Understanding the Wholesale
Selling products in bulk to other retailers at a lower price is referred to as wholesale. After purchasing wholesale, retailers sell the products at a higher price to gain a profit.
Differences between the Wholesale Business Model and the Retail Business Model
Comparing the wholesale business model to the retail business model, which we are more familiar with as consumers, helps us better comprehend the wholesale business model.
What are the benefits of a wholesale business?
Wholesalers can sell their items at lower prices because they buy in bulk, which reduces processing time and costs. They usually deliver large quantities of items but can also accept smaller orders.
Consumers who buy in bulk save on unit costs, as do business owners who buy in bulk and resell to consumers at a higher price. According to digitalcommerce360, data exhibits that the conversion rate for B2B online transactions is between 6% and 8%, while the conversion rate for B2C online purchases is currently only 3% to 5%.
Wholesaling allows companies to reach a wider consumer market in terms of geographic area and customer purchasing power, while maintaining a healthy cash flow.
The benefits of wholesaling can be related to many factors. For example:
- Expanded collaboration with suppliers and increased sales
- Build brand value by increasing customer lifetime value
- Increase Your Credibility
- Lower total store operating costs
Benefit 1 – Expanded collaboration with suppliers and increased sales
Since a wholesaler deals with both manufacturers and retailers (and in some cases even customers), it has a better and faster understanding of market needs and trends, which makes it possible to launch and market new products in advance. The wholesaler’s knowledge of the market and the industry also enables it to detect contacts and opportunities that others might miss. Once a wholesaler has established relationships with suppliers and buyers, it is easier to up-sell and cross-sell.
Benefit 2 – Build brand value by increasing customer lifetime value
Customer lifetime value is the amount of revenue generated by a single customer over the course of their dealings with your business. The more time a customer spends with your company, the more profit you make.
To increase customer lifetime value, make sure your customer care and service is exceptional. A survey showed that 61% of shoppers stopped doing business with a brand because of poor customer service.
Your brand becomes popular when all your products are sold in different retailers’ stores (either online or offline). Moreover, when customers see your products in different stores, they form their own impressions of your brand. Ultimately, this will drive organic traffic to your eCommerce business.
Benefit 3 – Increase Your Credibility
To run a successful wholesale business, it’s important to capture your customers’ attention and gain trust. If you do this perfectly, then you can reap the benefits of a wholesale business.
According to the Competition and Consumer Commission of Canada, more than $10 million was lost in 2021 due to online shopping fraud. In Canada, there were 10,000 more reports of online shopping and auction fraud in 2021 than in 2020. This data shows the importance of trustworthiness in the e-commerce business
Adding credible retailers to the consumer base of your wholesale business can increase your credibility. When potential customers and buyers see the potential of your brand, they will purchase your brand and trust that your company is legitimate.
Benefit 4 – Lower total store operating costs
Wholesalers will be dealing with multiple suppliers, so they can compare prices and find the cheapest supplier, allowing them to resell their goods at a higher profit. Wholesale sales are usually made at 50% of the retail price, which can seem very intimidating. Often in addition, since they will be buying in bulk from the manufacturer, they may be able to get a good discount.
By targeting retailers at wholesale prices, you can reduce your marketing costs by passing them on to the retailer. You only need to consider selling items in bulk to stores while they can focus on finding customers on their own. At the same time, this will save you time and money, during which time you can focus on other aspects of your ecommerce business.
Challenges in Wholesale Business
The global wholesale market size is expected to increase from $42.12 trillion in 2021 to $46.37 trillion in 2022. However, the following barriers must be overcome to make a mark in the e-commerce wholesale business market:
- Inventory system and management
- Conflicting customer and supplier demands
- Maintaining cash flow and profitability
Challenge 1 – Inventory Storage and Backlog
Many wholesalers find it difficult to store the right amount of products. As a wholesaler, if you overstock, it increases your expenses. On the other hand, insufficient stock may lead to lost sales. Therefore, you have to monitor all the picking processes.
Challenge 2 – Conflicting Customer and Supplier Needs
For many business owners, the mismatch between consumer and supplier expectations related to market demand is seen as a challenge.
This may seem like a simple process, but it’s actually quite complex, which can lead to conflicts in the process. For example, if a customer urgently needs a set of products and you don’t have it, you will ask your supplier to provide it for you. And, it will take a few days for the supplier to provide it.
Challenge 3 – Maintaining cash flow and margins
Cash flow is important to a wholesaler’s business. Positive cash flow allows you to easily and efficiently manage your business, pay expenses, meet consumer demand, and invest in the future growth of your company.
Wholesalers may experience additional inventory costs, late payments, and unexpected timing of new orders. In these cases, your wholesale business may face challenges in meeting these standards.
To minimize such issues, keep your online payment methods up-to-date and track your foreign exchange profits or losses and associate them with specific vendors.
You may have noticed that the success of any wholesaler depends on its ability to build close and strong partnerships with suppliers and retailers in order for the business to be sustainable in the long term. If wholesale sales are right for your brand, check out WAVF for efficient growth, more sales and attracting new customers.