Starting A Wholesale Business: A Beginner’s Guide

Choosing Your Business Model

When starting a wholesale business, you have a few different business models to consider. The model you choose will depend on your goals, resources, and target market. For instance, you may wish to conduct your business as an e-commerce wholesaler or to focus on a brick-and-mortar storefront. But whether you’re solely online or operating as a traditional vendor, here are three common wholesale business models to consider:

1. Distribution Model

In the distribution model, you purchase products from manufacturers and resell them to retailers. This model typically involves a large product line, with a focus on volume sales. Distributors often have a sales team and a warehouse to store products.

2. Broker Model

In the broker model (aka agent model), you will act as an intermediary between manufacturers and retailers. You won’t directly purchase products, but rather you will earn a commission on sales made to retailers. This model requires less capital, but you’ll need to build relationships with manufacturers and retailers to be successful.

3. Import/Export Model

In the import/export model, you can source a wide variety of unique products from overseas manufacturers and sell them in your home market. This model may require knowledge of international trade, as well as local import/export regulations and procedures.

Creating Your Business Plan

Once you’ve chosen your business model, the next step is to create a business plan. Your business plan will outline your goals, strategies, and financial projections. Here are some elements to include in your business plan:

1. Executive Summary

Your executive summary will provide an overview of your business, including your mission statement, products, and target market.

2. Market Analysis

A market analysis should describe your target market and your competitors. You’ll need to research your industry and identify trends and opportunities.

3. Products and Services

Make sure to include details on your product line and how you plan to differentiate yourself from competitors.

4. Marketing and Sales

Outline your intended marketing and sales strategies, including how you plan to reach your target market and generate consistent sales.

5. Financial Projections

Finally, include your projected revenue, expenses, and profits. You’ll want to create a detailed financial forecast for at least the first three years of your business to manage expectations, set goals, and understand your business’ viability.

Selecting Your Wholesale Product

Selecting the right product is crucial to the success of your wholesale business. You’ll need to consider factors such as demand, competition, and profit margins. Here are some steps to follow when selecting your wholesale product:

1. Research Your Market

Identify products that are in high demand, but experience low competition. Use online tools, such as Google Trends or AMZScout, to determine search volume and popularity. Make sure you are aware of items that have a seasonal demand like summer swimwear. Seasonal products sell better during their respective time of year, allowing you to charge higher prices and increase your profit margins.

Here are some of the most popular and highest margin items wholesale vendors are currently selling:

• Clothing and apparel
• Luxury and designer items
• Jewelry
• Electronics
• Beauty and self-care products
• Pet supplies

It is not uncommon for these items to have profit margins anywhere between 50% and 78%, depending on the wholesaler. 

2. Determine Profit Margins

Calculate the profit margins for each product you’re sourcing. Consider the cost of goods sold (COGS), shipping, and other expenses.

3. Choose Your Niche

Choose a product niche that aligns with your interests and expertise. This will help you stay motivated and passionate about your business.

Where To Find Your Product

Once you’ve selected your product, you’ll need to find manufacturers and suppliers. Here are some ways to find the right manufacturer or supplier for your business:

1. Trade Shows

Attend trade shows to meet manufacturers and suppliers in person. This is an excellent opportunity to network and become aware of the newest products.

2. Online Directories

Use online directories, such as Alibaba or WholesaleCentral, to find manufacturers and suppliers. These directories allow you to search by product type and location.

3. Referrals

Ask for referrals from other wholesalers or industry professionals. This will help you find the most reliable manufacturers and suppliers.

Selling Products

When selling products wholesale, setting minimum order quantities (MOQs) is a common practice. MOQs are the smallest quantity of a product that a supplier is willing to ship in a single order. They ensure that the costs of production and shipping are covered and help wholesalers manage their inventory and operate at a profit. Here are some tips for setting MOQs:

1. Consider Your Profit Margin

Set MOQs that ensure you’re making a profit. Consider your cost of goods sold, shipping, and other expenses when setting MOQs.

2. Consult With Your Suppliers

Ask your suppliers what their minimum order requirements are. This can help you set your MOQs and negotiate better pricing.

3. Consider Customer Demand

Consider the demand for your products when setting MOQs. If a product is in high demand, you may be able to set higher MOQs.

Obtaining Licenses And Meeting Legal Requirements

Starting a wholesale business requires some legal and licensing requirements that vary depending on your country and state. It’s important to research and comply with all legal requirements that you may be subject to in order to avoid complications down the line. 

Here are some common legal and licensing requirements:

1. Registration And Business License

You may want to register your business name with your state and local government to take advantage of legal and tax benefits, as well as liability protection. You may also need to obtain a business license or permit to operate a wholesale business in your area. Check with your local government to determine what licenses and permits are required.

2. Sales Tax License

You’ll need to collect sales tax from customers, which requires a sales tax license. You’ll need to register with your state’s department of revenue to obtain this license.

3. Resale Certificate

You may also need a resale certificate to purchase products from manufacturers without paying sales tax. This certificate allows you to prove that you’re a legitimate reseller.

If you’re in the United States, the Small Business Administration can help answer any particular questions you may have.

Bulking Up Your Business

Starting a wholesale business requires careful planning and research. Choosing the right business model, selecting the right product, finding reliable manufacturers and suppliers, setting minimum order quantities, and complying with legal requirements are all important steps to take when starting a wholesale business. By following these steps and making informed decisions, you can build the foundation for a successful and prosperous wholesale business that generates you profit and meets the needs of your customers.

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_{Information provided on this blog is for educational purposes only, and is not intended to be business, legal, tax, or accounting advice. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. While Lendio strives to keep its content up-to-date, it is only accurate as of the date posted. Offers or trends may expire, or may no longer be relevant.}