Weighing up the Pros and Cons of Wholesale vs Retail
We often get approached by designers/makers saying that they would like to start selling their products to shops on a wholesale basis. We do appreciate that this can be a difficult decision and often one that those new to the business don’t always understand the full implications of.
Don’t worry we are here to help.
As with anything there are pros and cons and it is important to compare these in order to find out which is right for you.
Choosing the right option can / will depend on the business, the designer and the manufacturing process but ultimately will come down as ever to costs and time.
What is the difference between retail and wholesale?
Retailers sell directly to customers, usually one item at a time, whereas wholesalers sell in bulk. As a Designer you can be a wholesaler AND a retailer at the same time and many designers choose to do this.
The Pro’s & Cons to selling to wholesale
Firstly – the Pros
If you choose to make the leap from retail to wholesale, it is important that you do the maths first carefully to ensure that you are earning enough profit to make it worth your while.
- Research the retail price of similar products and then work backwards. Can you make and produce your item and still list it at a suitable wholesale price which allows the retailers to add their mark up?
Retailers (Shops) in general will normally add a 2.5% mark up to the wholesale price. This allows the retailer to account for VAT whilst also adding the mark-up they need to also be profitable.
Pricing is critical, there is no point listing a product in your brochure with a Wholesale price of £10.00 and then allocating it a RRP (Recommended Retail Price) of £15.00 just because this is what similar products are selling for. The real RRP would need to be £25.00 so it is important to be realistic when looking at pricing.
- Purchasing the components and materials required to make one product in larger quantities will bring the cost per unit down – so it is worth negotiating if possible, with the supplier of your component parts.
- Designing and manufacturing a single product can be more time consuming than creating and making lots of different products.
- Outsourcing the making of products in bulk can be more cost effective in the long run and therefore saving you time to design future products.
- Selling wholesale to a larger number of shops allows you to grow your brand recognition.
- Selling wholesale requires designers to make a much bigger financial commitment as they will have to hold a greater amount of stock than when selling to retail only.
The Cons …
- Managing stock levels can prove difficult as it is inevitable that one or two products will be always prove to be considerably more popular than others so it is really important to test the popularity of your products before committing to larger runs.
- Storing a larger number of products can also prove tricky so looking at alternative storage options may need to be taken into consideration, otherwise your house could quickly fill up with stock!
- Fulfilling larger orders can on occasions be a stressful task as there will be a gap between purchasing the materials, making the products, selling the products, and receiving payment. This can be one of the major sources of pressure for small businesses, so it is important to stay on top of your outstanding payments ensuring you chase any outstanding invoices as soon as they become overdue.
- When selling your product you will receive payment upfront rather than having to wait often up to 30 days or more for payment to be made.
- The mark up per unit will be more so you will receive more profit per unit.
It is reassuring to know however there are no hard and fast rules as a small company and you don’t have to stick to being a retailer or wholesaler of your products. As a Designer it is not uncommon to do both. Sell the product that you know are popular and cost effective to retail outlets on a wholesale basis whilst also selling a more select range of products (those that are not yet cost effective to sell on a wholesale basis, or those products that you are still testing) on a retail only basis from your own website.
Whether you choose to sell wholesale or retail, be sure to keep the end price in mind. Ensure that you make it as competitive with comparable products as you can, otherwise you will be pricing yourself out of the market before you even begin.
