How to Start a Wholesale Business: Vital Things to Consider

Posted 3 years ago by Max Komonov

Do you dream of leaving your current job? If so, you’re not alone. A 2021 report found that 37% of those currently employed are thinking about quitting their job or are already actively looking for another role. Millions of others are quitting their jobs to start their own business.

Generally speaking, over 48% of small businesses are in the retail industry. One of the ways to take advantage of this trend is to start a wholesaling business. This type of business model allows you to sell goods in partnership with a company that sells large quantities or other supply chains.

Can a Wholesale Business Be Successful?

Dun and Bradstreet released a wholesale industry sector profile that clearly shows wholesalers can be successful. What’s more, they found that small businesses saturating a local or specialty market have the highest sales (outside the 50 retailers that make up about a quarter of industry sales totals. In total, there are a little over 400,000 wholesale retail outlets in the US. That is far from a saturated market.

Wholesale businesses offer much more stability than retail establishments. The average profit margin for wholesalers has been hovering just over 30% for well over a decade, showing the validity of the industry. According to one survey, the vast majority of wholesale businesses are optimistic, while only just over 26% of them claimed the pandemic had a significant negative impact on their business.

Wholesalers also have fewer start-up and operations costs, as much of the process is initiated and completed by the buyer. That gives you time to dedicate to growing your customer base, retaining customers, and simplifying your supply chains to increase profits.

Things to Consider Before You Start a Wholesale Business

There are a lot of things to consider before starting a wholesale business. The first and most important is deciding what products you will sell and how you will sell them. Ask yourself these questions before jumping into business plan development.

Will you sell a variety of products, one specific product category, or will you be a specialty wholesaler with a smaller, local target market? Keep in mind that specialty wholesalers have bigger profit margins but fewer potential customers. But the Dun and Bradstreet report suggests that specialty wholesale businesses are the most profitable.
Who will be your target market? Will you market wholesale prices directly to end consumers or supply local businesses?
How will you be shipping goods to your customers? An easy and accurate order fulfillment process is vital to a successful wholesale business.
Will you maintain warehouse space or look into dropshipping? (Drop shipping businesses require different start-up requirements.)
Where will you sell your products? On an online store, social media, a brick-and-mortar location, or a combination? Ecwid offers fully integrated online stores for wholesale businesses from small to large.
How will you sell your products? Will you use online marketing, local marketing, or both? The nature of wholesale businesses makes it easy to build a customer base. Ecwid offers a variety of solutions for small and large wholesalers that integrate with your websites and other media.
How will you attract new customers and encourage them to buy large quantities?
How will you track inventory from supply chain to end-user? Ecwid integrates with your inventory system to keep it up to date, even when sales are not completed through your online store.
Will you buy from wholesale suppliers or directly in bulk from manufacturers? The higher up you are on the supply chain, the bigger your profit margins.

Starting a Wholesale Business Step-by-Step

While it can be tempting to jump feet first into building a website, setting up a supply chain, and marketing to customers, you have to do the real work of business planning first. Starting with a business plan outline from SCORE or the Small Business Administration. The business plan will help you work through the process of preparation for opening your online store successfully.

Your first task will be to determine how you will organize your business. The Small Business Administration has some great information on the differences between different business models such as sole-proprietorships, LLCs, and corporations. This may determine what you have to work with when it comes to wholesalers.

Then, follow these steps you will be able to start a successful wholesaling business.

Step 1: Make sure your wholesaling business idea is viable

Different products are needed in different parts of the country, and as such you need to make sure that your business will be able to compete and take part of the market share. And there are some industries in which specialty wholesale will be difficult to achieve.

For example, unless you live in a fast-growing area, you’re not going to get much of the market share as a specialty wholesaler for commercial kitchen equipment. Established restaurants already have supply chains in place, and it can be impossible to sway them toward using your company. Make sure that your local industry isn’t an already oversaturated market.

To validate that your wholesale business idea can be successful, you’ll need to do some solid market research. Market research will tell you demographics and other information about your target market and their needs. What target market is more likely to buy larger quantities at a higher price? This research will also tell you if the industry you want to serve locally is already an oversaturated market.

Step 2: Research wholesale distributors and choose a wholesale supplier

There are a lot of wholesale distributors out there to choose from, and it can be overwhelming to think you have to research them one by one. If you are better able to gauge business relationships in person, you might consider attending local trade shows to get in touch with manufacturers and suppliers.

When evaluating wholesale dealers it is a good idea to check reviews from other wholesalers to verify their reputation for customer service and order fulfillment. You should also make sure that the wholesale distributorship you choose offers quality merchandise at a fair price.

Step 3: Determine start-up and operating costs and how you will cover them

Your start-up costs will include fees for licensing, insurance, and other legal requirements; lease terms for warehouse space, your initial inventory, your initial marketing, and business launch efforts, and hiring employees. Don’t forget start-up marketing costs, including your online store and advertising, as well as ongoing marketing costs.

Once you have that number, move on to your anticipated operating budget. Operations should include shipment of goods to retailers or consumers, cost of goods sold, employee wages and benefit programs, ongoing warehouse space rental or maintenance, and anything else that you need to operate your business. SCORE recommends that you set aside at least one year of operating expenses before launch.

Next, you will need to figure out how long it will take for you to break even. Part of this depends on your current financial situation, but sales forecasts also play an important role. When you forecast reasonable sales targets you will have a plan for success as well as an idea of how much capital you need to find to make your wholesale business a reality.

Step 4: Meet legal requirements

Legal requirements for your wholesale business will vary depending on what states (or countries) in which you will operate, where you will ship, and what type of products you will be selling. As a general rule, you will need to:

Establish your business legally by registering your business name (DBA) and applying for an employer identification number. If you are setting up an LLC, S-Corp, corporation, or nonprofit, there may be other legal requirements before you can launch.
Get your local business license, wholesaler license, and other licensure or insurance requirements in the states in which you will operate. Also, check for local tax responsibilities on retail products.

Step 5: Implement your operations and marketing plans

During your business planning stage, you should have developed operations and marketing plans that describe exactly how you will operate and what marketing methods you will use. That information informs your start-up, operating, and marketing budgets, all of which are important to determining the financial situation of your business.

Implementing these plans and launching your business is the final step to getting started. Ecwid makes it easy to take your business from idea to launch and beyond. Once you have everything set up, your business should run fairly seamlessly.

So there you have it! How to start a wholesale business. We hope our words to the wise have helped you get started, or at least find some inspiration.

About The Author

Max has been working in the ecommerce industry for the last six years helping brands to establish and level-up content marketing and SEO. Despite that, he has experience with entrepreneurship. He is a fiction writer in his free time.