A wholesaler is a company or person that buys products in bulk from manufacturers and sells them to retailers. Whether you want to sell online or from a retail storefront, if you're not manufacturing products yourself, you have to get products to sell from another source. While you might be able to buy directly from a manufacturer, you'll most likely buy from a wholesaler.
Learn more about wholesalers, what they do, and if they're right for your business.
What Is a Wholesaler?
A wholesaler is essentially a middleman between a manufacturer and a retail establishment. Wholesalers obtain large quantities of products at a lower price and sell them to retailers or other businesses, which sell them from their e-commerce sites or storefronts, usually to end consumers.
While the most common type of wholesaling is between manufacturers and retailers, an increasing number of wholesalers sell to other wholesalers. A wholesaler may also sell materials to make goods, buying them from one manufacturer, and selling them to another.
Wholesaling has also become a retail business model. Chains such as Costco operate on the premise that goods are sold to consumers “factory direct,” cutting out the wholesaler and passing on the goods at lower prices.
How Wholesalers Work
Wholesalers buy products from manufacturers at a lower price than other businesses because they receive discounts for volume buying. They make money by selling these products to retailers for more than they paid, but still at a better price than the retailer can get directly from the manufacturer.
For example, a small business buying 100 dolls per month to sell in its store might have to pay $10 per doll to buy directly from the manufacturer. If the doll is sold for $12, the retail store makes only $2 per doll.
However, a wholesaler who buys 50,000 dolls a month from the same manufacturer can negotiate a better price of $4 per doll. If the wholesaler sells the doll to the retailer for $8, the wholesaler makes $4 from the doll, but so does the retailer selling that same doll to a consumer for $12.
Buying large quantities of a product comes the need for storage. Most retail establishments don't have a warehouse to store 50,000 dolls, so even if they could afford them, this option isn't reasonable.
Pros and Cons of Wholesalers
The most significant advantage of purchasing from a wholesaler is that it lowers the cost of doing business. By buying items in bulk, you get to take advantage of lower prices, which generally leads to either making more money per product, dropping your prices and undercutting your competition, or a combination of both.
The practice of wholesale buying and selling can be complicated, though, because there are many other factors involved in the buying, selling, and distribution of products, including:
- Business partners
- Import availability
- Product distribution
The product supply chain between wholesalers and manufacturers can vary depending on the types of businesses they want to work with. They may choose to deal only with businesses that can buy particular volumes of merchandise or sign contracts to supply goods for definite periods of time.
Some of the most affordable products for retail sales come from wholesalers in other countries, and importing may be your best option for getting the products you want to sell. However, some wholesalers may not be willing to ship products to other countries, making it difficult for you to import products into a U.S. import business or a Canadian import business.
Another factor is how products are distributed. Wholesalers don't just sell products they receive to the next retailer. Some wholesalers break products down into smaller units, which are then sold to different retailers. Other times, they assemble goods as part of the wholesaling process.
- A wholesaler is a company that buys products in bulk from manufacturers and sells them to retailers.
- The most common type of wholesaling is between manufacturers and retailers.
- Purchasing from a wholesaler lowers the cost of doing business due to economies of scale.
- The product supply chain between wholesalers and manufacturers can vary depending on the business type.