One of the golden rules to follow for anyone considering starting a retail business is to “buy low, sell high.” And one of the easiest ways to accomplish this is through buying wholesale. Therefore, it’s essential to understand the process of buying wholesale for resale to maximize profits and get a better gross margin.
However, buying wholesale can seem daunting and scary at first. If you’re looking to learn how to buy wholesale, this blog will help you get started and guide you through the whole process. Here’s what we’ll cover:
How To Buy Wholesale
- What does It mean to buy wholesale?
- What are the factors to consider When buying wholesale?
- How to buy bulk wholesale items?
- How to buy wholesale grocery items?
- How to legally buy wholesale?
- How to buy wholesale without a business?
1. What Does It Mean To Buy Wholesale?
Simply put, buying wholesale is when a business buys products or items from suppliers at reduced prices and then resells them at higher prices to consumers or other companies. Most wholesale purchases are made in bulk, thus reducing the purchase price of the items.
The price you charge for your products in the retail store is called the retail price. The amount you pay a wholesaler, distributor, or manufacturer for a product is the wholesale price. So to determine your margin, simply make the difference between the retail price and the wholesale price.
While you can get better unit wholesale prices by buying large quantities, there can be a downside to seeking these discounts which is the ongoing cost of storing goods you don’t sell.
You can use the Economic Order Quantity (EOQ) formula to know how many units you should buy based on past sales. The economic order quantity (EOQ) represents the ideal order quantity that a company should buy to limit inventory costs, such as holding costs, shortage costs, and ordering costs.
You will need good SKU management and sound retail inventory software to better control your inventory and to know the most profitable items from those that sell less.
See related: SKU Management – A Guide for Retailers and SMB Owners.
2. What Are The Factors To Consider When Buying Wholesale?
Before buying wholesale, it is essential to first establish your priorities. After choosing the suppliers you wish to work with, make sure your company meets the following requirements:
Create a professional brand image from the start
Most suppliers have requirements to reduce the number of inexperienced resellers they want to work with. With that in mind, you need to portray a professional image of your company from day one. Suppliers will be more motivated and willing to work with you if you have a professional appearance.
A better way to show your professionalism is to have, if applicable, an eCommerce license and proof that you have a business bank account. This gives suppliers the confidence that online transactions will go smoothly.
Decide what merchandise you want to sell
You need to have a clear idea of the items you want to sell wholesale. A better knowledge of what you want in terms of items lets you know the kind of suppliers to approach.
Customers are becoming more demanding in their purchases and will not buy cheap products just to save money. So choose a niche and suppliers that can provide you with good quality items or products that fit within your budget.
See related: How To Find The Best eCommerce Product Suppliers for Your Store
Get your reseller’s permit and/or licensing agreement
Having a reseller’s license is necessary to sell wholesale items. This is proof that you are a legitimate business and not a third party who wants to buy products for their own needs.
The license agreement is similar to a permit. It allows suppliers to control your product sales quantity, type, and market. Usually, licensing agreements are for products where intellectual property or intense competition is involved.
See also: Types of Business Licenses For Small Business
Go to trade shows and relevant events.
One of the best ways to find suppliers of products to buy in bulk for your retail business is by participating in trade shows. They are an opportunity for suppliers and creators of handmade products to showcase their products and develop business relationships.
Know thoroughly about the suppliers
Before buying wholesale from any supplier, make sure you have enough information about them and their relationship with other retailers. One of the worst things that can happen to you is to work with a supplier who is not trustworthy.
There is a category of suppliers you should avoid working with: those who deliver late, don’t deliver at all, or ship damaged products. Don’t hesitate to google every supplier you want to work with. Also, talk to other retailers about their experiences with those wholesalers.
3. How to Buy Bulk Wholesale Products?
Bulk purchasing of items is the starting point for most wholesalers. Most suppliers’ minimum order quantities (MOQs) call for products to be purchased in bulk, usually 100 units or more. The first step is to search for bulk suppliers. Many websites offer great deals, either directly from the manufacturer or wholesalers who sell primarily to other companies.
You can also find sites that offer high minimum orders for bulk products, making these sites ideal if you want to stock an online store. Others simply offer discounted prices so you can get normally overpriced electronics or home supplies at much lower prices.
The best sites where you can buy wholesale, whether just to find a good deal or to buy items to resell, are
- Global sources.
4. How to Buy Wholesale Grocery Products?
There are many ways to purchase wholesale grocery products, and your purchasing strategy will depend on what you sell. If the products you sell in your retail store are mostly dried, packaged, or dehydrated, you can purchase them from online suppliers.
You can easily browse through wholesale directories to determine which food category is right for you or that you want to purchase. However, make sure you have the necessary storage capacity to store these types of products.
Storage and display of perishable goods
Managing perishable products such as fresh fruits and vegetables and meats is not a simple task. Therefore, the storage and display of perishable goods are essential. This is why grocery stores or supermarkets are advised to have more refrigerated storage space.
Foods such as meat should be moved within a few days to avoid spoilage as they have a very short shelf life. On the other hand, not all fruits and vegetables should be refrigerated. A good rotation of stock from the backroom to the display area is also essential.
You should also avoid exposing fresh produce to bright light as this can cause deterioration. The lack of temperature control in the display area should also be avoided. In addition, the store manager or director should ensure that the display area is sufficiently filled with food to attract the consumer.
Strategies for Perishable Inventory
Due to the challenges of maintaining perishable foods in retail stores, perishable inventory requires attention. Therefore, there are specific inventory tracking systems that help manage and account for perishable inventory. For example, single-period inventory control and first-in, first-out (FIFO) inventory valuation are commonly used to handle perishable goods.
The single-period inventory system requires that you order only enough supply for one period. After the initial order is depleted, you do not replenish the inventory until you reassess the level of demand.
For example, if you are selling apples, and you order 1000 apples from your wholesaler and resell them over a three-week period, and they are all sold one week after the sales start, you will wait until the end of the accounting period to order additional apples. This strategy helps you limit the amount of inventory that is wasted, thereby saving you money.
By implementing an effective perishable inventory strategy, a business can avoid having to write off large amounts of obsolete inventory and boost its bottom line.
The cost of goods sold is accounted for as an expense in the income statement. Unsold inventory is valued in the balance sheet as a current asset. The FIFO method of inventory valuation assumes that the first inventory purchased is the first inventory sold. This is the best valuation method to use for perishable inventory. In addition, in times of rising inventory prices, this strategy increases net income and asset size.
When items are removed from the warehouse, it is important that older items are not forgotten and do not perish in the back room. If you want to buy products or perishables in bulk, farmers and producers should be your ideal suppliers.
Make sure you establish a good relationship with them. There are dozens of farmers’ markets that partner with wholesale suppliers across the country. Find out what farmers expect from their relationships with wholesalers. That way, you can approach them with professional questions and an attractive offer.
5. How Can I Legally Buy Wholesale?
If you own a retail store you’re required to have certain legal documents to be considered a legitimate business by suppliers. You must take specific steps to formalize your business, and it is essential to note that these steps vary from one state to another depending on your municipality. Here’s how to become a registered wholesale buyer:
Get your employer identification number (EIN)
The employee identification number is sort of the social number of your company. Without it, you cannot register your business, hire employees, or apply for a bank loan or other alternative financing if you need to expand your business.
The process of obtaining the EIN is done online and is obtained as quickly as possible. You cannot sell or wholesale without your EIN. Make it a top priority.
Get a sales tax license.
A sales tax license, also known as a sales tax permit or registration in some states, is a contract with the state taxing authority to collect and remit sales tax on items/products sold by your business.
By obtaining a sales tax license, you can collect state and local sales tax in the licensing state and then remit that money to the appropriate local taxing authority. This license is required in states that collect sales tax if you have a nexus (meaning the business has an active presence in the taxing jurisdiction) or connection to that state.
Having a nexus or connection in a state and not having a sales tax license can result in hefty fines, legal fights, and the complete shutdown of your business.
Get a sales tax ID
A sales tax identification number is also a must-have document. It is a number issued by your state’s tax authority after registering with them to collect taxes. States issue this number to allow you to charge taxes within those states.
Apply for a wholesale license
A wholesaler’s license is a business document granting you permission to legally purchase products in bulk from manufacturers, suppliers, and other wholesalers for resale. Each state has slightly different rules and requirements for wholesale resellers.
The wholesaler’s license indicates that you are a legal reseller of goods to governments and potential suppliers. This license also allows you to pay less taxes in the long run. The process of obtaining a wholesale license is done on your state’s tax authority website. All you have to do is fill out the reseller application and pay the fees that go with it.
6. How to Buy Wholesale Without a Business
There are at least three general options for buying wholesale goods if you do not have a business.
- You have the option of purchasing as a reseller without having a Sales ID or EIN.
- The second option is to buy as a reseller with a Sales ID or EIN without having your business registered.
- The third and final option is to buy in bulk as a consumer, i.e., a third party.
Of these three options, only the last option is legal, even though your chances of getting delivery are low, as suppliers often require you to show your wholesale permit.
There are several ways to find companies that sell wholesale products to the public. Search online, browse forums on Facebook, Quora, and ask friends or other resellers for more information to help guide you.
Opt for a Better Inventory Management With KORONA POS
Knowing how to buy wholesale is an essential aspect of growing your business as it helps you meet customer demand and keep the business humming. However, after purchasing wholesale items, you have to ensure their management. And that’s where KORONA POS software comes in.
KORONA POS is a retail POS system that helps you manage your inventory by helping you analyze and recalculate ideal order levels based on purchase history, seasons, and trends. The software is also designed to notify you when running out of a particular stock.
You also can import shipping notifications from suppliers to ensure all products ordered have been included in the shipping process. KORONA POS is a cloud-based pos system, which means you can track in real-time, all sales, transactions, and activities taking place in your store while being away from your store.
Looking for a POS system that can help you manage your inventory and facilitate transaction processing in your store? Click below to try KORONA POS for free today!