A little bit ago, we wrote a blog post explaining everything about consignment vs wholesale, and what's the difference and answered some of our most asked vendor questions. I wanted to do a deep-dive on what each really entails and get a sense of who does what, responsibilities and who that falls to, etc. If you're a vendor and looking for more information about wholesale, you're in the right place! Let's do a deep dive.
Wholesale - What is it?
Wholesale is when a retailer purchases inventory from a vendor at a discounted price. This discounted price can vary, but the usual expected discount is somewhere between 40-50%. This usually means that the vendor is making less money, however, these orders can also get to be a few hundred dollars large. The heavy discount plus the larger orders make up for the discount as you'll be selling a lot of your inventory all at once. Wholesale is what most retailers are going to prefer to do with a vendor unless they are a consignment shop. Wholesale discount pricing can vary depending on what you're selling. For example, food tends to sit around the 30-35% mark, rarely ever going past 40%. While home décor items, bath and body, jewelry and more usually sit around 40-50%. For wholesale, the retailers will always get in contact with you when you want your items in their shops or need a restock.
Product - Who's Responsible? Who Does What?
Wholesale is very cut and dry when it comes to who is responsible and who does what unlike consignment where it's a mix of both but mostly the vendor. With wholesale, because you're selling your product to the retailer, the retailer is entirely responsible for the product, damages, insurance, etc. This also means the retailer can price your products at whatever price they want. For example, you'll have more of a price change between retailers if your products are in the 40% range. Some retailers are okay with 40%, while others need to have a higher markup in order to pay staff, cover rent and any other expenses they may have that month. If your discount is 50%, there will be less of a price change between retailers as most retailers look to make a 50% markup. This is the reason why sometimes when you go to one store, the price of an item can be a bit different than at another store.
As for custom orders and order timelines, this is also pretty cut and dry. For custom orders, usually with wholesale, you won't get too many asking for custom orders or you can let retailers know you don't do custom orders. Most retailers probably wouldn't be looking for custom orders. However, you can place limits on custom orders like you can do custom orders but you need to purchase 10 units while with consignment, most retailers/customers will be looking for one custom item and that's it. For example, we have custom candles we get made for the shop but we have to order a minimum of 10 candles for the company to make them. You can set these boundaries more so with wholesale as the retailer would need to purchase the product and they want to make sure it would sell. With order timelines, things get a bit trickier with wholesale. Yes, you can set order timelines for the Holiday season, however, retail never stops. Even after your timeline, you'll more than likely keep getting orders. Say you have an order deadline of Dec 15 for holiday orders, you'll still receive orders after the 15th. Those retailers are looking for restocks when they can get them, but they will keep placing orders even after your deadline date.
Marketing & Advertising - Who Does What? How Do I Promote Retailers?
While the retailer takes on more responsibilities, the vendor has a very important part in wholesale. That is advertising and sharing with their retailers. With wholesale, most of the responsibilities are on the retailer. Once the retailer has the product, it is the store's inventory and therefore, the vendor doesn't have to worry about it. However, retailers still depend on the vendor to share with their followers when they are in new shops and to advertise those shops. The easiest way to do this is to have a dedicated section on your website for stockists. Your customers can go to this tab and search for stores near them that may carry your products. Another way to advertise retailers is to share their posts that feature your products. Another is to post once a month a list of your stockists and pin it to the top of your social media pages. There's a lot a vendor can do to advertise their retailers. Remember, the more retailers are advertised, the more likely your product is to sell in their store and the more likely they are to return with another order and possibility an even bigger order!
Same as consignment, the most crucial time to advertise your retailers is between Sept-Dec as this is the peak Holiday shopping season and this is when retailers will sell your products the most. This also means that you're not taking as many custom orders.
Ultimate Pros & Cons List
~ Retailer buys the inventory so they are entirely responsible
~ Fewer custom orders or custom orders with a set minimum to make it worth your time
~ Fewer responsibilities on the vendor
~ Bigger order amounts so you can sell more inventory at once
~ Better agreement if you're looking to make your small business a full-time job
~ Higher % taken from the item (40-50% vs 25-40% for consignment)
~ You're always going to receive orders even after deadlines (retail never sleeps)
~ A bit of marketing/advertising responsibilities (less than consignment but still a fair amount)
~ Bigger order amounts so you sell more inventory (you'll need to keep up with demand faster than consignment)
Overall, is wholesale the best option? If you're looking to make your small business a full-time job or are very serious about your business, wholesale is the best option. It's the easiest method to do as the retailer purchases inventory from you and they are entirely responsible for the inventory so you don't have to worry about top-ups or anything else!