There seems to be a lot of confusion around the various terms used to describe how something is sold and in this blog post I hope to give you some clarity to the most common terms and whether they mean you’re wholesaling or not.
Retail is any sales direct to the consumer, this means that you’re often selling in small quantities at a higher price and get to keep a nice margin.
Wholesale is selling to retailers so you are selling a larger quantity but at a lower price and it's often a firm sale, which means that once they placed the order and it’s delivered they cannot return it unless the product is faulty. You can decide how many they need to buy of each item, and you will start selling a much higher volume.
Sale or return
When you wholesale you can sometimes be asked if you offer sale or return, this would mean that you invoice and deliver to the customer as normal, if they are on 30 days payment terms, they still must pay you within 30 days for all their stock. If they have not sold the stock during a pre-agreed time period, they can return the unsold stock in perfect condition against a credit or refund. You only have to credit them for the stock returned in a re-sell-able condition, but it can be difficult to argue with a stockist about the condition of the stock, so I don’t recommend this option very often, of course, there are exceptions to every rule.
Retailers love to ask for this as there’s very little risk to them and they often argue that it would allow them to try a wider range from you. This might be true but they also have less of an incentive to sell your range and to give it the best position in their stores so do consider it carefully before you agree to this and make it very clear in your terms and conditions that you will only credit them for stock that is returned in a perfect condition. I recommend that this is agreed upon in writing.
If you say no to Sale or Return a lot of retailers ask for “Sale or Exchange” instead, meaning that they can swap any slow-moving product for one that sells better. I often find it best to avoid this too but if a customer gives me feedback about a slow-selling line for them and they are a good stockist of yours you can offer a goodwill gesture and ask if they would like to swap the slow sellers for something faster moving. Make sure they pay for having the items returned to you and send replacements once you received them back.
If you’re very keen on a particular stockist and they are unsure but you’re confident the range would do well for them, you might consider offering them “Sale or Exchange” as a way to get the sale for the first order only. Make sure they agree that the exchange is only allowed if the items are returned in a perfect re-sell-able condition and they need to display and try to sell the products for a minimum of 2 or 3 months before returning them.
Commission, often confused with sale or return. This is a model often used by smaller boutiques or galleries, who take a commission on the sales. This means that you will only get paid when they sell one of your items. You might agree that every month they let you know how many they have sold of your items and then they pay you minus their commission. There’s very little risk to the shop and if an item doesn’t sell or it breaks or is stolen, you’re taking all the risk. Art galleries and shops that sell handmade items often use this model. It’s more or less the same as an online marketplace such as Not on the Highstreet but in a physical form and it’s not wholesale. The commission range from 25-50% depending on the store/gallery.
Nowadays a lot of online stores ask if you offer drop-shipping, this means that they can list all the items they like from you and if they get an order, they would send it to you, and you send it to their customer but invoice them. This is a form of wholesale, but you don’t need to offer them full wholesale prices, you might give them a 30% discount on the recommended sell price and absorb the freight or give them the same price as your wholesale customers but charge them a standard carriage for each order you send.
There’s very little risk for the retailer, and unless you have a fulfillment centre that’s used to processing drop-ship orders it’s time-consuming and labour intensive. The customer often has their own portal where you have to set up the products, special packaging, or stickers they would like you to use and you have to include their paperwork with the order and then send them an invoice. You will also have to deal with any lost parcels and send replacements if a product arrives damaged etc.
Many Amazon and eBay re-sellers prefer to buy from suppliers that offer drop-shipping and it’s a very common method for cheaper products. There are of course many other online shops that prefer this option, it allows them to have a huge range of products without carrying any stock which equals risk. Some stores also buy some things and offer some on a drop-ship option and even if they say they will push all products equally they will want to turn the stock they hold faster as those items carry a risk to them so if you want to offer this option do consider the customer your offer it too carefully.
It’s very difficult to stop offering drop-shipping for long-standing customers if you start so don’t take on more drop-ship customers than you can handle.
When you start I would recommend you to focus on firm sales for your wholesale orders and your growing retail business. When you have a bigger team you can look at widening your offer if it makes strategical sense to your business.
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