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How Does Wholesale Business Work? A Comprehensive Guide

7 min read

In the retail industry, the term “wholesale” can refer to two different business models. Firstly, a wholesale business could mean buying items in large quantities, storing them in a warehouse, and then selling them to other businesses. Alternatively, a wholesale business may also refer to a company that creates its own products and sells them directly to other vendors, who then sell these goods to their customers. The two models are similar, but with some significant differences. Let’s take a look at some of the ins and outs of wholesale businesses.

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How Are Wholesale Goods Distributed?

Wholesale goods are distributed in a multiple-step process.

Usually, a wholesaler will purchase their products from a manufacturer or distributor and then sell them to another retailer to market them to end customers. Many wholesale suppliers will look for trending products, ensuring they supply the most popular goods to their buyers. When a wholesaler identifies a trend in the market, they will research cost-efficient goods, compare deals offered by various manufacturers, and acquire those products ready to be sold to retailers.

What Are the Different Types of Wholesale Business?

The wholesale environment consists of numerous wholesalers, some of whom work independently, while others work alongside a few trusted producers. Typically, a wholesale business will fall into one of several categories. These include:

Merchant wholesalers

This is the most common type of wholesaler. They will purchase large volumes of a good or product, which they eventually sell in small quantities for a higher price. Merchant wholesalers, as a rule, do not make their own products, but they’ll have a deep understanding of their stock and know when to sell them to retailers in different industries.

Brokers

Generally speaking, a broker does not own any of the products they are trying to sell; they simply serve as the “middle man” between wholesalers and their customer base. Therefore, a good broker will negotiate a suitable deal between both parties and usually take a commission cut once the deal is complete.

Distribution and sales

In some cases, a manufacturer will forgo waiting to find another wholesale business and instead will hire employees to represent their company as a wholesaler. As such, they will contact wholesalers and offer their goods to them, creating the best deal for their business.

What is Wholesale Pricing?

The term “wholesale pricing” refers to the price a manufacturer or distributor will charge wholesalers who wish to place a bulk order. When a wholesaler purchases in bulk, they receive a substantial discount, making it possible for them to make a tidy profit following retail markup.

For those unaware, retail markup is the price a wholesaler charges a retailer for their product minus the price originally paid to the manufacturer. For example, if your wholesale business buys 1000 products for $4,000, each product will cost $4. They might then sell these items in batches of 50 to retailers for a price of $400. As such, the price per item has been raised to $8, which means the wholesaler can make a profit of $4,000 once they have moved the entire shipment.

In short, this is how wholesalers make money and grow their business.

What Is the Difference Between a Distributor, Retailer, and a Wholesaler?

When customers purchase a product from an online retailer or a physical store, they usually do not think about the process required to bring that item to market. Wholesalers, retailers, and distributors all play a role in getting the item from the manufacturer and onto the shelves. Each entity has its own specific responsibilities within this network.

A distributor is an agent who works independently with a manufacturer to help sell their items to retailers and wholesalers. They will often enter into an agreement in which they cannot sell similar products from competitors.

However, this is not always the case and usually depends on the type of agreement in place. A distributor will usually be responsible for a large volume of products and may very well hold these items in a warehouse for as long as a year. Whenever a manufacturer deals with a potential new customer, that buyer will have to go through the distributor as their first point of contact.

Secondly, a wholesaler is a person or company that buys large quantities of products from the distributor to sell at a wholesale price to other retailers. Typically, a wholesaler will stick to certain types of goods or markets. However, if they are looking to diversify, a wholesaler may carry various items ready to explore different industries and grow their business. If a wholesaler only stocks products that do not compete with their manufacturer, they are deemed, distributors. However, they will warehouse their items for much shorter periods, usually no longer than six months.

Some wholesalers will even assemble the products ahead of time as part of the resell process.

Finally, retailers are a business that sells the product directly to the customer, typically for consumption rather than resale. Therefore, a retailer has to find a distributor or wholesaler who sells their goods at a fair price point and in the appropriate volume to make money.

Typically, retailers make their money by purchasing products in relatively small quantities at wholesale price, then selling them at a high price that covers all their expenses (salaries, utility bills, rent, advertising costs, other overheads, etc.)

How Can Ecwid Help You Manage Your Own Online Wholesale Business?

At Ecwid, we are determined to make the ecommerce industry as easy as possible for entrepreneurs and business owners. If you are looking to create a wholesale business, we provide powerful ecommerce tools that make running your business easy, no matter your needs or level of experience.

You can build your own online wholesale store from scratch, then sync and sell across many platforms, including your own website, social media pages, marketplaces, and more.

Do you want to learn more about selling wholesale?

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About the author

Max has been working in the ecommerce industry for the last six years helping brands to establish and level-up content marketing and SEO. Despite that, he has experience with entrepreneurship. He is a fiction writer in his free time.

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