What Is The Wholesale Business Model Meaning?

Source: DHgate, Tag: E-Commerce Tips

You've probably heard of wholesaling, but what does it actually mean? Find out the true definition of the wholesale business model.

• The wholesale business model has been around since time immemorial. With the advances in technology and globalization, there have been some remarkable changes . The business model is run differently. It is now easier to sell goods across regions that are thousands of miles apart.
  Wholesaling is a concept that many business people are familiar with. Many of those with ambition want to give it a try. The comparison has always been between a wholesaler and a retailer. But as we will come to see, there are different kinds of wholesalers as well. We will elaborate on the wholesale business model. You will find insight into how you can carve your way to success.

So what is wholesale? Simply put, this is the practice of buying products from the manufacturer or producer in bulk. Wholesalers can buy these products as complete goods or while they are at a certain stage of manufacturing. The next step to follow depends on the kind of wholesaler in question. All in all, the wholesale business model then resells the products that they have acquired at a profit. A wholesaler can either sell the goods they purchased to another business or they can sell it to the final consumer in bulk and at wholesale prices.
If you want to have a look at how the wholesale business works online, check out the wholesale website DHgate.com. Here, you will find a variety of products from different manufacturers. You can benefit a lot if you want to make wholesale purchases or create connections with manufacturers in China.
Wholesale Distribution
Wholesale distribution involves the process of getting the products to the next buyer or the final consumer. The wholesale distribution chain will depend on what type of wholesaler you are and the market you are operating in. The distribution chain can be short or long depending on how many intermediaries there are between the wholesaler and the final consumer or the retail sellers.
Wholesale distribution can involve a host of other processes more so for the businesses that buy partially processed goods. This is because there are further steps to take before coming up with the consumable good. The process involves sorting and grading, repackaging, branding and then selling.
But let us break it down. The process of wholesale business really starts at the production level. This means that as a wholesaler you will deal closely with the manufacturers and producers and sometimes even directly. The process of production needs raw materials. Often, the raw materials will be acquired in bulk by the manufacturer and this is actually the other side of wholesaling that the final consumer doesn’t really get to experience. Once the products have been processed out of the raw materials, the manufacturer then sells them to the wholesaler. The wholesaler can be a distributor or a merchant wholesaler.
Merchant Wholesaler
Merchant wholesalers have access to consumers and the buyers here have the advantage of acquiring products at competitive prices. This is unlike the broker wholesaler who goes ahead to sell to a retailer. The retailer then has to impose another profit margin while selling to the final consumer.
As a merchant wholesaler, you have to buy the goods in bulk and then sell them in smaller quantities to the consumer. You might have to do some repackaging work as well because you acquired the large quantities from the manufacturer but the final consumer needs just a part of it. A successful merchant wholesaler is one who really understands the nature of the market and its product. The merchant wholesaler has a lot to consider when buying goods and selling them. This includes, but is not limited to the timing, the prevailing demand versus supply dynamics and the production constraints. This enables the merchant wholesaler to be abreast of the developments on the market regarding their product of interest. These factors will determine the pricing. They are also a guide on how much you should acquire from the manufacturers. You definitely don’t want to buy a lot of products and end up having them on the shelves for the next ten months.
As we mentioned, there are also wholesale brokers who are part of the business. But they don’t necessarily own a product. They are simply intermediaries between the buyer and the manufacturer. The brokers have good networks and they know the right places to find the consumers. They then negotiate terms on behalf of the manufacturer. In return, the manufacturers and suppliers pay them on a commission basis depending on the sales that they actualize.
Dropshipping
In this era of technology, this discussion would be incomplete if we don’t mention drop shipping. Dropshipping is now a popular business model which brings together manufacturers and consumers. It is simply an order fulfilment model where the manufacturer delivers the goods needed by the consumer through the dropshipping agent. The dropshipping company has the task of finding and establishing a customer base and then presenting to them what the manufacturer has to offer. The drop shipping companies usually involve a wide variety of products in their inventory although some have made the choice to be dedicated to a specific line of production.
In terms of the area covered, some drop shippers have worldwide bases whereas others choose to be confined to a specific region. It is seen as a flexible business model that is appealing to those who don’t want to keep the actual stock but are ready to go all out and search for buyers. Although it is associated with low risks, dropshipping can come with low margins and sometimes errors can occur in the supply chain. It is however a good venture and the more you sell, the higher your income and the more you build your brand.
If you are thinking about wholesaling, it would be prudent to do some research on dropshipping. See if it suits your region and you can always test if the business model is working. The advantage of dropshipping is the convenience it brings. You can test it out without getting huge losses and where you feel there is a gap, you can make the necessary amendments or try a different venture altogether. Wholesaling is evolving and dropshipping might just be the beginning. We might see more similar models coming up in the future.
Wholesale Pricing
Just like with any other business, pricing is an important part of wholesaling. You need to know what price tags to attach to your goods so that you don’t get losses and you keep those buyers coming. It is a delicate balance that every player in the wholesale business needs to understand. When you get the pricing right, you will be in the game for a long and you will have an opportunity to grow. One thing to note however is that these prices are not solely dependent on you. There are external factors that will come into play. The manufacturers will be affected by such factors as the availability of raw materials whereas the retailers will be looking at the consumer dynamics. Inflation will cut across all the players involved.
So how then are you going to price your products to get a reasonable profit?
Cost Of Production
The first thing that determines the price of your products is the cost of production and the raw materials. This will be exhibited in the way the manufacturer prices the goods. You will buy at a price that is influenced by the raw materials. If the materials become scarce, you can be sure that the prices will start soaring and this is where you need to get to persuade your buyers. The buyers will always complain when the prices are going up and if it is something they can do without, they will forego it. However, if it is a crucial product to them, they will still have to make purchases but not necessarily from you. Buyers will be looking for the cheapest option available on the market. Here you need to play your cards right. This is where the choice of the manufacturer will come in. If the products you are selling are known to be good quality, you will still find the buyers placing orders. Sometimes all they need is justification.
Prices By Rivals
The second point to consider is of course the pricing of your competitors. Buyers are attracted by lower prices and you need to study your competition if you want to be successful in the wholesale industry. Sometimes you might need to sacrifice and be contented with thin profit margins so that you can keep the loyal client base. At a time when production costs go high, you may need to make only subtle adjustments to your pricing. In the long run, you will have more customers and though the profits might be little, cumulatively you will be making a fortune. The best thing to do is always understand your environment in the wholesale industry. Go with the trends but you may have to take some leaps if you want to achieve extraordinary outcomes.
Operation Costs
Operation costs are also worth considering in the wholesale pricing. When you buy goods in bulk, you will definitely need the labour to unpack, repackage and distribute. If this is the case, it means these costs have to reflect on your pricing. You don’t want to make the prices go over the roof. Wholesalers have therefore devised methods of cutting the costs of labour that is involved in the preparation and distribution of the product. There has to be efficiency at every level so that minimum resources are utilized to produce the optimal outcomes. Wastage of resources might reflect badly on the ultimate pricing and wholesale should not be about filling up the gaps and transferring the burden to the consumer.
Hidden Costs
Still, on pricing, we need to consider the hidden costs that can come up along the way. This includes things like the loss or destruction of the product. Needless to say, not all products you acquire from the manufacturer will reach the warehouse or the retail store. There are bound to be losses along the way. When you get the average of these costs, you can then come up with suitable ways of covering up for the losses. But there is a need to prevent them from occurring so that you only get in significant losses. Ensure the products are packaged well while in transit and use trusted courier and transportation services. Sometimes the initial investment might be high but it is all worth the money if it reduces the losses.
Venturing in Wholesale
Do you want to try your hand at wholesaling? That will be a good thought because this is a sustainable business model as long as you get the basics right. To get you started, you need to have a few things in order.
The first thing you need is to identify your target market. This is a process that involves quite a bit of due diligence. You need to look around and find a gap that needs to be filled in the market. Once you have a viable idea, you can then go ahead and establish the networks with your customers. You will choose what kind of wholesaler you want to be from the ones previously discussed. If you want to be a merchant wholesaler, look out for direct consumers. If you want to be selling on a B2B model, then you need to find the retailers and other wholesalers who are interested in the products you want to sell.
Once the target market has been identified and the networks are in place, you need to come up with a pricing model that is effective. Have a plan on when to buy what kind of products, the discounts you need to offer to appease buyers and the ways you will use to keep making profits. This should also involve a backup plan in case the first plan fails or things don’t go as planned along the way. And do not forget to get your paperwork in order. Make sure you have met all the regulations of the authorities in your area and you have the licenses required. If you are making imports and exports, read the policy associated with these processes so that you are not caught on the wrong end of things.
The wholesale business model is an operational model that has stood the test of time. It involves a number of facets but works really well if you have a plan. With this guide, you will have a better understanding of how it works and get the insight to give it a try.