getting the Whole Picture
Launching a wholesale business requires significant investments of time and money. Remember that high-quality niche products are often spotted more easily by customers in an already-crowded market. Focus on building long-term relationships and delivering value to your audience, whether that’s retailers, distributors, or consumers.