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A wholesaler requires a license to sell his product to the retailer, and his product will generally not be available to the customer at the same price as to the retailer. This is because the retailer makes their profits by marking up the price they pay to the wholesaler. In the case that a customer wishes to purchase a product from the wholesaler he will be charged for a drop shipment, this charge being charged to the customer as well as the wholesaler by a drop shipping merchant.
Often a wholesaler is a specialist in one specific product, or in a category of products. Other wholesalers will offer a wide variety of products. In addition, the wholesaler can focus on one type of business for their products, or they can offer items for sale to anyone.
Wholesalers also differ from distributors in that they are typically not associated with a particular good, and therefore they are not likely to offer the higher service level or support often offered by official product distributors. This is because the wholesaler is rarely directly affiliated with the manufacturer they buy from and are unfamiliar with the specifics and intricacies of the products they sell. Wholesalers can also offer competing products, which is not the case for distributors.
If you are looking for a list of dropshipping suppliers, such as Salehoo or Spocket you may want to visit our article Best Drop Shipping Companies.
Image credits: Eddie Lobanovskiy
Quite a few business terms can be translated or used for different instances, especially when it comes to the wholesale marketplace.
For instance, a wholesale buyer could be a reference to an actual agent that negotiates between merchants and sellers in the wholesale market. However, you might also refer to a wholesale buyer as the merchant itself, considering that is the entity that is purchasing items from a wholesaler.
To start, we"ll talk about a wholesale buyer as a profession.
This would be an agent or unbiased individual who is supposed to negotiate deals based on market trends to make sure that both the wholesaler and merchant come out ahead. The reason these types of wholesale buyers exist is because a business manager most likely has many other tasks to complete. This takes the responsibility of understanding market conditions and pricing and transfers it over to someone who is more of an expert on the subject.
Wholesale buyers have a wide variety of other titles. For example, some people call them purchasing agents, while others call them sales representatives. And to make things even more confusing these types of jobs could actually be filled in-house by a merchant or wholesaler.
Overall it"s important to understand that a wholesale buyer could potentially be a third-party individual or employee who handles all wholesale research and transactions.
On the other hand, referring to a wholesale buyer could simply be talking about the actual company that plans on buying from a wholesaler.
Regardless of who is doing the purchasing, wholesale buying is one of the most common practices for obtaining inexpensive products to turn and then sell for a higher price. The basis behind wholesale buying is that a manufacturer, supplier, or wholesale company sells large batches of the same products to merchants. This means that the merchants have to have a certain amount of upfront capital in order to afford all of these items. However, it works to their advantage once they start selling the individual items, because they resell each product at a profit margin to either regular consumers or other businesses.
In general, the chain of sales works like this: a supplier or manufacturer sells large batches of goods or commodities directly to a wholesale buyer. The wholesaler then sells the products to the merchants. After the wholesale purchase, the merchant (whether it be an online store or a physical retail shop) puts a higher price tag on the individual products and sells them to the general public.
What"s Wholesale Price?
If you"re asking what a good wholesale price is, it completely depends on what you"re buying and in which industry.
However, the definition of wholesale price is much easier to understand without significant research into your industry. In short, the wholesale price is the rate charged by wholesalers or manufacturers or suppliers for a group of products. That collection of products will cost a significant amount of money for the merchant, but when you break down the pricing per unit, the wholesale price is only a fraction of the cost of retail price.
So, let"s say a merchant spends a thousand dollars for 100 units of shoes. The total of $1000 is the wholesale batch price, but the wholesale unit price would come out to $10 per unit. This is going to be significantly cheaper than the unit retail price. Now, let"s say the merchant marks his retail price per shoe at $50. That"s a profit margin of $40 per shoe when you subtract the retail price and the wholesale price. If the merchant were to sell all 100 shoes, she would make a total profit of $4000.
The reason the wholesale price is so much cheaper than retail price is because the retailer is providing a service to the consumer. That service may be knowledge of the products, the retail location, accessibility, or a wide variety of other things that make it easier for customers to gain access to certain products. On the other hand, the wholesaler can purchase products for cheap because it relies on volume to make its own profits.
The only way the wholesaler makes any money is if merchants are willing to buy large quantities of items. Otherwise, if the wholesaler sold single items it would be far more costly for them in the short and long term. If a wholesale company is purchasing from a manufacturer, the prices are only slightly marked up when turning around and selling to the merchants. But once the merchant receives the items and breaks them up into individual sales, the profit margins increase to maybe double the price or even more.
What is the Average Wholesale to Retail Markup?
This is a wonderful question, because your profits depend on how much your markup products from wholesale pricing.
There are several ways to figure out how much you should mark up your wholesale prices as a merchant. However, we will cover that in the section below. Under this question, we will outline how much retail and online stores mark up products based on industry.
As we explained a little bit in the previous section, a markup is the ratio of gross profit next to sales price. For example, if you have a product that costs you $5, and you sell it for $9, the gross profit ends up being $4. The $4 gross profit is also considered your product markup.
In the business world, there is no normal markup. Some industries, like fashion, are able to slap thousand dollar price tags on clothing that only costs a few hundred dollars. On the other hand, many retail shops like hardware stores and grocery stores are known for having extremely small margins– in other words, their markups are pretty small per unit.
If you"re curious about typical markups in different industries, let"s walk through some of the industries that have higher markups and some of the industries that have lower markups.
Jewelry is consistently one the highest marked up products in the world. You can read case studies about how diamonds and many other gemstones are virtually worthless until they get into retail stores. It would be rather uncommon to find a piece of jewelry that is not marked up at least 50% of the wholesale price. The clothing industry has a similar structure for marking up products. And it"s not just your top-of-the-line, high-fashion clothes. When you walk into Walmart, or any other budget retailer, those shirts and pants are typically marked up from 100% to 400%.
Even though margins are often slim in the restaurant industry, food is generally marked up about 60%. The drinks are even worse, considering they are very inexpensive to create. It"s not uncommon to see 400% markups on beverages. The slim margins can be attributed to the overall high costs of running a restaurant.
The pharmaceutical industry is known for having extreme markups. This typically ticks off most people who aren"t working in the pharmaceutical industry, considering markups have been known to go past 6,000%. Even the cheaper generic prescriptions see markups of over 1000%.
Technology is an interesting animal because some types of technology yield large profit margins. However, many tech companies, such as those selling cell phones, have trouble reaching markups of 10%.
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Many small businesses make their product-selling decisions based on which items can bring in the largest markups. That"s not a bad idea if you have limited capital and you"re just getting started with an online store. However, you shouldn"t rule out small margin industries, since with the right execution you can still make a significant amount of money. The only problem is that it"s often harder to get into those small margin industries.