Understanding the lexicon of wholesale is imperative for any entrepreneur seeking to learn the ins and outs of business-to-business (B2B). In your journey to learn more about B2B commerce, you will have come across the term “wholesale” and have heard of the business model of buying or selling in bulk.
Now, what does wholesale really mean? In the following article by Ecommerce Pro, we explore wholesale, its definition, its benefits, and all the important terms you need to get familiar with in order to fully comprehend wholesale.
Whether you're a seasoned retailer or a new entrepreneur, this exploration will help you understand the topic and shed some light on wholesale.
What is Wholesale?
To understand wholesale, you need to take into consideration two points of view from both ends of the supply chain, the supplier and the retailer.
For retailers buying wholesale means buying products in bulk for a lower wholesale price. Afterward, you would stock these products in your store and resell them to the end-users at a marked-up price. Wholesalers typically provide discounts to retailers who buy in bulk.
From the point of view of the manufacturer or supplier, wholesaling means selling your products in bulk to a middleman or directly to the retailer. It's important to note that wholesalers are not always the manufacturers and are sometimes middlemen.
Types of Wholesalers
There are 3 kinds of wholesalers to take note of:
- Merchant wholesalers: Merchant wholesalers handle the entire wholesale process. They buy bulk from suppliers or manufacturers, manage imports, stock inventory, offer competitive pricing to retailers.
- Agents, brokers, and commission merchants: These wholesalers act as intermediaries for manufacturers that don't directly sell their products. These middlemen find retailers on behalf of the manufacturers and earn commissions from their sales.
- Manufacturers: Sometimes manufacturers also house their own sales force of wholesalers that sell directly to customers and retailers.
The Benefits of Buying Wholesale
These are the benefits of wholesale from the point of view of the retailer buying in bulk at wholesale prices:
- Save Money: The primary and most obvious reason to buy wholesale is that you can save money buying in bulk with discount prices.
- Increase Profit Margins: A point directly related to the one mentioned above, buying wholesale allows you to enjoy higher profit margins. Since you buy products at a low price, you can set competitive retail prices to attract more customers and increase your profits overall.
- Diverse Product Selection: Wholesale suppliers and manufacturers usually offer a wide selection of products, which lets you select products you believe will appeal to your target customers.
The Benefits of Selling Wholesale
These are the benefits of wholesale from the point of view of a supplier who sells products wholesale:
- Better Bargains: As a supplier, you are in a better position to conduct price comparisons while you engage with multiple merchants/manufacturers. This means you can procure your products at the best rates, also giving yourself a substantial profit margin when you resell to retailers.
- Swift Market Entry: You’ll be in a better position to understand what products are on demand and trending because you deal directly with manufacturers and retailers. Keeping an eye on trends allows you to get in on the hottest products that are currently in demand.
- Long-Term Client Relationships: Wholesaling allows you to establish long-term B2B relationships. This means that selling wholesale is a great source of recurring and predictable revenue.
Wholesale Glossary of Terms:
Talking about wholesale can get confusing, especially if you aren’t familiar with the terms. We’ve compiled, in alphabetical order, a glossary with clear definitions for 15 words and terms you’ll often hear when dealing with wholesale buyers and sellers:
- Back Orders: When a retailer makes an order for a product that is temporarily out of stock.
- Bulk Discounts: A cheaper price offered to customers who buy a large quantity of a product.
- Buybacks: This allows manufacturers or suppliers to buy back unsold inventory that was sold to the retailer, usually at a lower price than what the retailer paid for.
- Consignment: A consignment deal is an agreement in which the retailer pays for products only after they are sold.
- Dropshipping: An ecommerce business model in which the retailer keeps no inventory, but deals with a wholesaler who handles shipping and inventory.
- Exclusivity Agreement: A contractual agreement entered upon by the retailer and wholesaler that grants the retailer exclusive access to sell certain products within a specified region or market, effectively reducing competition.
- Inventory Management: A multifaceted process that involves effectively managing raw materials, product ordering, storage, and use. This process is crucial to wholesalers.
- Lead Time: How long it takes between a retailer placing an order with a wholesaler and the delivery of the ordered goods.
- Minimum Order Quantity (MOQ): Wholesalers set an MOQ, which is the quantity of stock you need to order to get access to wholesale pricing.
- Minimum Order Value (MOV): Similar to MOQ, but this time in reference to total order value in terms of price and not quantity.
- Manufacturer's Suggested Retail Price (MSRP): The price suggested by the manufacturer for retailers to sell a product to end consumers. This suggested price is optional.
- Net Payment Terms: A mutually agreed payment term that allow retailers to make payments after receipt of invoice. Net 30 means that a customer has 30 days to settle their payment. Common terms include 30, 60, or 90 days, and so on.
- Purchase Order (PO): A document sent by the buyer to the wholesaler detailing specified items, quantities, prices, and net payment terms. A PO is a legally binding document and contract that the supplier enters into when they accept the purchase order.
- Wholesale Only: Suppliers who deal exclusively in business-to-business (B2B) and not individual consumers (B2C).
- White/Private Labeling: Private label products are products a retailer sells with attributes of their own brand name and logo. The product is typically produced by a manufacturer following guidelines for labeling and specs.
Sell Wholesale on Shopify Plus
Shopify, one of the world’s leading ecommerce platforms now offers a B2B solution for wholesalers through Shopify Plus.
Shopify Plus is packed with B2B capabilities, allowing you to customize the end-to-end experience for each buyer, fully equipped to help you grow and run your wholesale business, with tools optimized for customization.
B2B on Shopify now features a plethora of built-in features designed for everything wholesale, helping you manage everything from company profiles, net payment terms, to easy reorderings, and so much more.
Ready to upgrade to Shopify Plus? Talk to a Shopify Plus expert today.
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