Benefits and Pitfalls of Wholesaling

pic3By Chris Wendel, Regional Director, MI-SBTDC

Finding the right market for your product can be easier than you think. For many the choice of selling wholesale to retail outlets trumps selling direct to the customer. Several years ago I worked for a company that had traditionally sold food products through retail stores and mail-order. The organization’s owner wanted to grow, but found the seasonal retail climate in northern Michigan limited sustainable growth potential.

My background previous had been in retail and collectively we put our heads together to see if future growth was profitable by shipping product out the warehouse door to other retailers. Our markups were substantial enough and the small plant’s capacity was large enough, that we pressed forward with the selling wholesale concept.

Next we sought out stores to sell to. The first vertical market was higher end gift stores that could feature cherry food products. We found that cherries were popular in virtually every corner of the country.

Here are some the lessons we learned along the way:

  1. There are all kinds of trade shows for your particular product. Find a vertical market that fits your product and then explore if that sector has a trade show though its trade association. In the case of our gourmet food products, we found three circuits of trade shows for gift and craft related stores, a perfect fit for our line.
  2. Selling primarily wholesale creates a potentially tricky cash flow game. You need the money in the beginning to purchase raw materials, pay for production labor, and fixed costs. Then once orders are placed, it could be as long as 30-45 days before you’re paid. A hint here is to accept credit cards, and even offer a small discount for those customers who use this method to purchase. This way the credit card company is waiting 30 days for payment, and not you.
  3. Be organized with order fulfillment, return, and customer service. Creating a system in the beginning that combines computer technology and order traceability will save time and money further down the road.
  4. Customer service is just as important with wholesale customers as it would be with a walk in retail customer.
  5. Establish good relationships with suppliers of raw materials and shipping materials. The wholesale business’ worst nightmare is having orders ready to ship and not having the materials to make or ship product.

Many businesses use a combination of retail and wholesale to effectively reach customers and reach their customers. It’s best to crunch the numbers to see if selling at lower margin wholesale prices can work best for your product and business.

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