If your business model is to manufacture and sell physical products, either online or via a storefront, you’re probably familiar with retail and wholesale business models. While both models have their positives and negatives, your willingness to interact with the consumer directly may play into which model you choose.
Below we’ll examine the pros and cons of retail and wholesale business models.
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What’s the Difference Between Retail and Wholesale?
Before you can make a decision between one or the other, you need to understand what each entails. In simple terms, retail means that you, the product manufacturer or producer, sell your product directly to the consumer. Selling wholesale means you typically sell your product in bulk quantities to a “middle man” who in turn sells it to the consumer (i.e. other retailers).
All About the Retail Business Model
In general, when selling retail, you sell the product for a higher price per unit than wholesale. Since wholesalers sell products in bulk amounts, they purchase the product at a discount and then use their own formulas to mark up the retail price.
As a retailer, you have control over your product, when it’s sold, where it’s sold and for how much it’s sold. You also have the ability to interact with your customers one-on-one and receive their feedback in real time.
Because you’re face-to-face with customers and other members of the public, helping people understand the work involved in what you do is a great way to generate word-of-mouth marketing. Lastly, as a small-scale manufacturer of over-the-counter sales of your goods, you can be quicker at incorporating new designs and feedback into your products.
Why Not Retail?
Running a retail store is all about interacting with the public. If you find social situations awkward or have a hard time finding the energy to talk to people, this can be a major obstacle to your success. Being face-to-face is also an occasion to introduce criticisms of all sorts, from pricing decisions to product craftsmanship. If you’re unable or uncomfortable with being in that situation, then retail may not be the best model for your business.
In general, retailing is as much about making personal connections as it is about the product. Your success will rest solely on your ability to sell your product and continuing to do so as you create new ones. If building a consumer brand sounds more like a bad dream than a fulfilling experience, then retailing may not be right for you.
You will be the marketer, salesperson, billing contact and fulfillment specialist for your business. That’s a lot of hats for one person to wear, especially when you’re also the product creator.
All About the Wholesale Business Model
As a wholesaler, you have the ability to sell large quantities of your product at once, and have them sold to consumers via multiple venues. Selling your products wholesale can open up new revenue streams that might be too cumbersome for just one person to handle. That gives you more stability, because the major onus for selling your product now falls to the wholesale buyer.
Wholesaling also comes with fewer expenses, at least when compared to the money spent year-round on in-store marketing and normal retail overhead.
Why Not Wholesale?
If you’re not a creative type, then wholesale can get rather boring. A large portion of your time will be spent managing logistics: getting product to a certain location, managing the manufacturing process and maintaining inventory.
You will have to spend time vetting potential clients, including their creditworthiness to ensure you aren’t transacting business with shady characters. Not conducting this research can lead to lost funds and lost inventory, neither of which you can afford.
Speaking of inventory, you will need to provide large quantities of your products at one time. For many product producers, fulfilling large orders within a tight timeframe is difficult. If your product lends itself to mass production, this might be a non-issue, but if you toil away on every piece, then selling wholesale might deplete your resources quickly.
In general, wholesale is great for people who can mass produce a product and get it to market efficiently. It’s also a more professional environment, as you will be interacting with other business people, and not necessarily the public. If you feel you function better in a more formal work environment or consider yourself business savvy, wholesale might be the business model for you.
Why Not Both?
It is possible for you to sell your products in a retail environment, while also selling wholesale to resellers. For some, this is truly the best option; you get to interact directly with customers while also seeing your products sold far and wide by other retailers.
In spite of that position, there’s a very good chance that you will be competing directly with your own resellers, and that could severely cut into your profits. It’s very easy for a reseller to sell your product for less, especially since he or she won’t have all the overhead expenses you do as a retailer. If you decide to try this hybrid model, make sure you make concessions in the contract for competitive pricing, and outline the parameters resellers must follow when considering sales or other promotions.
Being able to sell your own creations and manage your own business can provide you the level of freedom you may be yearning for; whether as a retailer or a wholesaler, you can achieve this financial freedom and create a successful enterprise for yourself. Just make sure to choose the right business model for you to avoid unnecessary stress later.