To a consumer, a retail price is just about right. After all, a consumer only buys a piece or a pair of a product. But to a business person, even the small difference between a retail and wholesale price can make a huge difference in profits.
But what is wholesale? And where you can you find products sold at wholesale prices?
Here, we will take a look at why there are wholesale prices, examples of places where you can find them, and see how you can make huge profits by buying in bulk.
Why are there wholesale prices?
Wholesale typically comes from manufacturers and distributors. They are sold to bulk buyers, who are called retailers. These retailers will take the risk of selling these products piece by piece to end consumers.
This set-up is important for an economy. A manufacturer does not have the resources to distribute the goods to the end-consumer.
For example, you may be a manufacturer of processed and canned milk. As a manufacturer, you have spent all your resources on building a plant, raising cows, milking them, and pasteurizing the milk products.
Part of your process is to can them, and you also need to pay for employees and your truck drivers. You manufacture processed milk by the thousands of gallons.
Your main concern is to distribute this product. But if you also handle retail, it means that you have to build your own grocery stores, which is not a practical business decision.
This is why you need to sell your products to grocery operators at wholesale prices. Your goal is to keep your manufactured goods moving, so you have trucks that will deliver the milk to different states.
Retailers like Whole Foods or Walmart now have to take care of marketing. Since they have purchased your product in bulk, they have a lot of room to bump up the price and make a profit.
Where can you find wholesale?
You can find many wholesale products in big and bulk stores. Walmart is one. Many grocery stores in the US and around the world offer products in bulk, like 24 rolls of tissue paper in one pack, or six gallons of detergent in one pack.
Consumers will realize that the cost of these wholesale products can help them save as much as 30% of the usual retail cost.
The only reason they are called wholesale is that a consumer buys them in small bulks. But the truth is, there is still profit made by these stores. To truly buy wholesale, you need to buy more than 24 rolls of tissue.
You need to buy by boxes, and you must buy directly from the manufacturer or the regional distributor.
Think of soft drinks. A can of soda can cost about $1 on average. But if you buy boxes of it, the distributor can even give you a free box soda for every 10 boxes you buy.
Online, an example site where you can buy at wholesale price is Alibaba. AliExpress is also one.
The reason these products in these online wholesale market places are sold in wholesale is that you are buying directly from the manufacturer.
These manufacturers supply many businesses around the world, and they are often called OEM or Original Equipment Manufacturer.
An OEM is one who creates the product for a client. Then all they have to do is to stamp the brand name of the product, and then these products are now sold to retail stores.
In Alibaba and AliExpress, you will find many products sold in retail stores, without the brand name, and you can buy them in bulk for a significant discount.
An Example of Wholesale Profit
Here, we will be taking a look at how buying in wholesale can save you a lot of money, and we will use a product found in Alibaba.
The screenshot below shows a black crop top hoodie, which you can buy in wholesale. If you look at the prices, you can see that you can save more money as you buy more.
If you buy only three pieces, you will be paying $7.30 per piece. But if you buy at least 600 pieces, you will only be paying $4.96 each.
Now, maybe you cannot sell 600 of it, so you buy only three. Your capital is $7.30 = $21.90.
If you search Amazon for something similar, you will see in the screenshot below that it is being sold for $18.99.
If you sell the product for the same price, you still make a decent profit of $11.69 per piece.
Now, take a look at the table below to see how much profit you can make.
As you can see, the more pieces you buy, the lesser the price goes per piece. And if you sell everything at the suggested retail price, you can make as much as 280% profit if you buy at least 600 pieces.
PROS and CONS of Wholesale
To help guide you, take a look at the pros and cons of buying in bulk.
Here are the pros:
- Cheaper prices – buying in bulk naturally come at lower prices. This applies to all distribution channels, even if you do not buy from the manufacturer.
- Price negotiation – if you buy directly from the manufacturer or distributor, you can negotiate prices since you are going to pay for a large volume of products. Many manufacturers would rather see lower profits than see their goods rot.
- Low-cost to free shipping – since you are buying in huge quantities, it is very likely that the manufacturer will ship the items to you for free or at a discounted rate.
And here are the cons:
- Huge inventory – buying in wholesale means you will own the products and store them. If the products do not sell, you still have that inventory with you.
- Big capital risk – although the price is smaller per piece, you still need to shell out a large sum of money since you have to buy in bulk. For the example hoodie earlier, you need to pay at least $2,000 for 600 pieces.
- Storage – you need a storage facility to keep your inventory. If you have no warehouse, you need to rent one.
Wholesale is a great way to do business, but only if you have a means to mass market your products and if the product s are in demand.
This is also the best option if you want a manufacturer to brand your products. However, it also comes with some risks, like keeping an inventory and renting a warehouse for products that may not sell.
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Franklin Hatchett has worked online in various industries over the years generating more than 8 figures online. Now he teaches entrepreneurs how to start there own thriving online business! Franklins goal is to now educate others on how they can benefit from Ecommerce!