Editor’s Note
This article provides a clear, concise definition of a wholesale business, explaining its role in the supply chain as the intermediary that sells bulk goods to retailers.
A wholesale business sells products in large quantities to retailers. Typically, wholesale products are sold at a discounted price. The retailer then sells them to end customers with a profit margin.
The wholesale business model has undergone significant changes lately, partly thanks to B2B wholesale marketplaces like Faire. These platforms have redefined possibilities for small wholesale businesses by increasing access to a global audience of buyers.
Whether you use a marketplace or your own ecommerce website, it is now easier than ever for wholesale businesses to sell to both individual customers and other retailers. You can create dedicated shopping experiences for all your customers, whether they are other businesses, resellers, or end consumers.
- Decide what wholesale products to sell
- Choose a supplier
- Obtain the necessary licenses and permits
- Establish a wholesale pricing strategy
- Create a B2B ecommerce website with Shopify
- Promote and sell your wholesale products
- Expand your team
Choosing a product niche can be overwhelming, but if you create some selection criteria, you can build a profitable wholesale catalog.
Consider the following product characteristics when choosing what you want to sell:
- Seasonality: For example, swimsuits sell better in summer, while coats sell better in winter.
- Profit Margin: If you buy coffee mugs for 2 euros and sell them to retailers for 8, your profit margin is 6 euros.
- Size and Weight: Selling small items like jewelry can be profitable, as they have lower shipping costs.
- Purchase Frequency: Items that need to be regularly restocked, like printer ink or pet food, can generate more stable income than selling products with a lower purchase frequency.
- Competition: If, for example, you sell handmade soaps and notice your competitors don’t offer lavender scent, you could make it your unique selling product.
Leverage your knowledge to find wholesale products. If you enjoy going to the gym, for example, you might come up with a good idea of what other athletes would like to buy.
If you don’t manufacture your own products, you will need to build relationships with wholesale suppliers. A stable wholesale business depends on reliable and consistent inventory. Retailers avoid wholesalers who cannot maintain stock of their customers’ favorite products.
When choosing your suppliers, consider the following factors:
- Diversify your supplier base: Don’t rely on just one supplier. Working with several ensures you have a backup if one fails to deliver.
- Choose the most reliable options: Choose suppliers with a good track record of on-time deliveries. Delays can disrupt your business and disappoint your customers.
- Look for quality: Ensure your supplier offers good quality products. Poor quality can damage your reputation and customer relationships.
Establishing fair rules with your suppliers is very important to ensure professionalism. For example, you could agree on delivery times, product quality checks, or what happens if there is a supply problem.
To do things correctly, legally, and avoid fines, it is important to apply for the necessary licenses and permits before creating a wholesale business.
Here are some licenses and permits you might need:
- Business License: A basic requirement for any business. It allows you to operate legally in your city or autonomous community.
- Sales Tax Permit: Also known as a resale license, you may need a permit to buy products wholesale without paying sales tax. When you sell your products, you will charge sales tax to your customers and then pay it to the government.
- Tax Identification Number (NIF): If you sell to other European Union countries, you must also include your VAT NIF.
- Specialized Permits: Depending on what you sell, you may need specific permits. For example, if you sell food products, you must comply with food safety requirements.
You can always consult an advisor or a government office to ensure you have all the necessary documentation in order.
Pricing strategies are crucial for profitability. Consider factors like cost of goods, competitor pricing, and desired profit margins when setting your wholesale prices.