How Do Wholesalers Make Their Money?

Wholesalers play an important role in our economy, providing the goods behind our high street retailers. Whenever you buy something from your local high street ask yourself – has a wholesaler played a part in my purchase. More often than not, you’ll find that anything you buy has passed down the chain before you, sold many times during its lifetime, from raw material to finished product. This begs the interesting question – how do wholesalers make their money? But before we get to that, we have to first understand exactly what it is that the wholesaler does. In this article, we will look at how wholesalers earn a living, and exactly what they do to earn their money.

The first step in the wholesale business model is to acquire the funding for your investment. Before you can make money as a wholesaler, you need to have stock which you can then divide and sell on. Often, the wholesaler just starting out in the business world won’t have the money to make the initial investment on his own. What this means is that they have to borrow money, either from friends or family or a bank, in order to fund their venture. Unfortunately, doubt and scepticism are the main obstacles in the way of acquiring money, and regardless of your passion, not everyone will agree to lend you the money you require. Nevertheless finding funding is crucial to your venture getting off the ground and ever making any kind of money.

Next you need to acquire the goods. The more goods you buy, the more profit you can make. This is because of the fundamental principle of wholesaling – trade discount. The more you buy, the cheaper you pay per unit. You can then inflate the unit price as you sell the goods on down the chain in smaller bundles, reflecting a trade discount on supply for increasing volume purchases made by your own clients. Obviously, the more money you raise in the first place, the more you can afford to buy in terms of units, and you might also get a discount for prompt payment on your account. Ask your supplier for the details of your agreement, and how you can possibly maximise your cost efficiency to increase profits later down the line. As a wholesaler, it is also in your best interests to regulate the size of unit bundles you offer. By selling a unit in a box of 100, you automatically lower the unit price than in selling a box of 10. Calculate the optimum volume to price ratio in order to maximise your profits. Remember, the more units you buy at once, versus the less units your sell at once, equals the greatest potential profit margin for your business.

Wholesalers make their money by buying lots, and selling in smaller amounts, with some storage in between. There isn’t much more than that to the business model, but it is important to always bear in mind that wholesaling is still a very risky, difficult nut to crack.

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