If you’ve made it to this blog post or listened to my latest podcast, chances are you are interested in wholesale. You might be a new business that wants to wholesale your products, or you might be an established business that has never sold wholesale before but wants to get started. Whichever category you fit into I wanted to put together an essential guide on how to create a wholesale channel and how to sell to other retailers.
What is wholesale?
The basic definition of wholesale is selling your products in bulk to another retailer at a discounted price, who then sells your product to their customers. Within this definition we also have different types of wholesale, let’s break it down:
· Firm sale – the most popular type of wholesale. Once a retailer buys the stock from you it is theirs and they cannot return it unless it’s faulty.
· Sale or return – A retailer places an order; you agree on the amount of stock they are taking, and they pay you in full but if it’s not sold within a set period of time it can be returned and you issue a credit note for stock that comes back in a resalable condition.
· Commission – Don’t confuse this with sale or return! Commission sales mean that you place your items into a store and when they sell something, they pay you minus their commission. (Make sure you define terms of agreement for commission sales as you will most likely be liable for any damages etc.)
Commitment to wholesale
Before you jump into wholesale, I think it’s really important to make sure that it is in line with your business goals. For example, make sure your margins work and that you are still getting paid fairly. Sometimes it just doesn’t work but take some time to work this out before you agree to an exciting offer.
Wholesale can be a very rewarding sales channel to have and I believe you have to commit to working on this channel every week. I don’t expect you to spend hours and days working tirelessly just on wholesale, you just need to set aside a little bit of time each week to actively work on growing the channel.
Another thing to think about is the quantity and quality of your products. Can you make enough products if somebody placed an order of 50 units? Do your products meet the legal requirements for selling that product in each territory?
Are you wholesale ready?
This leads me nicely onto if your products are ready to wholesale or not. Here are a few things you need to think about before selling your products to other retailers:
· What does your packaging look like? Does it tell a story? Does it stand out?
· Will your packaging withstand being picked up and touched?
· What gives your product the edge?
· Why would customers pick your product up over competitors sitting next to yours on the shelf?
I think one of the biggest myths with wholesale is that you have to have a really big range before you can start or that you have to have loads of experience in the business. This is not true!
For example, if you are making everything yourself then you should start selling with other small business owners, start building relationships and find out where the demand is and what kind of volumes you can expect from them. Not every store is going to ask for 100 units at a time, so start small and make a plan to scale in the future.
Pricing is the most common thing talked about when I teach wholesale. In fact, it's something I work with my one-to-one clients on a lot and it's also something we dedicate a whole week to in ‘Start to Wholesale’ my course that is open now and starts on the 15th of June!
I often see magic formulas being spread far and wide, with no context or research and I don’t believe that these kinds of formulas say anything about your brand or customer.
I think instead of using a one fits all formula, it's much better to do your market research. This is your chance to really get to know your customer. You need to find out what they are willing to spend because some customers may be looking for something organic and handmade but if your prices are too cheap, they may not believe in your product. Make sure that your products are priced in the range that they expect to pay for your item. There's definitely something to being too cheap as well as being too expensive.
Once you’ve set your prices this doesn’t mean you can’t change them further down the line, and I always recommend that once you’ve started to wholesale that you do a full pricing review. It’s ok to put your prices up.
What do retailers expect?
If you’ve been researching wholesale or have been approached by a retailer you have probably come across many different terms, so let’s look at what they mean:
· Margin - margin is what the retailer gets to keep (sometimes after paying VAT to HMRC)
· Discount - this refers to the percentage the retailer gets off the RRP (recommended retail price).
· Markup – (or sometimes called wholesale factor) is how many times you have to multiply the cost price with to get the recommended retail price or the selling price.
So, what do retailers expect? Generally, retailers expect anywhere between 2.2 to 2.5 mark up. Of course, there are exceptions to that rule and certain categories will come at a much lower margin and certain categories will come at a much higher margin.
When you deal with larger retailers, it tends to be on the higher side. So, let's break that down into an example:
50% of the ex-VAT recommended retail price, which also equals a markup or 2.4, (even if you aren’t VAT registered chances are your retailers will be registered, so you need to take it into account.)
So, to get the x VAT RRP price, you would divide the retail price by 1.2. So, for example, say we take a £10 product, you divide that by 1.2 you get £8.33 which is now the ex-VAT recommended retail price.
You then divide that into two and you get £4.16 and that is the wholesale price that your retailer will expect to pay if you offer a 50% discount on the ex-VAT price, this equals a 2.4 markup.
Why should you wholesale in the first place?
Once you’ve looked at your prices and what the retailers expect from you, it’s common to take a step back and think why should I wholesale? I often get asked why, as clients will be making very little money on each sale which is understandable but let’s look at the bigger picture.
Here’s a quick list of benefits to wholesale:
· More eyes on your brand.
· More customers discovering your brand who may not have before.
· It’s paid for marketing as you are taking advantage of the retailer's trusted customer base.
· Once you can buy in bigger volumes your margins get better = more money!
· New sales channel, it could help balance out your year.
· Buyers are knowledgeable and can give you great insights and ideas which may help you with your direct customers as well.