Do you dream of leaving your current job? If so, you are not alone. A 2021 report found that 37% of currently employed people are considering leaving their jobs or are already actively looking for another position. Millions more are leaving their jobs to start their own businesses.
In general, more than 48% of small businesses are in retail. One way to take advantage of this trend is to start a wholesale business. This type of business model allows you to sell goods in partnership with a company that sells large quantities or other supply chains.
Can a wholesale business succeed?
Dun and Bradstreet has published a profile of the wholesale sector which clearly shows that wholesalers can succeed. What’s more, they found that small companies saturating a local or specialist market have the highest sales (outside of 50 retailers who account for about a quarter of total industry sales. In total, there are just over 400,000 wholesale outlets in the US. This is far from being a saturated market.
Wholesale outlets offer much more stability than retail outlets. The average profit margin for wholesalers has been hovering just above 30% for over a decade, showing the validity of the industry. According to a survey, the vast majority of wholesalers are optimistic, while just over 26% said the pandemic had a significant negative impact on their business.
Wholesalers also have fewer start-up and operating costs, as much of the process is initiated and completed by the buyer. This gives you time to focus on growing your customer base, building customer loyalty, and streamlining your supply chains to increase your profits.
Things to consider before starting a wholesale business
There are many things to consider before starting a wholesale business. The first and most important is to decide what products you will sell and how you will sell them. Ask yourself these questions before you start developing a business plan.
Will you sell a variety of products, a specific product category, or will you be a specialist wholesaler with a smaller, local target market? Keep in mind that specialist wholesalers have higher profit margins but fewer potential customers. But the Dun and Bradstreet report suggests that specialist wholesalers are the most profitable.
Who will be your target market? Will you market wholesale prices directly to end consumers or supply local businesses?
How will you ship goods to your customers? A simple and accurate order fulfillment process is essential to the success of a wholesale business.
Will you maintain warehouse space or consider dropshipping? (Drop shipping businesses have different start-up requirements.)
Where will you sell your products? On an online shop, social media, a brick and mortar location, or a combination? Ecwid offers fully integrated online shops for small to large wholesale businesses.
How will you sell your products? Will you use online marketing, local marketing, or both? The nature of wholesale businesses makes it easy to build a customer base. Ecwid offers a variety of solutions for small and large wholesalers that integrate with your websites and other media.
How will you attract new customers and encourage them to buy large quantities?
How will you track inventory from the supply chain to the end user? Ecwid integrates with your inventory system to keep it up to date, even when sales are not made through your online shop.
Will you buy from wholesale suppliers or directly from manufacturers in bulk? The higher up the supply chain you are, the higher your profit margins.
Starting a wholesale business step by step
While it may be tempting to jump into creating a website, setting up a supply chain, and marketing to customers, you need to do the real business planning work first. Start with a business plan from SCORE or the Small Business Administration. The business plan will help you work through the process of preparing to open your online shop successfully.
Your first task will be to determine how you will organize your business. The Small Business Administration has excellent information on the differences between the different business models such as sole proprietorships, limited liability companies, and corporations. This can determine what you need to work with as far as wholesalers are concerned.
So follow these steps and you can start a successful wholesale business.
Step 1: Make sure your wholesale business idea is viable
Different products are needed in different parts of the country, and as such, you need to make sure that your business will be able to compete and take market share. And there are some industries where specialised wholesaling will be difficult to achieve.
For example, unless you live in a fast-growing area, you’re not going to get much of a market share as a specialist wholesaler of commercial kitchen equipment. Established restaurants already have supply chains in place, and it may be impossible to influence them to use your business. Make sure your local industry is not an already oversaturated market.
To validate that your wholesale idea can succeed, you will need to do some solid market research. Market research will give you demographic and other information about your target market and its needs. Which target market is most likely to buy larger quantities at a higher price? This research will also tell you if the industry you want to serve locally is already an oversaturated market.
Step 2: Research wholesalers and choose a wholesaler
There are many wholesale distributors to choose from, and it can be overwhelming to think that you have to search for them one by one. If you are better able to assess business relationships in person, you might consider attending local trade shows to connect with manufacturers and suppliers.
When evaluating wholesalers, it’s a good idea to check reviews of other wholesalers to verify their reputation for customer service and order fulfillment. You should also make sure that the wholesale distributor you choose offers quality goods at a fair price.
Step 3: Determine start-up and operating costs and how you will cover them
Your start-up costs will include licensing fees, insurance, and other legal requirements; rental requirements for warehouse space, your initial inventory, your initial marketing, and business start-up efforts, and hiring employees. Don’t forget about start-up marketing costs, including your online shop and advertising, and ongoing marketing costs.
Once you have this number, move on to your projected operating budget. Operations should include shipping goods to retailers or consumers, cost of goods sold, employee salaries and benefit programs, rental or ongoing maintenance of warehouse space, and anything else you need to operate your business. SCORE recommends that you plan for at least one year of operating expenses before launching.
Next, you will need to determine how long it will take to break even. This depends partly on your current financial situation, but sales forecasts also play an important role. When you forecast reasonable sales targets, you will have a plan for success and an idea of how much capital you need to raise to make your wholesale business a reality.
Step 4: Meeting legal requirements
The legal requirements for your wholesale business will vary depending on the state (or country) you will be operating in, where you will be shipping, and what type of products you will be selling. As a general rule, you will need to:
Establish your business legally by registering your business name (DBA) and applying for an employer identification number. If you are setting up an LLC, S-Corp, corporation, or non-profit, there may be other legal requirements before you can launch.
Obtain your local business license, wholesaler’s license, and other licensing or insurance requirements in the states in which you will operate. Also, check local tax responsibilities on retail products.
Step 5: Implement your operations and marketing plans
During the planning phase of your business, you should have developed operations and marketing plans that describe exactly how you will operate and what marketing methods you will use. This information informs your start-up, operations, and marketing budgets, all of which are important in determining the financial status of your business.
Implementing these plans and launching your business is the final step in getting started. Ecwid makes it easy to take your business from idea to launch and beyond. Once you have everything in place, your business should run fairly smoothly.
So there you have it! How to start a wholesale business. We hope our words to the wise have helped you get started, or at least find some inspiration.
