How to sell wholesale: a guide for small businesses

Wholesale is when you sell your product to someone else so they can sell it on. It can seem like a bit of a scary beast if you’re new to it (especially things like understanding wholesale pricing), but it’s not as complicated as you might think.

Let’s take a look at the how wholesale might work for you the risks and downsides, and the different models of wholesale pricing.

Wholesale has its ups and its downs.

Sometimes people dismiss it because it always means you’ll make less of a profit margin than you would if you sold something yourself, directly to the customer. But…

There are good reasons to explore wholesale as a small business!

Wholesale makes perfect sense for smaller retailers:

Wholesale increases the volume you sell. 

And if you can sell more, you might find you can work out some economies of scale with your suppliers. As a general rule of thumb, the more volume you can do with a supplier, the better price they can offer you. And that helps with your margins.

Wholesale can be brilliant for your brand awareness and marketing! 

Just think about the exposure your brand is getting if you have your products in more places. Getting your products into more outlets (either in-store or online) increases your reach to your target customer. A word of warning, though. Choose where you place your products carefully so any wholesale partner is well suited to your own brand and shares values and a similar target audience. Think quality, not quantity!

Convinced that wholesale is worth a look? Great! Now what?

Sometimes small businesses are approached by someone looking for a wholesale relationship and if that’s you – hurray!

Lots of businesses don’t get approached, though, and that’s where you have to get proactive. Start by making a list of everywhere you’d really love to see your products stocked, then contact them. Make sure you keep every contact personal – in these days of mass communication we’re all pretty deft at spotting a bulk email straight away, so try to get the right name and tailor your approach to show that you’ve done your research.

Pricing and margin (AKA the tricky bit)

This is where it can be easy to trip up and get a bit confused, so let’s take it one step at a time and start off by explaining exactly what a few of these terms mean!

• Retail price is how much you charge your retail customers for your product. In most cases, this is also the price your wholesale partners will sell the product to their customers at.

• Wholesale price is what your wholesale partner pays when they buy your product from you.

• Markup is how we define the difference between your retail price and your wholesale price.

Here’s a handy example…

You make and sell beautiful mugs, selling them to your customers at £10 each (your retail price). Your wholesale partner also sells them to customers at £10 each, but they buy them from you for £4 each. The markup in this case is 2.5. Stay with me…

retail price / markup = wholesale price
£10 / 2.5 = £4

This is how merchandisers normally work with these numbers, but if you already know what you want to charge your wholesale partner but need to know what that translates to in markup… 

retail price / wholesale price = markup
£10 / £4 = 2.5

A few years ago, there was an industry ‘standard’ approach, meaning that markup would be set at around 2.5. This generally meant the wholesaler got a great margin when they sold your product, but it wasn’t so good for you.

I think this is changing

In recent years, the only way some of the high street can make themselves stand out from the crowd is by stocking at least some (if not many) unique small brands. The ball is back in your court!

So it’s time for you to work out what your minimum markup could be to make a profit. And don’t forget to build in any costs related to delivering your products to your wholesale partner!

The Flourish Wholesale Calculator helps with this!

Next? Negotiate!

Unless you’re selling a loss leader to help boost your marketing, you shouldn't be making a loss from wholesale. Remember that wholesale will take up your time (it’s not an easy quick fix), so you need to see the benefits.

I’ve worked with big high street retailers and had to tell them that their ‘standard’ wholesale terms are unworkable. I’ve guided those clients so they learn how to challenge those terms, leading to elements being removed or changed. Remember, that ball is in your court!

If you want to, you can also offer partners incentives for agreeing to bigger volumes, as this helps reduce your delivery costs and increases your turnover. Don’t ever lose sight of that minimum markup you calculated earlier, though. You’re better getting to that by selling more volume than by compromising.

There are different wholesale models out there.

• There’s one where your wholesale partner buys stock and that’s it.
  This is a simple one! They purchase stock from you and then have to manage anything that doesn't sell. There’s no risk to you! Or is there? It’s worth thinking about what might happen if they decide to sell your product at a lower price than you do, or if they promote it to clear. That might impact on your sales through other channels. 

• Some wholesalers prefer to work on Sale or Return (SOR).
  This means that if they don’t sell a product, you get it back. The downside for you is that you could get stock back at the end of the season, which you then have to sell or markdown. As this makes the risk to you higher, the wholesaler should get a lower markup. 

• Another option is drop shipping.
  This is where the retailer offers your product to their customers, but you fulfil the delivery (so make sure you factor that into your pricing so the markup works for you!). This option leaves the wholesale partner with minimal risk and no need to store the product, so markup should be lower.

So what do you think? Tempted?

Lots of people who talk about wholesale will tell you “you can’t go below this markup”, but I think that’s definitely shifting. The ‘big boys’ of retail now need smaller brands if they’re going to offer a point of difference (and what their customers actually want!). 

I’m actively encouraging my clients to negotiate with bigger businesses when it comes to markups and terms because often they find they get what they need to make it worthwhile. The same could be true for you, too.

Want to find out more?

If you want to find out more about making wholesale work for your business, book a Flourish Focus call or…

Check out the Flourish Wholesale Calculator →