How Wholesale Companies Work

Wholesale companies occupy a significant place in the greater international market economy today. In fact, wholesale distribution represents an estimated seven percent of the United States Gross Domestic Product (GDP), with a $3.2 trillion reported annual sales. Knowing this, it is not difficult to understand why launching a wholesale company might sound attractive, and why so many retailers do business with wholesale companies.

In this post, learn the nuts and bolts of how the wholesale distribution system works and where it fits into the greater sales cycle.

Wholesale Distribution Defined
The word “wholesale” denotes larger bulk orders intended to be resold. In general, wholesalers work with products that are already at high demand by customers. They purchase larger lots of these items at low (“wholesale”) cost, then turn around and resell them to retailers with their own profit margin built in.

An example: Let’s say you wanted to add motorized scooters to your retail store inventory. You would seek out a wholesale distribution company that sells motorized scooters, negotiate a bulk price for a certain number of scooters (for either a one-time order or for repeat orders) and pay a lower price per scooter than what it would cost you to buy the same number of scooters at full retail price.

Where the Money Is

The profit in wholesale distribution comes from volume, not price. In other words, because a wholesale is selling large lots of popular items with a small built-in profit margin, there is the potential for larger profits as sales increase.

For retailers, the cost savings that can be found through buying inventory from a wholesale distributer contribute to a higher profit per sale than what could be realized when reselling retail priced inventory.

Here, it becomes clear that both wholesaler and retailer stand to benefit from establishing an ongoing business relationship.

How to Select a Wholesale Business Partner
With more than 300,000 wholesalers to choose from in the United States alone, it can help to have a clear outline of what to look for when beginning a new business relationship with a wholesale company.

Here is a list of tips to follow:

– Look for an established company with long-term success in the wholesale industry.
– Research the company’s reputation online, with trade associations and the Better Business Bureau (BBB) and with references.
– Learn about volume discounts, minimum quantities per order, order lead times and other fine print before signing any contracts.
– For lower volume orders, consider a local or regional wholesaler which may have lower shipping costs (and thus be able to pass product on to you at a lower wholesale price).

Since it can take time to find the right wholesale partner, be sure to allow yourself adequate lead time to do this research before you need to receive your first shipment of inventory.

With this information in hand, you can feel confident to begin working with or in the wholesale industry from a knowledgeable foundation.

Written By Ryan Cooper