Wholesalers: What they are and how they can benefit your business

As one of the fastest-growing industries in the U.S., wholesale distribution plays a major part in the overall supply chain. A wholesale distributor buys products directly from a manufacturer and then resells them to the next business along the supply chain, usually a retailer or e-commerce business.

Despite a dip in wholesale trade due to the global pandemic, the industry saw a swift rebound in 2021. Wholesale distribution is projected to continue to increase by 4.3% in 2022, with an estimated market size of $10.4 trillion dollars in revenue.

• What are wholesale distributors?
• How does wholesale distribution work?
• Wholesaler use cases
• Manufacturers and suppliers
• Dropshippers and brokers
• Distribution and sales

• Benefits and disadvantages of working with wholesalers
• How to work with a wholesaler as a small business
• Step 1: Source products
• Step 2: Purchase goods from the wholesaler
• Step 3: Sell to the end user

What are wholesalers?

Wholesalers purchase products in bulk quantity directly from manufacturers and then sell those products to retailers or other commercial establishments.

Wholesalers aren’t usually involved in producing products or directly selling to end customers. Instead, they function as middlemen between manufacturers and retailers and are focused on distribution. 

What is the difference between wholesalers and distributors?  

Wholesalers and distributors are two different entities that are easy to confuse with one another. They’re both resellers involved in distributing products from manufacturers, and it’s common for some supply chains to only use either a wholesaler or a distributor. However, there are several distinctions between them:

Distributors:

• Typically have a formal business agreement with the manufacturer to bring its products to the market, whether selling to wholesalers or retailers 
• Services include not only distribution, but promotion and marketing as well
• Actively represent the manufacturer, which means they don’t work with competing products and are often paid a percentage of the total sales they make

Wholesalers:

• Are focused on selling products to retailers by purchasing in bulk from distributors or manufacturers 
• Don’t maintain exclusive relationships with anyone, so they’re free to carry a variety of wholesale products
• Aren’t required to perform any marketing or additional services—their earnings come from reselling products at a higher price to retailers

How do wholesalers work?

A wholesaler buys products in bulk directly from manufacturers, and usually receives a discount for doing so. The general process is as follows:

1. A wholesaler buys large volumes of products at discounted prices from a manufacturer. 
2. Wholesalers pick up, transport, and store these products using their facilities, often maintaining several warehouses.
3. Wholesalers sell these products to retailers with prices marked up from the originally discounted price to make a profit.
4. Retailers sell the products to consumers with an additional markup to make a profit.

Wholesalers enjoy the benefit of allowing another business to carry the burden of customer acquisition and marketing so that they can instead focus only on being the middleman.

Wholesaler use cases

Retailers are not the only ones who can use a wholesaler. Anyone can source and purchase from or worth with a wholesaler, but a few common instances include those in manufacturing, dropshipping, and sales.

Manufacturers and suppliers

Manufacturers and suppliers sell to wholesalers that can meet their minimum order quantity (MOQ) and distribute their products to a broader market. Maintaining high-volume orders enables manufacturers to increase the rate of inventory turnover and save on overhead costs.

Dropshippers 

Dropshipping is another type of online retail business that works with some wholesale distributors. Rather than purchasing products in bulk at one time, however, dropshippers function as more of a marketing and sales arm. When a product is sold, the dropshipper notifies the wholesaler to process and deliver the product to the customer.

Distribution and sales

At the other end of the supply chain, retailers, e-commerce, and other online stores rely on wholesale distributors to sell products at lower MOQs. While the products are still sold in bulk, they’re more manageable for small businesses and still come at a lower cost than buying products per unit.

Benefits and disadvantages of working with wholesalers

Working with wholesalers certainly has its benefits, like lower prices and higher profit margins, but can also yield some unsavory disadvantages, like shipping costs and storage problems.  

Benefits

Since wholesalers usually sell in bulk and require a minimum order quantity to order through them, it’s common to see a lower price tag on the initial purchase of goods through a wholesaler. This translates into:

• Lower prices for the buyer (you): The lower the price the better, since it translates into savings that can be put elsewhere, like packaging or shipping fees.
• Higher profit margins: With lower prices also comes the potential for higher profit margins, since you are likely setting the resale price higher in order to earn a profit. 
• Less work: You save time and effort since you don't have to create a formal arrangement with the manufacturer. 

Disadvantages

Many wholesalers operate overseas, which can pose several problems, including: 

• Shipping costs: You may see a sharp increase in shipping costs due to the high volume of products being shipped. If your products are too costly to ship, you could be harming your overall profit margins.
• Storage issues: When ordering a large quantity of products, especially if it includes bulky items like large boxes, you may run out of storage depending on the size and space available in your business. 
• Time to receive your goods: Due to the fluctuation of shipping times from overseas wholesalers, you may be looking at weeks of delay in your shipment.

How to work with a wholesaler as a small business

As a small business owner, you play no small part in your work with a wholesaler. However, much of the heavy lifting is done in the beginning and can be offset after a relationship and trust have been established. Here are the three steps you need to know:

1. Source products
2. Make your purchase from the wholesaler
3. Sell to the end user (your consumer)

Step 1: Source products 

Sourcing products are part of the research phase of using a wholesaler. Sourcing products involves testing your product, finding a supplier, and coming to an agreement. The steps include:

1. Select a product you're interested in purchasing. 
2. Order samples from your wholesale distributor.
3. Compare the quality of the product between several different suppliers.
4. Consider payment procedures and shipping prices.

Step 2: Purchase goods from the wholesaler 

Before finalizing the purchase, you’ll want to do your due diligence and have a contract with a written agreement in place between you and the supplier. But first:

1. Ask if they offer bulk discounts or reduced shipping fees on certain orders.
2. Ask about international shipping if you’re researching a distributor that operates overseas.
3. Sign a final agreement of sale between you and the wholesale distributor that details the arrangement, shipping details, and timeline. 

Step 3: Sell to the end user 

The final stretch rides entirely on your marketing plan and your knowledge of your target audience. It’s best to have this research done prior to sourcing and purchasing bulk products. When selling to your end user, you’ll want to have a firm grasp on:

• The needs and wants of your target audience
• Your marketing plan, such as materials and packaging for your product
• How much you plan mark up the products in order to profit after paying your wholesale distributor and overhead costs

Tapping into the wholesale marketplace

Wholesale distributors are essential components in the supply chain, helping to move products from manufacturers to the market. Purchasing directly from manufacturers, wholesalers then provide retailers with inventory storage, transportation and logistics, and products at manageable prices.

Wholesale distributors can significantly impact cash flow and potential growth, and ultimately help your business deliver the best products to customers. By using the tips in this article and taking the time to evaluate all your options, you’ll be on your way to finding and establishing a long-term relationship with the right wholesale distributor.