Wholesale Buying for Small Stores

What wholesale means

Buying wholesale means purchasing goods in quantity at a price below the normal retail price, then reselling them. The seller you buy from might be the maker, an importer or a distributor. Because they sell in volume to businesses, they offer lower unit prices than they would to individual shoppers, and in return expect larger or repeat orders.

For a small store, wholesale is a main source of products, but it differs from buying as a consumer in several practical ways.

Getting access

Many wholesalers sell only to businesses and ask you to apply for a trade account. They may want to see:

• Your business name and contact details
• Proof that you are a genuine retailer, such as a store website or a business registration
• Tax identification or a resale certificate where your location uses them for resale purchases
• Details of how and where you sell

Requirements vary by supplier and place, and rules about tax on resale purchases differ, so ask the wholesaler what applies and keep your records tidy. Your choice of business structure may also affect what documents you can provide.

Minimum orders

A minimum order quantity is the smallest number of units a supplier will sell in one order. Some wholesalers set a minimum per product, others a minimum total spend per order, and some use both. Some sell only in set packs or cartons, such as a dozen at a time.

Minimums protect the supplier’s efficiency, but for a small store they are a main source of risk, because they force you to commit money before you know how well the product sells. Ways to handle them:

• Ask whether the minimum is flexible for a first order or a trial. Some suppliers allow smaller starter orders, perhaps at a slightly higher unit price.
• Look for suppliers with lower minimums, even if the price is a bit higher.
• Combine several products to reach a total spend minimum rather than buying deep in one item.
• Share large orders with another seller, if the supplier allows it.

Pricing and quantity breaks

Wholesalers often publish tiers: the more you buy, the lower the unit price. This looks attractive, but a lower price per unit is only a saving if you sell the extra units in good time.

A hypothetical example, with invented numbers: you could buy 20 units at $10 each, costing $200, or 50 units at $8 each, costing $400. The second option has a lower unit cost, but requires $200 more cash, and 30 additional units to sell. If you sell the first 20 units in a month and the remaining 30 take six months, the extra cash has been tied up for a long time. If some never sell, the saving of $2 per unit disappears quickly.

Now suppose the retail price is $20. At $8 cost, the gross margin per unit is $12, or 60 percent of the price; at $10 cost it is $10, or 50 percent. These figures exclude fees, shipping, advertising and returns, so your real profit margin will be lower. Always test a bulk price against your expected sales pace, not only against the unit cost.

Trade terms

Terms describe how and when you pay, and other conditions of the sale.

• Payment on order. Common for new accounts, with no credit given.
• Deposit and balance. Part paid up front, the rest before shipping or on delivery, common with made-to-order goods.
• Credit terms. Some wholesalers allow payment after delivery, for example in 30 days, once you have built a record with them. Credit eases cash flow, but missing a due date can damage the relationship.
• Shipping and incidentals. Find out who pays freight, whether there are handling fees, and who is responsible for goods damaged in transit.
• Returns and defects. Ask whether faulty items can be replaced or credited, and whether unsold stock can be returned or exchanged.
• Price changes. Check how long quoted prices hold, and how much notice you get of increases.

Get terms in writing, and keep the paperwork with your bookkeeping basics.

Vetting the wholesaler

A low price is not enough. A wholesaler who ships late or sends the wrong items causes the same problems as any unreliable supplier. Apply the checks in the article on supplier vetting: confirm who they are, order samples, test communication and start with a small order. Be careful with sellers who promise unusually low prices or ask for unusual payment methods.

If you want to resell branded goods, confirm that the wholesaler is an authorized source, since unauthorized or counterfeit goods carry legal and reputational risks.

Planning your buying

Good wholesale buying balances price, cash and demand.

1. Know your numbers. Estimate sales per week for each product, based on actual history where you have it.
2. Count lead time. Take the supplier’s delivery time into account when deciding when to order; the reorder point method is built for this.
3. Protect cash flow. Avoid spending so much on stock that you cannot pay other costs. Spreading orders across suppliers and time can help.
4. Spread risk. Do not put everything into one product or one supplier.
5. Track what sells. Review results regularly, and move slow stock before it turns into dead stock.

Is wholesale right for you?

Wholesale suits sellers who can afford to hold stock, want control over fulfillment and customer experience, and are ready to manage inventory. If you have little capital or are unsure what will sell, a lower-commitment route may be a better starting point. Whichever you choose, begin with smaller orders, learn from results and increase quantities only when your sales support it.