Ecommerce and Retail
Selling Wholesale vs Retail: Everything You Need to Know
08 Mar 2019 • 10 min read
Selling everywhere, across as many sales channels as possible, helps to grow your business. Additional sales avenues are routes to new customers — a wider audience who may be interested in purchasing your products. It makes sense to sell your items in as many ways as possible.
Wholesaling is a sales opportunity available to retailers, and has the potential to be lucrative. In addition to making smaller retail sales to the general public, you can negotiate bulk sales to another wholesale distributor, or a large retailer. These types of sales tend to be regular, and so open up additional, valuable sales avenues for your business.
While there are many similarities between being a wholesaler and retailer, wholesaling comes with its own unique challenges. In this article, we’ll cover 8 key differences between wholesale vs retail, and the challenges that you might face when delving into the wholesale industry, so that you may assess whether it’s the right choice for your business.
Retail usually requires simple, transactional relationships with the general public - resolving issues with orders, answering product enquiries, etc. A good chunk of time may be spent building brand advocates on social media, but as a rule, the relationship is straightforward, and doesn’t need to progress to anything substantial.
The relationships that a wholesaler builds need much more time and effort. As with the master salesperson, the wholesaler understands that one of the reasons that customers buy from you is because they like and trust you. Solid relationships with clients are built over many months, and require a great deal of patience in order to become profitable. Trust is extended in both directions - you’ll need to be confident that the client can pay their outstanding order balances regularly, and on time.
Cameron Ross - owner of kitchen supply store Cheflink - believes that wholesaling is all about building trust with clients. Wholesale clients need to have a high degree of confidence in you, so that when the time comes for a substantial order at the right price, you can be relied on. "They need to know that someone has got their back", he says.
It’s clear that you’ll need to have good salesmanship (or hire sales reps) if you’re planning on selling wholesale. For Cameron, being a wholesaler feels like a big responsibility, but a lucrative one. He believes that:
It’s like trying to be a third wheel to their business.
Sometimes, the level of trust is so high that your clients will place wholesale orders without even asking for a price.
Retail customers typically purchase small quantities of items, and while competitive pricing is an important influencing factor when deciding to buy, it isn’t essential. Wholesalers, on the other hand, will demand the most competitive price that can be offered, because they’re ordering much larger quantities. This requires a good ongoing knowledge of your market’s pricing, so that the necessary adjustments can be made to satisfy your wholesale clients. The difference between the wholesale and retail price must be understood in order to offer the right pricing for the right type of customer.
With both wholesale and retail selling, you may find yourself competing directly with your wholesale clients, which can result in one of you being out-of-pocket, damaging your relationship. This problem can be resolved by forging contracts, covering agreed pricing parameters to reduce the risk of undercutting each other. Alternatively, you can be exclusive with your retail products, with the remaining items in your inventory being available solely to wholesalers (though this reduces your sale quantities.)
| Related Reading: Double Your Sales and Expand Your Reach With B2B Wholesaling
As a retailer, you should have a good grip on how much inventory is required to fulfill customer demand, and be able to anticipate changes throughout the year. This can be a delicate balancing act; introducing wholesale to your business requires careful planning, to prevent your optimum inventory levels being affected. The last thing you want is to fulfill a large wholesale order, only to be left with nothing to sell to your retail customers (who typically provide higher profit margins.)
Inventory requirements for each new wholesale client will need to be factored into your supplier purchasing, to ensure that you retain the optimum stock levels for your business, freeing up cash in the process. If you manufacture your own products, it’ll be necessary to optimize your production process so that you can meet the demands of your customers.
There’s also drop-shipping to consider - a practice in which a separate company manages the storage function of distribution, processes your orders, and delivers them to your customers. While this practice can be utilized for both retail and wholesale customers, the drop-shippers will need to develop a good understanding of your stock demand, so that they don’t get caught out.
Additional warehouse/storage space will likely be required when deciding to sell wholesale, which must be factored into your decision. Do you currently have space to store thousands of new items? Cross-docking - the process of receiving an order from a supplier, and then shipping it straight to the customer without storing it in the warehouse - can help to ease storage problems. Or perhaps it’s time for an exciting move to a larger location?
| Related Reading: How to Streamline Your Warehouse Operations in 5 Easy Steps
One of the main reasons to sell products to both retail and wholesale is your profit margins. As a wholesaler, large quantities of items can be bought from suppliers at lower cost prices, increasing your profit margins when selling the stock to retail customers. Lower product unit costs also allow you to be more competitive with your retail prices on your webstore.
Selling wholesale calls for set of different features for your webstore. Check first to see if your ecommerce platform can do the following:
Selling wholesale is selling in bulk, and so naturally comes with a reduced product unit price. As such, you’ll need to be able to differentiate product pricing for retail, and wholesale customers, displaying different pricing to each customer group when they’re logged into your webstore. This can be achieved with Neto using the customer groups add-on, in combination with the multilevel pricing add-on to set quantity-based pricing.
Depending on what you sell, retail customers are less likely to re-order the same products from you, whereas it’s quite common for wholesale customers. This means you’ll need to make it easy for them to quickly re-request orders from their order history, in addition to making any small changes that they might need. This functionality is built into every Neto webshop template, allowing both retail and wholesale online customers to quickly reorder entire orders when needed.
Another feature that is useful for retailers, and essential for wholesalers, is the ability to pay off an account balance. When selling wholesale, it’s common for the order to be payable at a later date, and by allowing the client to pay their balance from the webstore itself, you won’t need to employ additional office staff to process the payments manually. Again, this feature is available in Neto’s webshop templates, as standard.
One of the good things about wholesaling is re-selling to the same customer over and over; a customer with whom you have a solid, steady business relationship. As mentioned above, it’s rare for a retail customer to purchase the same product twice, but common for wholesalers to do so. Wholesaling allows you to sell much more of the same product.
| Read the wholesale Case Study: Bambella Designs
Since the prodigious rise of delivery speed-demons Amazon, it’s become clear that customers want quick delivery, and will happily pay for it. Amazon’s Prime service (which includes fast shipping) has an estimated 90 million members.
Cameron from Cheflink believes that over time, logistics will become increasingly important for retail selling.
Logistics will be the name of the game [for retailers]
As a retailer, you’ll need to do your very best to bring down your shipping delivery times, in order to compete with giants like Amazon. When it comes to wholesaling, your clients are more likely to place their orders in advance, so delivery speed is less of a priority for them.
Wholesale clients that you have strong relationships with are also more likely to be from your own backyard, making delivery times quicker, and much cheaper.
While email is a key component when marketing to retail customers, it’s less important for wholesale customers, who usually have a good idea of what they want to order. When email marketing does occur for wholesale businesses, it needs to be much more targeted, to fit the unique, consistent requirements of the client.
A physical catalog is something to be considered for wholesale customers - an often preferred method of browsing. This can be challenging because the catalog must be regularly updated in order to convey the most competitive pricing.
Selling wholesale has the fortuitous effect of gaining access to a wider range of stores and outlets, which broadens your customer base. As your products hit the shelves of more and more stores, your branding is being advertised to larger audiences, increasing brand awareness and organic traffic to your own ecommerce store.
A small amount of branding control must be relinquished when selling wholesale to retailers - you can’t be sure that they’ll display or advertise your products in accordance with your brand identity, where they’ll be placed in the store, and what kind of company they’ll keep.
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Selling in as many ways as possible is fundamental to the growth of your business. Wholesaling, while challenging, can be a highly profitable sales avenue, and Neto offers some of the key tools that you’ll need in order to be a successful wholesaler.
Though there’s plenty of challenges to overcome, wholesaling allows you to reach an entirely new audience, and with perseverance, you can carve out a lucrative, fresh area for your business.
