Buy low, sell high. You don’t need a business degree to recognize this as one of the fundamental building blocks of sales. And yet, when listing avenues for product sourcing, even the experts can overlook this.
Taken to its natural conclusion, buy low often equates to buying in bulk — generous price breaks at larger quantities are suppliers’ way of “thanking” merchants for taking a chunk of their inventory off their hands. The more successful an online seller is, the more they can take advantage of these price breaks at bigger quantities.
But what do you look for in wholesale suppliers? How can you negotiate the best deals with them? What ways can you make the most out of the wholesale product sourcing model? Let’s take a look at those answers now.
What is Wholesale Product Sourcing?
In many cases, wholesale product sourcing can be seen as a rite of passage for smaller ecommerce stores to “step up” into more professional tiers. Local product sourcing methods — such as retail arbitrage — are ideal for starting out, with their low overhead cost and ease of entry. However, when an online store gets big enough, once it reaches a certain number of customers and sales, then local product sourcing methods become unsustainable.
Consider the manpower and logistical constraints of local product sourcing: researching, physically acquiring products (read: long drives to neighboring towns), storing products in your home property, etc.. These methods aren’t a big deal if you only have a handful of customers, but when you’re fulfilling a hundred orders a day, it’s no longer viable.
Wholesale product sourcing is the next level. With the wholesale model, you always have plenty of inventory on hand to meet all your orders, plus your profits grow as your bulk quantities grow. The more sales you make, the larger your bulk orders, the bigger your price breaks: it creates a snowball effect where the more successful you are, the more successful you’ll be in the future.
Furthermore, this model works just as well for B2B companies. In fact, the wholesale suppliers that online retailers buy from are themselves B2B wholesalers. As long as you have a supplier and the storage space, you can apply the wholesale model to any product for any audience.
Of course, entering this higher tier also brings new problems, in this case, inventory storage and management. Storing your own goods is an expensive necessity, one that also requires a time commitment to manage your inventory properly — even if you outsource it to a 3PL. On the bright side, inventory management software like ours can carry most of that burden.
Another serious drawback of wholesale product sourcing is that it’s slower to adapt to market changes. Wholesale product sourcing is a long-term strategy; you buy all of the products for an extended period of time up front, anticipating that you’ll sell them all eventually to turn a profit. But what if the market changes right after you buy a bulk shipment? What if the product you just bought gets bad press, and you’re stuck with a warehouse full of items you can’t move?
Personal business experience and a backlog of reliable data complement the wholesale strategy. The better you are at predicting market trends, the more you can insulate yourself from otherwise disastrous turns. Having years of previous sales data to draw on also helps, especially for choosing the perfect product quantity every time.
The Best Product Sourcing Strategies for Wholesale
If you’re interested in using the wholesale model for product sourcing, keep these tips in mind:
1. Be Cautious Buying from Manufacturers
Typically, online sellers buy their products from wholesale supply intermediary companies, the “middle man” between manufacturers (people who create products) and retailers (people who sell products). So wouldn’t sellers earn more if they bought directly from the manufacturer and cut out the intermediary middleman? In theory, yes, but in reality it’s rarely that clean-cut.
For the most part, manufacturers don’t want to worry about marketing, sales, distribution, and all of those aspects of business. That’s why wholesale suppliers exist in the first place — the manufacturers essentially “outsource” this part of their business. The manufacturer can focus more completely on making their products great while the wholesale supplier handles the search for buyers.
So a manufacturer who’s willing to sell in bulk directly to the retailer is not only rare, it’s also suspicious. Why aren’t they using a legitimate wholesale supplier like their peers? For one thing, they could be scammers masquerading as a manufacturer. Or perhaps they really are manufacturers, but their goods that were rejected by mainstream suppliers for nefarious reasons, such as they didn’t work as advertised.
But more often than not, the manufacturer is simply too small to show up on wholesale suppliers’ radar. Sometimes sellers can use that to their advantage, striking exclusive deals with manufacturers as the product’s only retailer. It can also be used as leverage to negotiate a better price, maybe passing the savings onto the customers to establish your store as offering the lowest price.
However, a manufacturer’s size can impact its performance, namely not being able to meet demands. Small-scale manufacturers may have trouble satisfying sales spikes, such as holiday shopping or unexpected successful marketing campaigns. Unfulfilled orders may harm your brand more than no orders at all.
To sum up, if you do manage to find a manufacturer who’s willing to sell directly to you at a reduced cost, make sure they’re able to fulfill your sales demands. Not all that glitters is gold.
2. Negotiate with Suppliers
If you have a personal relationship with your supplier, even intermediaries middle men, you can use that to negotiate a better deal for everyone.
A good place to start is an “early bird” discount. You complete the payment — in full — earlier than necessary, in exchange for a discount (usually between 2-5%). Suppliers like this because they get their money as soon as possible.
The tricky part is calculating whether the discount is worth it. Could you make more than the discount with the interest from keeping your money? Could you better spend that money elsewhere for a bigger return?
Another negotiating point is who pays for shipping. Some suppliers offer to pay for shipping if the retailer buys a certain amount, so you may be able to save on freight costs just by upping your order. Suppliers don’t always put this on the table themselves, though, so you may need to brush up on your negotiation skills before making the offer.
Of all the ecommerce business model product sourcing strategies, wholesale is the most straight-forward. The strategy lies more in the calculations than how well you apply it. When first outlining your wholesale strategy, be sure to double- and triple-check the math to make sure its not only viable, but you’re getting the most returns out of your investments. And don’t be afraid to combine this strategy with other models — sometimes changing up your tactics from product-to-product can give you the best deals on each.