Now that you’ve learned about dropshipping in part one of this article, you’re ready to understand wholesale operations and compare the two popular business methods.
Wholesale is vastly different from dropshipping. All the complexities you end up avoiding with dropshipping become present and prominent in the wholesale business. Merchants connect with the manufacturers directly and buy items in bulk, in order to receive a better price per unit. The more quantity purchased the less price per unit. When you operate this way, the manufacturer would have already branded your products per your requirements (and customized packing per your requirements) – as all the needs of the merchant’s product designs are established before purchasing in bulk. Now, all the merchant does from here is list the item on their online store and promote it.
Pros & Cons of Wholesale
Pros:
- Profit margins: When buying units individually, you may soon realize that it leads to more expensive costs than purchasing wholesale stock. This is because purchasing larger quantities are offered at discounts for cheaper costs per unit. The discount you receive from the wholesaler increases as your order volumes increase. This means that your profit margins can rise over time.
- Customized experience: Whoesale gives you control over the order fulfillment process and therefore, you have the opportunity to customize the packing and give a unique unboxing experience for your customers. Making a great first impression with your customers is key to building loyalty and longevity – meaning returning customers and repeat purchases.
- Transparency: When operating under a wholesale business method, you will now have the authority to create your own shipping methods and options at the price you choose; rather than having the manufacturer do it for you as you would be in the dark. With full transparency, you’ll be able to understand and resolve any issues or mistakes that arise.
Cons:
- High MOQs: “MOQ” stands for minimum order quantity – and it’s something that all wholesalers expect to see when doing business. While wholesalers offer better discounts for more stock purchased, the volume itself is usually incredibly high. This could end up being as high as 1000+ units. This means businesses with smaller order volumes and cash-flow difficulties may struggle to sell their purchased units within a specific timeframe.
- Inventory space: With high volumes comes a lot of warehouse space – leading to additional costs. On top of this, it’s important to use a digital inventory management system (or WMS) to prevent any out-of-stock scenarios. This may showcase a decrease in profitability and an increase in complexities.
Conclusions: Dropshipping or Wholesale?
Depending on the nature of your products, dropshipping or wholesale operations may already be chosen for you. It’s important to know how many products you intend to sell, how much you’re willing to spend, and how much customization you’re willing to invest in. The two business methods are vastly different and some major deciding factors may include; pricing, shipping times, order volumes, and stock management. Whichever method you choose, you will have to learn and adapt as you scale.
