Business tips

Sourcing the perfect product for your business: Wholesale, part 1

Wholesaling is a great way to source a product to sell, and some wholesalers will even ‘private label’ a product for your business, but there are important considerations to make before engaging a supplier.

You’ve spotted an opportunity to supply a product that the market demands. The next step is as simple as finding a wholesaler to provide you with inventory so you can start selling and watch the money roll in, right? While buying wholesale can be a lower risk model than manufacturing a product from scratch, there are still some important things to consider before investing in a shipment of products for your online business.

Pros and cons of wholesaling

The formula behind the wholesale model is quite simple. You pick your product/s, buy your inventory directly from a manufacturer – or wholesaler – at a discounted wholesale price and then resell at a higher price. While the margins for wholesale may not be as profitable as manufacturing, they are still healthy. Every case is different and dependent on your market and your product, but you can generally expect a 20–40 per cent margin on wholesale goods resold at retail prices.

As you are offering a product that the market has already shown demand for, you have the advantage of choosing brands that have been tested in the market and can avoid the risk of trialling products that no one wants. Another benefit is you can purchase as little or as much as you need, although minimum orders will depend on the manufacturer and the product, so it’s important to establish this before engaging a wholesaler.

Although your product may be selling well in the market, this doesn’t mean you will have the same success. If you chose a popular product to resell, you will need to develop ways to make your brand stand out in the crowd. An example could be selling shoes at the same price as other websites but offering free delivery or a gift to entice customers.

You should also make sure there are no price controls in place before you order your inventory. Some brands might prevent you from discounting their price, which may limit your plans for sales and special offers.

If you are planning to put your own brand on a product, it’s also important to check with a wholesaler whether they will allow you to re-label it. If they do, some wholesalers will actually private label the product for you, either manufacturing the label for you or receiving labels from you and applying them to the products at the factory. This is particularly useful if you are planning to drop ship the products, which means sending them direct from factory to customer, meaning you don’t need to store the products.

If you do store your inventory, managing it and keeping track of minimum orders and potential sales is also vital to wholesaling success as you don’t want to get stuck with too much or too little stock. If your site provides an array of products coming from multiple suppliers, a good inventory system to track incoming and outgoing orders is vital to help managing stock levels and to keep the profits ticking over.

Another potential drawback of wholesaling is that you may need to purchase stock with no guarantee of seeing it before it arrives, especially if you are ordering from overseas. Some stock may get damaged in transit or may be faulty, and while you can purchase insurance for such losses, your potential sales may stall until the stock is replaced.

Sourcing a wholesaler

There are a number of ways to source a supplier – the internet and your own professional networks are the most obvious. You can also source industry databases and find lists of local suppliers from association websites, including the Industry Capability Network, which is a business network that helps Australian and New Zealand companies grow by finding suppliers and service providers. For a mass of wholesalers, try Alibaba.

Once you’ve made a shortlist of potential wholesalers, rate their services against your priorities and talk with the sales representatives to ensure they have good knowledge of their products and will keep you updated about new and deleted models. It is also important to do a credit and trade references check, including searching the Australian Government’s Personal Property Securities Register (PPSR).

If the supplier has a large number of PPSR listings, this could indicate the goods they sell are on consignment, have been provided with credit from their suppliers or the business has substantial debt payable within 12 months relating to their plant and equipment.

This shows that thorough research is essential when selecting a wholesaler – and it’s always wise to shop around.

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