Congratulations on taking the next step towards becoming a sustainable business. Wholesale is the number one way for your company to reach more consumers and sell volume to make your retail brand viable. With rising direct to consumer acquisition costs and more online business going to Amazon’s Private Labels the wholesale channel is paramount to your success. Here are 8 considerations for those just starting out:
1. Pricing: Where to Start & What to Keep in Mind
The math portion of sales is never the fun part, but it may be one of the most important. Let’s get down to the basic rules.
It’s standard to sell wholesale items at 2.5X your production costs. This wholesale price is usually about half of what the end customer pays, as it’s generally a safe assumption that the retailer will mark up their cost 2X when pricing your product for customers. It’s also common to offer a “suggested retail price,” so you can be sure you’re offering a price that makes sense for you, the retailer and the customer.
For example, if your product costs about $2 to produce, you might sell to retailers at the wholesale price of $6, which would make your suggested retail price $12. This pricing is known as keystone pricing. Make sure that when calculating those production expenses, you’re also including the cost of freight, marketing, and other overhead costs. More expensive items (above $250) where there is more margin dollars to be had for your retailer it is not uncommon to see margins between 30 to 35%.
You may also want to enforce a minimum order rule to achieve selling goals. Meaning, wholesale buyers must buy a minimum amount of your product (or dollar amount) when placing an order. To create incentive and minimize the risk to the retailer, you can offer no minimum order on their first order. After that, however, it is important to stick to a minimum order regime.
As part of that, come up with an overall wholesale pricing strategy. Create a formula for orders: if your wholesaler buys 100 units, they pay $8/unit and if they order 500 units they pay $6/unit and so on. The idea behind this kind of volume pricing is to incentivize large orders that increase revenue. Start simple and see how this system works for your business.
Again, make sure you are taking into account all of the expenses associated with producing your product so you can be sure to account for them when you are calculating price. Go ahead and make a good old-fashioned list to be sure you are pricing your products fairly––to both yourself and your customer.
2. Set Your Target: Figure Out Which Stores Should Stock Your Products
Do your research. Who is your target customer? Where do they shop? What stores are stocking competitive products? What region are you looking to sell in first?
Often, the best way to answer these questions is to simply visit stores––walk around. Where do you envision your products stocked on their shelves? Look at the competition. How does your packaging compare? How much shelf space will you need? How does your product fit into the store’s existing assortment?
Ensuring a proper fit is critical for repeat orders. The easy part of any manufacturer is selling into a wholesaler, but making sure they are successful with your products to maintain your listing can be more challenging to encourage repeat wholesale purchases.
3. Understand How Retailers Buy
This varies by industry and by individual retailer, but it’s important to remember that different stores often have different buying strategies. For instance, at a smaller boutique, you may be dealing directly with the storeowner. With a chain of stores, however, you may be working with a dedicated buyer.
These buyers may make purchases on a seasonal schedule, or prefer to place orders at large industry-wide trade shows. Perhaps they want to place a batch of orders before the high season, all set to ship on different dates. Be prepared to accommodate these kinds of schedules. Lately retailers are carrying less inventory overall and placing smaller but more frequent orders making a B2B ordering system a critical function to your wholesale strategy.
4. Taxes: The Good, The Bad and the Ugly
When selling wholesale in the United States, you do not charge sales tax on the order, because the retailer will tax the customer upon purchase. But it is important to obtain tax ID documentation from your retail buyers.
Tax laws vary between states, but it’s a general rule-of-thumb to keep a copy of your retailer’s resellers’ licenses, and only sell wholesale to those who have them.
5. How to Stand Out from the Competition
In a networked world, it always gives you a leg up to have a rave review on your side. Think of it like choosing a restaurant to dine at. You will probably scan Yelp and pick a restaurant with a good review rather than risk a mediocre meal at a restaurant with no reviews. Apply this same principal to your products. Be ready to show your buyer customer testimonials or press about your product. Also of importance is explaining to your buyer any marketing activities you plan on undertaking to help your buyer be successful if they commit to you.
If you are just starting out and don’t have any reviews yet, offer free samples to relevant companies or stores and ask for their feedback. A good review from a reputable source can make all the difference in a competitive market.
To get featured in the press, you could also try HARO, an email service that lists articles reporters are working on––respond with information if you see a developing article that may be relevant to your product. Including positive press about your product is a great way to promote yourself as a reputable brand, which can be especially helpful for stores with strict buying guidelines.
6. Don’t Forget B2C Marketing
You may be thinking that because you’re selling wholesale and your customers are retail stores, you don’t have to invest in marketing to end consumers. That’s where you’d be wrong.
At the end of the day, retailers buy products that they think will sell. The more your product is in demand from consumers, the more likely it’ll be that a retailer decides to stock that product. Building your brand and marketing directly to consumers is extremely important and the best way to demonstrate demand for your products is to drive traffic to the retailer with consumers who have already bought or plan on buying your product.
If your products start collecting dust on the retailers shelves you can be sure the next time you call they have moved on to another brand who can help them move their product.
7. Prepare for Rejection
Rejection is part of learning how to wholesale. Your product won’t be the right fit for every retailer you approach, and part of that rejection is learning who is the right account. This is perfectly normal. It may take a while before you get your first big order. Prepare yourself for this as you set out into the field and consider your first wholesale journey as research. The more you do it, the more successful you will become.
A rejection might have to do with any number of things outside your product. The store might be going in a different direction, or they may be overstocked and not looking to add new lines. Perhaps the store itself isn’t doing well, or they have strict buying guidelines where they buy for a season upfront and its just bad timing. Don’t beat yourself up over every rejection––it’s part of getting the hang of wholesale.
8. Keep in Touch With Your Wholesalers
If you’ve made a big sale, great! But the buck doesn’t stop there. You always want to keep your eyes on the horizon and stay abreast of industry changes.
Go online and check out your competition. Read reviews about related products. Attend trade shows, webinars and conferences about your industry. Staying “in the know” will give you a competitive edge and drive creativity.
Just as you have just found an opening into a wholesale account there is always someone seeking to take your spot as well. Being up to date and continuing to be on trend for the retailer will pay dividends and loyalty especially if you help drive more sales and traffic to their location. They will reward you with new consumers discovering and buying your products to expand your reach and sales volume.
Well there you have it. We’ve only scratched the surface of how wholesalers do their jobs, but hopefully this post has served as a good introduction to what’s involved.
