Small Business | Can I Afford To Wholesale?
If you are a small business you are might be purchasing from a wholesaler and selling to consumers (hopefully via a website) but you might also be buying direct from a manufacturer or making products yourself.
If you're buying from a manufacturer (or under license as a distributor) or making products yourself you might be in a position to consider wholesaling (and you're probably often asked by other retailers).
It can be a bit of a complex concept to get your head around (as well as everything else you are getting your head around as a small business owner), so I will try and break it down as easily as I can.
The Magic Word Is Margin
Very simplistically (and best case scenario), you take the cost price of the product and multiply it by 2 to get the wholesale price, then multiply it by 2 to get the retail price.
Cost x 2 = Wholesale Price, Wholesale Price x 2 = Retail Price
So if you are buying nail polish from a manufacturer in America and the landed cost (including freight and duty but not including GST) is $2.47, the wholesale price will be $4.94, the retail price will be about $11.50 ($4.94 x 2 + GST = $11.36 so I rounded it up).
Working Backwards From RRP
Sometimes, once you've launched a product and you're selling online, other retailers might approach you to ask if you wholesale (this is when people usually contact me to ask me how to wholesale), and so here's how you can work backwards to figure out if it's worth it:
Retail Price (less GST)/2 = Wholesale Price, Wholesale Price - Cost = Margin
So if you're selling the nail polish on your website for $7.95, the ex GST price is about $6.91, divide that by 2 to get a wholesale price of $3.45. Take the $3.45 and deduct the cost price of $2.47 and you're looking at a margin of $0.98 per unit.
How Much Margin Is Enough?
This comes down to your personal goals and your wholesale policy. There are a few things to consider when you are considering whether it's worth wholesaling the nail polish for $0.98 per unit.
You might have a minimum order quantity of 100 units, which means that you will be making $100 (approx) per order, which you might decide is worthwhile in order to get your brand name out there.
Increasing your sales volume by wholesaling to other retailers might mean a lower cost price from your manufacturer. Your current cost price of $2.47 is probably based on your current sales volume of 100 nail polishes per month.
If you can get 9 other retailers and they each sell 100 nail polishes per month, that will mean you are ordering 1000 nail polishes from your manufacturer and your cost price might reduce significantly (which increases your margin).
Side Note About Margin
The main thing I tell my clients, is that if you are willing to only make $0.98 on your product, you can afford to invest in some digital marketing expertise. So instead of pursuing a wholesale sales channel for minimal margin you might choose to pay to drive traffic to your site instead.
If you work with a digital marketer they will be able to help you with your brand identity, your digital marketing strategy and your product positioning as well as give you practical advice about options like Facebook marketing and Google AdWords.
Raising the brand profile of your business and increasing your sales via paid advertising might be a better short term strategy than using wholesale customers. The increased brand awareness and increase in units sold, might mean a reduced cost price than in turn makes wholesaling a more viable option for your business.
If you are looking for some help increasing your website conversion (because you can't afford to wholesale) a UX Audit is a good place to start. If you are pretty sure you're in a position to start wholesaling and want a second opinion then an eCommerce Coaching Session is a good idea.
If you think that you can afford to wholesale, there's a second part to this blog that you can find here. If you're not sure what you need but you think you need some help, get in touch and we can arrange a time to chat. If you've got a couple of questions, feel free to join the Running In Heels Bidness Tips group on Facebook and ask away!