Starting a business selling physical products involves encountering a range of unfamiliar terms, including drop shipper, manufacturer, retailer, and wholesaler. Understanding these different roles and how they interact can be confusing at first, but you will want to get a grasp on the distinctions and what each one means.
To help with that, this article will focus on buying and selling wholesale, explaining what it means and how it differs from other online selling approaches.
Related: What is dropshipping?
What is Wholesale?
In a nutshell, wholesale is when a business buys products in large quantities directly from a manufacturer at a low price and then resells those products to other businesses or consumers at a higher price to make a profit.
For example, wholesale companies, such as Sysco Corporation, connect manufacturers with businesses that prepare and serve food in the food industry. Sysco purchases food products and related items in large quantities from manufacturers, growers, and processors worldwide. Restaurants and other food service businesses place orders with Sysco for the food and supplies they need. By acting as an intermediary between food manufacturers and food service businesses, Sysco offers a wide variety of products at competitive prices, allowing their customers to streamline their supply chain by ordering all their necessities from a single source.
Related: How to register for a seller’s permit
Benefits of Buying and Selling Wholesale
When you buy wholesale, you can:
- Save money by getting great deals on multiple product lines from a single wholesaler
- Make smaller orders since wholesalers are already buying in bulk from suppliers
- Get better deals because wholesalers have weeded out the shady suppliers for you
And if you’re selling wholesale, you can:
- Score the best deals by comparing prices from multiple suppliers
- Get products to market faster because you’ve got your finger on the pulse of customer and retailer demand
- Become an expert in your industry and a reliable source for customers and other businesses
Types of Wholesalers
Sure, let’s expand on the different types of wholesalers and provide a simplified description for each.
In the world of wholesale, there are three main types of wholesalers: merchant wholesalers, agents and brokers, and manufacturers’ sales branches and offices. Each type plays a different role in the distribution process, helping to move products from manufacturers to retailers or other businesses.
- Distributors: Distributors, also called merchant wholesalers, are the most common type of wholesaler. They buy products directly from manufacturers, store them in their own warehouses, and then resell them to retailers or other businesses. Merchant wholesalers take ownership of the products they sell and often provide additional services such as product delivery, credit financing, and marketing support. Examples of merchant wholesalers include companies like Sysco (food products) and McKesson (pharmaceuticals).
- Agents and Brokers: Agents and brokers act as intermediaries between buyers and sellers, but unlike merchant wholesalers, they don’t take ownership of the products. Instead, they facilitate sales by connecting manufacturers with potential buyers and helping to negotiate deals. Agents and brokers often specialize in particular industries or product lines and are paid a commission based on the sales they generate. Examples include food brokers who represent multiple food manufacturers and help them sell their products to grocery stores and other retailers.
- Manufacturers’ Sales Branches and Offices: Some manufacturers choose to set up their own sales branches or offices to sell their products directly to retailers or other businesses, bypassing traditional wholesalers. These sales branches and offices are owned and operated by the manufacturer and are responsible for managing the sales and distribution of the manufacturer’s products. This allows manufacturers to have more control over the sales process and to build direct relationships with their customers. Examples include Apple’s retail stores and Nike’s direct-to-consumer sales channels.
Each type of wholesaler plays a different but important role in the supply chain, helping to ensure that products are efficiently distributed from manufacturers to the businesses and consumers who need them.
Wholesale vs. Retail Pricing
Wholesale and retail pricing refer to different stages in the distribution of products from manufacturers to consumers. In simple terms, wholesale pricing is what businesses pay to get the products, and retail pricing is what consumers pay to buy those products from stores.
Wholesale pricing refers to the cost at which a product is sold by a manufacturer or distributor to a retailer or other business in large quantities. Wholesale prices are typically lower than retail prices because wholesalers sell products in bulk, which allows them to offer discounts to their buyers. Wholesale pricing aims to allow retailers to purchase products at a low enough cost to mark up the price and still make a profit when selling to consumers.
For example, a manufacturer might sell a product to a wholesaler for $10 per unit. The wholesaler then sells the product to a retailer for $15 per unit, making a profit of $5 per unit.
Retail pricing, on the other hand, is the price that consumers pay when they buy products in stores or online. This price is higher than the wholesale price because it includes additional costs such as the retailer’s overhead, marketing, and profit. Retailers set their prices by considering the wholesale cost, the market demand, and what consumers are willing to pay.
Following the previous example, the retailer who bought the product from the wholesaler for $15 per unit might then sell it to consumers for $25 per unit, making a profit of $10 per unit.
Is Amazon a Wholesaler?
While Amazon is a major player in the e-commerce space and offers a wide range of products to consumers, it also offers some services that cater to businesses, such as Amazon Business, which provides features like bulk pricing, business-only selection, and purchasing analytics. While these services may resemble some aspects of wholesaling, they do not make Amazon a traditional wholesaler.
Amazon’s core business model is centered around retail sales, where it sells products directly to consumers through its online marketplace. As a retailer, Amazon purchases products from manufacturers or distributors and then sells them to customers at a markup. This differs from the traditional wholesale model, where wholesalers buy products in bulk from manufacturers and then resell them to retailers, who in turn sell to consumers.
What really sets Amazon apart is that it primarily acts as a marketplace for third-party sellers. This means that in addition to selling products directly, Amazon allows other businesses to sell their products on the Amazon platform. These third-party sellers can be manufacturers, distributors, or even other retailers. They list their products on Amazon, set their own prices, and handle shipping and customer service. Amazon charges these sellers a fee for using their platform and provides them with access to Amazon’s vast customer base.
