The Ultimate Guide to Understanding Wholesalers: Wholesale Definition Explained

In this article, we’ll  explore the meaning of wholesalers and wholesale buying, covering definitions, pricing, types, finding suppliers, and comparing with other fulfillment options, to help you make informed decisions for your ecommerce business.

What does Wholesaler mean?

A wholesaler is a person or business that buys goods in large quantities from manufacturers or other suppliers and sells them to retailers or other businesses at lower prices. 

Wholesalers act as intermediaries between producers and consumers, providing a service of distribution and storage. They usually specialize in a specific product category or industry, such as clothing, electronics, or food.

What is Wholesale Buying?

Wholesale buying is the process of purchasing goods from wholesalers in bulk quantities at discounted prices. Wholesale buyers are typically retailers or other businesses that need to stock up on inventory for their own sales or operations. 

Wholesale buying allows businesses to save money on the cost of goods, as well as reduce the risk of running out of stock or dealing with defective products.

What’s Wholesale Price?

Wholesale price is the price that wholesalers charge to their customers for the goods they sell. Wholesale price is usually lower than the retail price, which is the price that consumers pay for the same goods at stores or online. Wholesale price reflects the cost of production, transportation, storage, and distribution of the goods, as well as the profit margin of the wholesaler.

What is the Average Wholesale to Retail Markup?

Markup is the difference between the wholesale price and the retail price of a product, expressed as a percentage of the wholesale price. Markup represents the profit margin of the retailer, as well as the costs of marketing, advertising, packaging, and customer service.

The average wholesale to retail markup varies depending on the product category, industry, and market conditions. However, a general rule of thumb is that the average markup is 30% to 50%, meaning that the retail price is 30% to 50% higher than the wholesale price. 

What are the Three Types of Wholesalers?

There are three basic types of wholesalers: merchant wholesalers, agents and brokers, and manufacturers’ sales branches and offices.

Merchant Wholesalers

Merchant wholesalers, also known as distributors or jobbers, are the most common type of wholesalers. They purchase goods directly from manufacturers in large quantities and sell them to retailers, industrial businesses, or other wholesalers. Merchant wholesalers take ownership of the products they handle and typically maintain warehouses to store their inventory. By buying in bulk, they can negotiate better prices with manufacturers and offer competitive rates to their customers.

There are two main subcategories of merchant wholesalers:

• Full-Service Wholesalers: These wholesalers offer a wide range of services, including inventory management, marketing, sales support, and product delivery. They play a significant role in assisting retailers with various aspects of their businesses, making it easier for them to focus on selling to end consumers.
• Limited-Service Wholesalers: Limited-service wholesalers might specialize in specific product categories or industries and may not provide extensive additional services. Instead, they focus on efficiently distributing products and maintaining a broad customer base.

Agents and Brokers

Unlike merchant wholesalers, agents and brokers do not take ownership of the products they handle. Instead, they act as intermediaries, facilitating transactions between buyers and sellers. Agents represent either the buyer or the seller, while brokers bring both parties together and earn commissions on successful deals.

Agents and brokers are particularly useful when dealing with complex or specialized products. They help manufacturers find suitable retailers or buyers, and they assist retailers in locating the right products for their market. Their expertise and industry knowledge make them valuable resources for businesses seeking to expand their reach.

Manufacturers’ Sales Branches and Offices

This type of wholesaler is essentially an extension of the manufacturer’s sales and distribution network. Manufacturers’ sales branches and offices handle the wholesale distribution of their own products. They often have direct control over pricing, marketing, and sales strategies for the products they distribute.

These entities operate as wholesalers in regions where their manufacturing facilities may not be located, enabling them to reach a broader market. Manufacturers’ sales branches and offices allow manufacturers to maintain tighter control over their brand image and ensure consistent product distribution.

How to Find the Best Wholesale Suppliers for Your Online Store

To help you navigate this process, we’ve put together a step-by-step guide to finding reliable and trustworthy wholesale suppliers:

1. Define Your Product Criteria and Niche: Before you start searching for wholesale suppliers, clearly define your product criteria and niche. Determine the types of products you want to sell and identify your target market. Knowing your product requirements will help you narrow down potential suppliers that align with your business goals.
2. Attend Trade Shows and Networking Events: Industry trade shows and networking events are excellent opportunities to connect with potential wholesale suppliers. These events allow you to see products firsthand, ask questions, and establish valuable relationships with suppliers. Networking with industry professionals can also provide valuable insights and recommendations. 
3. Utilize Online Supplier Directories: Online supplier directories are a treasure trove of wholesale suppliers across various industries. Websites like Alibaba, ThomasNet, and SaleHoo offer extensive lists of suppliers from around the world. Look for suppliers with positive reviews, good ratings, and a proven track record of reliability.
4. Contact Manufacturers Directly: Consider reaching out to manufacturers directly to explore wholesale options. Sometimes, dealing directly with manufacturers can lead to better deals and personalized terms. Inquire about their wholesale pricing and distribution options to find the best fit for your online store. 
5. Join Wholesale Forums and Communities: Participating in wholesale forums and online communities can provide valuable insights from other retailers and business owners. Members often share their experiences with different suppliers, offer recommendations, and alert others to potential pitfalls. These forums can be a great source of information during your supplier research.
6. Request Samples and Test Orders: Before committing to a long-term partnership, request product samples and place test orders from potential wholesale suppliers. This allows you to assess the quality of the products, the supplier’s reliability in fulfilling orders, and their shipping and customer service practices.
7. Verify Supplier Credentials: Ensure that the wholesale suppliers you consider are legitimate and reputable. Check their business credentials, such as business licenses, certifications, and customer references. Look for suppliers with a history of timely deliveries, good customer service, and clear communication.
8. Negotiate Terms and Conditions: Once you have shortlisted potential suppliers, negotiate terms and conditions with them. Discuss pricing, minimum order quantities, shipping costs, and return policies. Building a strong working relationship based on mutual trust and transparency is crucial for a successful partnership.
9. Monitor Performance and Feedback: Continuously monitor the performance of your wholesale suppliers. Pay attention to customer feedback and reviews related to the products you sell. Stay open to exploring new supplier options if needed and be willing to make changes to optimize your supply chain.

Comparisons with Other Fulfillment and Selling Options

What is the Difference Between Wholesale and Retail Sales?

Understanding the differences between wholesale and retail sales is essential for anyone involved in the business of buying and selling goods. Let’s delve into the key distinctions between these two types of sales based on the following aspects.

Definition and Target Customers

Wholesale sales involve the bulk purchase of products from manufacturers or distributors at discounted prices. Wholesalers serve as intermediaries between manufacturers and retailers. Their primary customers are retailers, industrial businesses, and other wholesalers. Wholesale transactions are typically conducted in large quantities to meet the needs of downstream businesses.

Retail sales, on the other hand, occur when products are sold directly to end consumers for personal use or consumption. Retailers are the final link in the supply chain, and they cater to individual customers in physical stores, online marketplaces, or e-commerce websites. Retail sales are generally conducted in smaller quantities and at higher prices compared to wholesale.

Pricing and Markup

Wholesale prices are significantly lower than retail prices since wholesalers purchase products in bulk. Wholesalers apply their markup to the wholesale price, allowing them to cover their operational expenses and generate a reasonable profit when selling to retailers.

Retail prices are higher than wholesale prices because retailers add their markup to the wholesale cost. This markup includes various expenses such as rent, salaries, marketing, and other overhead costs. The retail markup ensures that retailers make a profit on each sale to end consumers.

Order Size

Wholesale orders typically involve large quantities, enabling wholesalers to negotiate better prices with manufacturers or distributors. By buying in bulk, wholesalers can pass on cost savings to retailers, fostering a mutually beneficial relationship.

Retail orders are generally smaller in size since they cater to individual consumers’ needs. Retailers purchase products from wholesalers or directly from manufacturers to meet the specific demands of their customers.

Customer Interaction

Wholesalers primarily interact with retailers and other businesses within the supply chain. Their focus is on building strong business relationships, offering competitive pricing, and providing efficient distribution solutions.

On the other hand, retailers have direct interactions with end consumers. Their success depends on providing exceptional customer service, creating an appealing shopping experience, and meeting individual customer preferences.

Packaging and Presentation

Products sold through wholesale channels are often packaged and presented in a way that meets the needs of retailers. Packaging is designed for easy handling, storage, and distribution.

In contrast, retailers focus on product presentation that appeals to end consumers. They emphasize packaging that is attractive, informative, and enhances the overall shopping experience.

What is the Difference Between Wholesalers and Distributors?

Wholesalers and distributors are both intermediaries that buy and sell goods between manufacturers or suppliers and retailers or other businesses. However, there are some differences between them.

Role in the Supply Chain

Wholesalers act as middlemen between manufacturers and retailers or other businesses. They purchase products in bulk from manufacturers and then sell them in smaller quantities to retailers. Wholesalers may also supply products to industrial businesses, institutions, or other wholesalers. However, their primary role is to efficiently store and distribute products, ensuring a smooth flow through the supply chain.

Distributors, on the other hand, play a more extensive role in the distribution process. They not only purchase products from manufacturers but also take responsibility for promoting and marketing those products to retailers and end consumers. Distributors often work closely with manufacturers to develop strategic marketing plans, manage inventory, and handle logistics. They have a more hands-on approach to product promotion and sales.

Product Range and Specialization

Wholesalers generally deal with a broad range of products within a specific industry or sector. They may offer diverse product categories to cater to the needs of different retailers. Wholesalers aim to provide a one-stop-shop solution for retailers seeking a variety of products.

Meanwhile, distributors often specialize in specific product lines or brands. They focus on in-depth knowledge of these products and work closely with manufacturers to promote and sell them effectively. Distributors may target niche markets to create a competitive advantage in their area of specialization.

Business Relationship

Wholesalers typically have a broader customer base, serving multiple retailers and businesses. Their interactions with customers are more transactional and focused on efficient order fulfillment.

Distributors establish closer relationships with manufacturers and retailers. They act as brand representatives and work collaboratively with manufacturers to promote products and ensure their success in the market. Distributors often provide valuable feedback to manufacturers based on customer insights.

Marketing and Value-Added Services

Wholesalers primarily focus on product distribution and do not usually engage in extensive marketing activities. Their role is to efficiently move products through the supply chain and provide timely delivery to retailers.

On the contrary, distributors actively engage in marketing and promotional activities to create demand for the products they distribute. They may conduct advertising campaigns, organize product demonstrations, and offer after-sales support to retailers and end consumers.

Read more: Wholesalers vs Distributors: Definition, Differences and Examples

What is the Difference Between Wholesalers, Distributors and Retailers?

Distributors

Distributors are an extension of the manufacturer’s sales and marketing efforts. They work closely with manufacturers to promote and sell their products to retailers and end consumers. 

Distributors take on a more hands-on role in product marketing, brand representation, and customer engagement. They act as the link between manufacturers and retailers, often specializing in specific product lines or brands. 

Distributors help manufacturers reach diverse markets and develop strategic marketing plans to enhance product visibility and sales.

Wholesalers

Wholesalers are the bridge between manufacturers and retailers. They purchase products in bulk from manufacturers at discounted prices and then sell them to retailers or other businesses in smaller quantities. 

Wholesalers act as intermediaries, streamlining the supply chain and facilitating efficient product distribution. Their primary role is to store and distribute products to retailers, helping manufacturers reach a broader market without having to handle individual transactions with numerous retailers.

Retailers

Retailers are the final link in the supply chain, selling products directly to end consumers for personal use or consumption. They procure products from wholesalers, distributors, or directly from manufacturers and offer them in smaller quantities to meet individual customer demands. 

Retailers play a crucial role in creating an appealing shopping experience, providing customer service, and meeting the specific preferences of their target audience.

What is the Difference Between Wholesale and Dropshipping?

Wholesale and dropshipping are two popular methods of product distribution in the ecommerce industry. Understanding the differences between these approaches is crucial for retailers looking to optimize their supply chain and business model.

Wholesale: 

• Retailers purchase products in bulk from manufacturers or wholesalers at discounted prices.
• They store the inventory in their warehouses and fulfill customer orders directly.
• Retailers own and manage their inventory, allowing for control over product quality and branding.
• Requires an upfront investment in purchasing inventory, which can tie up capital and increase financial risk.
• Offers pricing flexibility, as retailers can set their prices and determine profit margins based on wholesale costs.

Meanwhile, dropshipping: 

• Retailers do not hold inventory; instead, they partner with suppliers or dropshipping companies.
• When a customer places an order, the retailer passes the order details to the supplier, who then ships the product directly to the customer.
• Eliminates the need for an upfront investment in inventory, reducing financial risk.
• Retailers can offer a wide range of products without the need to physically store them.
• Limited control over shipping and packaging, potentially leading to longer shipping times and branding challenges.

What are some of the pros of  buying wholesale?

• Cost Savings: Buying products in bulk at wholesale prices allows retailers to benefit from significant cost savings, increasing profit margins.
• Inventory Control: Retailers have full control over their inventory, allowing them to manage stock levels and quickly respond to customer demands.
• Branding Opportunities: Retailers can customize packaging and branding to create a unique and consistent brand identity.
• Faster Shipping: Since retailers have the products in stock, they can offer faster shipping times to customers.

What are some of the cons of buying wholesale?

• Upfront Investment: Purchasing inventory requires an initial capital investment, which can be a financial burden for some retailers.
• Inventory Management: Retailers need to manage inventory carefully to avoid overstocking or understocking.
• Storage Space: Storing bulk inventory may require additional warehouse space, leading to higher operating costs.

What are the pros of drop shipping?

• Low Financial Risk: Dropshipping eliminates the need for upfront inventory investment, reducing financial risk for retailers.
• Diverse Product Range: Retailers can offer a wide range of products without the need to physically store them.
• Location Flexibility: Dropshipping allows retailers to operate from anywhere with an internet connection, providing location independence.
• Time Efficiency: Retailers can focus on marketing and customer service instead of managing inventory and fulfillment.

What are the cons of drop shipping?

• Lower Profit Margins: Dropshipping involves fixed product costs, leaving less room for higher profit margins.
• Shipping Delays: Retailers have limited control over shipping times, potentially leading to longer delivery periods.
• Supplier Dependence: Retailers rely on suppliers for inventory and order fulfillment, which can result in issues if suppliers face challenges.
• Branding Challenges: Limited control over packaging and branding may make it harder to create a distinctive brand identity.

What is the Difference Between Wholesale and Self-fulfillment?

Wholesale and self-fulfillment are two different ways of managing the inventory and delivery of products for an e-commerce business.Self-fulfillment means that the business handles the storage, packaging, and shipping of the products itself, without relying on a third-party service.

The main difference between wholesale and self-fulfillment is the level of control and responsibility that the business has over its inventory and logistics. Wholesale allows the business to save money on purchasing products, but also requires more capital, space, and labor to store and manage the inventory. Self-fulfillment gives the business more flexibility and customization over its packaging and delivery, but also involves more costs, time, and risks associated with handling the orders.

Some of the advantages and disadvantages of wholesale and self-fulfillment are:

Regarding wholesale, it offers advantages like reduced product costs, increased profit margins, access to a diverse product range, and decreased reliance on external factors like shipping delays. However, wholesale comes with downsides such as higher inventory costs, increased storage requirements, additional labor needs, limited control over product quality, packaging, and branding, as well as facing competition from other resellers.

On the other hand, self-fulfillment provides benefits like greater control over product quality, packaging, and branding, improved customer loyalty and satisfaction, flexible delivery options, and lower competition from other resellers. However, self-fulfillment has its challenges, including higher product costs, lower profit margins, increased time and effort spent on order fulfillment, greater risks of shipping errors or damages, and reliance on external factors like inventory availability and customer demand.

What is the Difference Between Wholesale and 3rd-party Fulfillment?

Third-party fulfillment means outsourcing the storage, packaging, and shipping of the products to a specialized fulfillment company, who handles the orders on behalf of the e-commerce business.

The main difference between wholesale and 3rd-party fulfillment lies at the level of control and responsibility that the e-commerce business has over its inventory and logistics. Wholesale allows the business to save money on purchasing products, but also requires more capital, space, and labor to store and manage the inventory. 3rd-party fulfillment gives the business more flexibility and customization over its packaging and delivery, but also involves more costs, fees, and risks associated with relying on a third-party service.

How Do You Become a Wholesaler?

Becoming a wholesaler can be a rewarding venture, allowing you to play a vital role in the supply chain and serve as a bridge between manufacturers and retailers. If you are considering entering the wholesale business, here’s a step-by-step guide to help you get started:

Research and Identify a Niche

Before diving into the world of wholesale, conduct thorough market research to identify a niche that aligns with your interests, expertise, and market demand. Look for products that have a steady demand, low competition, and the potential for sustainable growth. Choosing the right niche will set the foundation for your wholesale business’s success.

Obtain Necessary Licenses and Permits

To operate legally as a wholesaler, you’ll need to obtain the required licenses and permits. The specific permits and regulations vary by location and the type of products you plan to sell. Contact your local business regulatory authorities or seek legal counsel to ensure you comply with all necessary legal requirements.

Read all about Wholesale License

Establish Your Business Entity

Decide on the most suitable business structure for your wholesale venture. Options include sole proprietorship, partnership, limited liability company (LLC), or corporation. Each structure has its advantages and disadvantages in terms of liability, taxes, and management. Consider consulting with an attorney or accountant to make an informed decision.

Build Relationships with Suppliers

Finding reliable and reputable suppliers is crucial for your wholesale business. Attend trade shows, industry events, and networking functions to connect with potential suppliers. Research online directories and marketplaces to explore a wide range of suppliers. Evaluate their product quality, pricing, delivery times, and terms before finalizing any agreements.

Set Pricing and Terms

Determine your pricing strategy based on your costs, market demand, and profit goals. Negotiate with suppliers to get the best wholesale prices while ensuring sufficient profit margins for your business. Establish clear terms and conditions for your transactions, including payment methods, shipping policies, and return procedures.

Create a Sales and Marketing Plan

Develop a comprehensive sales and marketing strategy to reach your target audience and attract potential customers. Utilize digital marketing tools such as a professional website, social media platforms, and email campaigns to promote your wholesale products. Attend industry events and trade shows to showcase your offerings and build valuable connections.

Manage Your Inventory and Fulfillment

As a wholesaler, efficient inventory management is vital to meeting customer demands and ensuring a steady supply of products. Invest in a reliable inventory management system to track stock levels, reorder products in a timely manner, and avoid overstocking or stockouts.

Provide Exceptional Customer Service

Deliver outstanding customer service to build strong relationships with retailers and gain repeat business. Respond promptly to inquiries, address any issues or concerns, and maintain open communication with your customers. Your reputation as a reliable wholesaler will greatly impact your success in the industry.

Expand and Evolve

As your wholesale business grows, consider expanding your product offerings, exploring new markets, or establishing partnerships with other wholesalers. Continuously adapt to market trends and customer preferences to stay competitive and relevant in the ever-changing wholesale landscape.

Final Words

Understanding the role of wholesalers and the dynamics of wholesale buying is essential for ecommerce success. By grasping the differences between wholesale and other fulfillment options, as well as the pros and cons of each, online store owners can make informed decisions that optimize their supply chain and ultimately boost their business’s success. Whether you’re considering becoming a wholesaler or are a retailer seeking the best sourcing options, this knowledge will empower you in your ecommerce journey.