Wholesale: Business Features, Pitfalls and Secrets of Success

What is Wholesale

Wholesale is the process of selling goods in large quantities, which involves reselling. It starts from the producers, and the end consumer is not the buyer, but another production or business.

Goods go a long way before they reach the buyer's hands. Large manufacturing plants rarely sell their products directly to retail customers. At least, it's not their main source of income.

It is much more profitable and convenient for manufacturers to cooperate with customers who purchase goods in large quantities. There is no need to spend fabulous money on advertising and organizing outlets, the income is more predictable.

Retailers, in turn, are also not always convenient to purchase products directly from the manufacturer. In this case, they have to worry about shipping and customs clearance.

Therefore, there is often another link in the producer-seller-consumer chain – the wholesale buyer. It helps the manufacturer to sell the products and the retailer to provide a wide range of products on a stable basis.

Wholesalers make a profit due to the difference between the purchase and sale price of a product. They are shouldered by the risks that retailers and manufacturers are trying to protect themselves from. This is not an easy business, in which there is no place for frivolous and irresponsible people.

How does wholesale trade work?

Wholesalers usually collaborate with several large suppliers – manufacturers and distributors. Their key feature is a wide range of products. For an average wholesaler, it exceeds 5000 items.

The more items a wholesaler is able to offer to retailers, the higher its competitiveness. Products can belong to different categories that are not related to each other in any way. Manufacturers from different countries are often present among the suppliers. Sometimes wholesalers also offer products of their own production.

The main functions of wholesale companies are:

• Search for goods and formation of a database of reliable suppliers. Wholesalers find manufacturers, establish cooperation, and draw up all the necessary documents, including customs declarations.
• Placement and storage of goods in our own warehouses. The received products must be checked, distributed, and suitable storage conditions organized.
• Sale of the assortment. The company supplies pre-order products to regular customers, and is also looking for new buyers.

Thus, both manufacturers and sellers benefit from cooperation with wholesalers.

For the former, it allows you not to scatter yourself among many retail companies, but to do business with several trusted partners. Bulk orders are the key to stable and predictable deliveries.

Retailers can't accurately predict how many items of a particular product they'll need at a given time. Therefore, manufacturers cannot be guided by them. They need to assess the level of demand as accurately as possible so as not to accumulate surpluses of products.

Production takes time – several months, or even a year. It is necessary to purchase raw materials, establish capacities, and set a task for the staff. Wholesalers, as a rule, place orders in advance, which means that the supplier can accurately calculate the volume of products produced.

Retail also benefits from cooperation with wholesale companies. Instead of negotiating with each supplier separately, organizing the delivery process, solving problems with payment, the seller cooperates with two or three reliable wholesalers. They provide a wide range of products at an affordable price, and also, if necessary, give a deferred payment.

Key Points of Wholesale Trade

The formula for success in wholesale sales is abbreviated AVLTPL: Assortment — Volumes — Logistics — Turnover — Planning — Loans.

Assortment

As we said, the more products a wholesale company offers, the higher its competitiveness. It is the wide range that distinguishes wholesalers from distributors engaged in the sale of products of the same brand.

The gradation by the number of positions looks like this:

• up to 200 items — narrow assortment;
• 200-1000 items — limited;
• More than 1000 is wide.

Volumes

If a wholesaler is not able to supply retailers with as many units as they need, they will find another partner. Therefore, it is necessary to strive to increase the volume.

The higher the volume, the higher the profit – provided that the work process is organized correctly. But there are additional risks. If a batch of goods cannot be sold on time, it will turn into a dead weight and begin to bring losses.

Delivery (logistics)

Organizing delivery is one of the most difficult points in the work of a wholesale company. It is at this stage that problems most often arise.

It is necessary to establish contacts with customs, conclude contracts with transport companies, organize the storage of goods, make sure that employees in warehouses do not steal and conscientiously perform their duties. All this requires colossal costs and efforts.

Wholesalers usually work with large volumes, so the warehouse must not only accommodate all the ordered goods, but also have a margin of space in case of force majeure. If part of the batch cannot be sold on time, it will delay the delivery of new goods.

When forming the assortment, seasonality must be taken into account. If you sell only summer goods, the warehouse will be empty for most of the year, and in the high season it will no longer be able to cope with the load. Therefore, wholesalers try to distribute the load evenly throughout the year.

Turnover

The higher the turnover, the more profit the wholesaler makes. Ideally, the product should not stay in stock at all. Any delay incurs additional costs and reduces the potential income.

The financial resources of the wholesaler are limited. If he has put all the money into circulation, it will be possible to buy new goods only after the old ones are sold.

Planning

In wholesale, the factor of the future plays a huge role. The wholesaler must organize the work in such a way as to provide partners with goods on demand. Competent planning in this area is indispensable.

The main difficulty is that the wholesaler is very dependent on suppliers. It takes time for the manufacturer to manufacture the product and deliver it to its destination. Therefore, it can take several months between placing an order and receiving the finished product.

The retailer doesn't care much about these issues. He will cooperate with the company that will provide the necessary volumes "here and now".

Loans

A large wholesale business requires serious financial injections. Quite a lot of time passes between buying and selling – the invested money is returned with a delay. Lending allows you to reach the required turnover faster and establish the normal operation of the company.

But in order to receive loans on favorable terms, you need to prove the ability to sell the goods on time. With a good reputation of the wholesaler, the manufacturer can act as a creditor, providing a deferred payment.

But we must not forget that retail partners often count on a postponement. Therefore, the issue of competent planning and distribution of finances is the most acute. Large companies hire experienced professionals who are able to ensure uninterrupted operation in such difficult conditions.

However, situations when customers have not fully paid for the delivered goods, and it is time to make a new purchase, are not uncommon. The wholesaler's task is to keep them to a minimum and avoid large cash gaps.

Otherwise, you can get into a vicious circle:

• the customer does not pay for the shipped goods on time;
• the wholesaler does not have enough money to purchase a new batch in full;
• retail does not receive the necessary products;
• Profits are falling.

With each cycle, the situation gets worse.

How to Start a Wholesale Business

If, despite all the pitfalls, you have decided to become a wholesaler, our simple instructions will help you. Follow the steps sequentially, paying enough attention to each of them.

Market Analysis

In order for a business to be successful, you need to have a good understanding of how the market works and what trends prevail in it today. Without this, it is impossible to develop an adequate strategy and plan the first steps.

Choose a niche responsibly. Do not immediately chase a wide assortment, you can diversify it later. To get started, decide on a key area and focus on it.

1. Gather as much information as possible — how things are going in the chosen niche today, whether there are any prospects, what difficulties market participants face, what awaits the industry in the near future.
2. Study future competitors — how they form prices, where they look for customers, what benefits and bonuses they offer. Assess whether you can compete with them.
3. Decide how much money you are willing to put into circulation at the start. In further calculations, proceed from the adopted budget.

If you plan to invest a lot of money in the project at once, we advise you to contact professionals for analysis. This will reduce the risk of being left with nothing after six months of work.

Sourcing

Once you've decided on a niche, start looking for suppliers. The lowest prices are offered by manufacturers, so first of all, study the terms of cooperation with them.

However, price is not always the determining factor. Sometimes it is more profitable to cooperate with distributors than with manufacturers. Even though the prices of the former are higher.

Distributors can offer more favorable delivery conditions or provide a deferred payment. Therefore, always evaluate the offer from all angles and only then make a decision.

Warehouse rental

Not every novice wholesaler has his own room for storing goods in his arsenal. Therefore, you need to find, rent and prepare a warehouse.

When choosing, consider the following characteristics:

• Location – the closer the warehouse is to suppliers and prospective customers, the better;
• the area of the room - it should be enough to place all the goods, as well as quickly find and ship them;
• the size of the gate – vehicles must be able to enter and leave the warehouse freely;
• Availability of the necessary equipment.

If you are going to sell food, make sure that the warehouse allows you to organize suitable storage conditions.

Delivery organization

Depending on how far away the suppliers are, there may be different shipping options. The most difficult thing is to organize the import of goods from abroad. You will have to deal with customs, which introduces additional risks into the work process.

After receiving the goods, the wholesaler arranges delivery to the buyers. You can deliver goods with your own truck or hire a driver with a car. Another option is to enter into a contract with a shipping company.

Selection of personnel

The staff is selected based on the size of the company, turnover, and the specifics of the product. The larger the turnover and assortment, the more numerous the staff should be.

The main employee who ensures the interaction of the business with retailers is the sales representative. His responsibilities include the formation of a customer base, the conclusion of supply contracts, monitoring compliance with agreements and resolving disputes.

Also, the wholesale company needs drivers, accountants, freight forwarders, warehouse employees. We advise you to hire qualified and experienced workers. This will minimize control over the team.

We have presented a simplified algorithm for launching a wholesale business. Depending on the chosen niche, the size of the start-up capital, and the previous experience of the entrepreneur, the steps may vary.

This scheme involves significant investments at the start. Not every novice entrepreneur has enough money to rent a warehouse, purchase a large batch of goods, or hire several employees.

Is it possible to start a wholesale business from scratch with minimal investment? We addressed this question to the expert.

"Are there options with minimal investment? Yes.

The first option is to find suppliers of goods and work on 100% prepayment.

The second option is to become an official representative of a manufacturer or a large importer. The costs in both options are less than when purchasing the goods. To launch, you will need product samples or catalogs.

Principles of Wholesale Success

To quickly achieve success in your chosen field, you need to learn from other people's mistakes and avoid your own. Because they can cost a lot to the wholesaler.

Therefore, from the very beginning, try to get it right. Learn the seven principles of successful wholesaling that will give your business a competitive advantage.

• Close interaction with the client

The task of a good wholesaler is not just to ship the goods to a partner and bow out at that. He must think about how to help the client sell the received products more profitably and quickly. Then the probability that the customer will apply for a new batch will increase several times.

Delve into the work of customers, study their strengths and weaknesses, and offer individual terms of cooperation. The focus should be on the interests of end consumers, because the profits of both retail partners and yours depend on them.

• Flexible pricing system

An individual approach is also used in pricing. As a rule, the more goods a customer orders and the longer the firms are partners, the lower the price is set.

Other factors are also taken into account - in each case, there can be more than ten of them. Be ready to meet the needs of regular and reliable customers by offering discounts and other pleasant bonuses.

• Submission of all required documents

You should have all the necessary documents ready: invoices, declarations, contracts, receipts. Provide them to the client upon request. Then he won't doubt your good faith.

• Strict compliance with the terms of the contract

Take responsibility for your duties – do not miss the delivery deadlines, comply with the agreements. If you are at fault for the problems, be prepared to compensate your partner for the damage.

Wholesalers, as a rule, work with a base of regular customers. The loss of at least one of them can result in serious losses.

Challenges Faced by Wholesalers

And now let's talk about the typical problems that accompany the wholesale industry.

• Lack of trust on the part of creditors

It can be difficult for wholesalers (especially beginners) to get a loan on favorable terms. Because of this, there are situations of lack of funds. For example, when the previous batch of goods has not yet been paid, and it is already time to order a new one.

Such cash gaps occur most often due to improper planning — the wholesaler ordered goods in excess, did not take into account seasonality, etc.

Lenders are more willing to cooperate with companies that have proven their reliability and solvency. Therefore, the wholesaler should carefully monitor his reputation.

• Customer Volatility

Retail sales cannot always be predicted with high accuracy. It happens that one careless statement by a politician leads to a sharp jump or, conversely, a drop in demand for a particular product.

Let's say that the demand has skyrocketed and the customer wants to get more products than they originally ordered. In this case, the wholesaler is forced to either refuse him, or reduce supplies to other partners, or negotiate with the supplier to increase volumes.

The latter option is not always available, as it usually takes several months to produce the goods.

The opposite situation is that demand has fallen sharply, and the retail partner refuses some of the products. And the wholesaler has already placed an order with the supplier and may even have paid. This means that he will have to urgently look for new customers so that the goods do not hang as dead weight in the warehouse.

• Supply Issues

A wholesaler is an intermediary between the manufacturer and the seller, he depends on both parties. Problems can arise with any of them. For example, the supplier failed to deliver the required quantity of goods on time, and the customer is waiting for the entire batch.

Also, difficulties often arise at the stage of delivery. The manufacturer completed and shipped the order, but there were problems during transportation: the vehicle had an accident, the cargo was detained at customs, etc.

Supply issues are more damaging to businesses than customer volatility. They jeopardize the trust of partners and can lead to the termination of lucrative contracts.

• The Human Factor

All people make mistakes, but some mistakes are very costly. Wrong choice of assortment, miscalculations at the planning stage, inadequate pricing - these factors lead to serious losses.

For small business players, they are not as critical as for large companies. But everyone should avoid them.

Incorrect forecasting of customer demand is especially painful for business. Mistakes at this stage lead to the formation of illiquid assets, which gather dust in the warehouse for months, taking up space. There are problems with financing new supplies.

Another problem associated with the human factor is the departure from the company of the main salesperson, who opens his own business and "steals" regular customers. Such situations happen quite often.

How to Increase Wholesale Sales

Below, we'll list a few ways to increase sales. To begin with, determine what kind of effect you expect — one-time or systemic. The choice of methods depends on this.

One-off methods

Wholesalers use them when they need to sell a specific batch of goods. For example, when a customer cancels an order.

• Cold calling

The method is popular among both wholesalers and retailers. An employee of the company calls potential clients with whom the company has not previously cooperated.

Before that, it is advisable to draw up a portrait of the prospective partner - find out his preferences, problems and prepare a special offer.

The reward system works well. Offer a potential client one or more bonuses:

• partner discount;
• discount card;
• Gifts for the order, for example, several units of the delivered goods, free samples of products, souvenirs with the company logo, etc.

Be prepared for the fact that the person on the other end of the line will not want to make contact. A manager should be able to talk to a potential client, win him over.

• Online Newsletter

Current and potential customers are sent letters with a detailed description of the offer, a catalog of goods, and a price list. The larger the address base, the more likely it is that the method will succeed.

The main problem is that many people perceive such emails as spam and do not even open them. Your job is to make them as personalized as possible.

• Optimisation of advertising costs

Analyze the marketing methods you use in the company. Perhaps some of them do not bring the desired result. Then it makes sense to redistribute the budget in favor of more efficient methods. Or even reduce it in order to put additional funds into circulation.

System Methods

If your goal is to increase sales in the long run, consider the following methods.

• Sales Automation

The process must be streamlined and thought out to the smallest detail. The fewer actions that need to be performed manually, the lower the impact of the human factor. Therefore, large wholesalers prefer automated systems that simplify the interaction between managers and customers.

When choosing a ready-made solution, pay attention to the following features:

1. keeping records of goods in the warehouse;
2. processing of documents;
3. maintaining a customer base;
4. control of financial transactions;
5. Synchronization with the online store.

If you shift some of the functions to an automated system, managers will have more time to perform tasks that contribute to increasing profits: finding new customers, expanding the assortment, negotiating with creditors.

• Optimisation of staff work

The success of a company, especially a large one, largely depends on the qualifications and experience of the staff. Therefore, take a responsible approach to the selection of employees.

Experienced wholesalers advise recruiting people who have already dealt with the products presented in your assortment. They know the needs of consumers and the specifics of the products. Such candidates can be found, for example, in retail sales.

Another promising source of staff replenishment is competitive firms. But be careful with them. Spies may be hiding under the guise of employees who have defected to you. You need to be sure that you are offering better conditions and that the person will not want to return to the same place after a couple of months.

Consider candidates who have experience in related industries as well. It is easier to train them than complete beginners.

How to work effectively with your customer base

In addition to the above ways to increase sales, properly built work with the customer base helps. For years, a wholesaler has been forming a list of loyal customers, spending time and effort on this.

It is easier and more profitable to work with regular customers – you have managed to make sure of each other's responsibility and reliability.

If an entrepreneur has purchased something from you, it is easier to convince them to make a repeat purchase. Of course, provided that the cooperation went smoothly and there were no unpleasant moments.

Therefore, a wholesaler should always keep their reputation in mind. Conscientious work is the key not only to current profits, but also to future ones. If the loss of one or two customers is not critical for retail, then for wholesale sales it can turn into serious losses.

The following tips will help you work more efficiently with your customer base.

Build a portrait of your ideal customer

Who is your ideal customer? Try to answer this question in as much detail as possible.

Think about which of your current clients you were pleased to work with, highlight their main features. When developing sales proposals, focus on such buyers, try to meet their needs in the best possible way.

Universal offers, although convenient, are not able to increase sales efficiency in the face of fierce competition. Customers appreciate an individual approach.

Also analyze problem buyers – what causes the most problems when interacting with them. Weigh the profit they make against the costs. Perhaps it is more profitable to part with some of these clients than to continue to cooperate.

Establish a system of interaction with customers

If you want customers to become your loyal customers, it's not enough to just supply them with a product. You need to establish a useful and fruitful interaction.

Customers appreciate partners who care, help solve problems, and demonstrate interest in cooperation. Your focus should be on the priorities and needs of your customers.

Stay in touch between orders with the help of online newsletters. Inform customers about the replenishment of the assortment, special offers, price reductions. It's also a good idea to add thematic materials, useful tips on doing business, increasing sales, etc.

We recommend calling customers from time to time, reminding them about themselves, asking how things are going. This should be done unobtrusively and delicately so as not to provoke a negative reaction.

Develop an individual pricing policy

When setting prices, try to take into account as many indicators as possible. The fundamental factor is the volume of orders. Customers who buy goods in large quantities can count on a discount.

Also, take into account the reliability of your partners. Reduce prices for customers with whom there have been no problems during a long period of cooperation.

If you want to expand your customer base, offer bonuses and discounts to potential buyers. In this way, they will be more willing to place an order and join the ranks of regular customers.

When forming a pricing policy, consider the possibility of granting a deferred payment. Customers appreciate it when affiliates step in and allow late payments.

However, we must not forget about our own interests. If the postponement leads to cash gaps and slows down the next deliveries, you should politely refuse. Make indulgences only if it does not provoke problems in the future.

Improve service

Many entrepreneurs underestimate the impact of service on customer choices. Sometimes quality service is more important than low prices. Wholesalers who rely on high-quality service win the competition.

Adopt the principles of good service.

• Accessible and up-to-date information about the assortment

The customer should not waste time searching for up-to-date information about the product. Make it accessible. Place catalogs on the Internet and update the data in a timely manner. This will save time for both you and your customers.

• Additional Bonuses

As we have already said, a low price does not always play a key role when choosing a partner. Of course, there are customers who are ready to endure any inconvenience just to buy cheaper. But you shouldn't focus on them.

Such customers cannot be retained. If they are offered a lower price somewhere, they will leave.

Think about what the right customers pay attention to and what you can get them interested in. For some, for example, it is convenient to place orders on weekends. If organizing such a schedule is not a problem, why not meet the needs of a valuable and collaborative customer?

We have considered in detail the principles of organizing wholesale sales, listed the problems faced by wholesalers. This is not an easy business that requires careful planning. However, with the right approach, it can generate good profits and grow steadily.