Starting a Wholesale Business: Confessions from a Wholesaler

One thing the pandemic was good for was giving people time to explore their passion as a business venture. Between having the time, the supplies, and the ease of marketing on social media, there is a new crop of crafters turned professional. I applaud all of you for being crafty, not only in your art, but also in your ability to turn a crisis into an opportunity.

This tenacity of spirit brings us so many cool new small-batch, handcrafted products. Unfortunately, selling retail only in this crowded market can feel very limiting. Looking beyond these limits you start to take the next obvious step, selling wholesale. Online or brick-and-mortar retailers who have already created their customer base and mastered their marketing are always looking for the next best item to entice their customers with. The trick is getting in front of them and offering your product.

Expanding your products into the wholesale market is a full-time job and not for the weak or easily broken. If you are a retailer wanting to expand your business into wholesale, think about this as not only a whole new business model, but a different way to think. Retail buyers are looking at your product as something interesting to please their customers and as an investment to their store. They want a high or fast return on investment, as well as a good experience.

There is a ton of competition and not just in your product offering. Store owners are scouring hundreds of items on the web, print ads in the magazines, and multiple distributors, making every new brand a competitor. Those who stand out have embraced the following seven keys to wholesale success.

1. PRODUCT

 Everyone claims they offer the best quality, the best value, the best service, the best whatever in their marketing statements. It’s nice to have confidence, but blanket statements are just like they sound – a cover. Lead with ‘Why’ you are the best. Give your prospective customers your heartfelt reasons for making and promoting your product.

HINT QUESTIONS:

• Why are you making this product?
• Why do you want to wholesale?
• What do you expect to get out of it?
• What do you expect your customers to get out of your product?
• What makes you unique?

Answer these questions over and over again, diving deeper until you get the real reason you are starting this new business.

2. MARKET SEGMENTATION

 “If you post it, they will buy it” is not a strategy. Before you invest in your first large batch, find out who you are selling to and where they shop. Build a customer profile of the businesses that will buy your product. Define your demographics, market segment, income and psychographic profile.

Build a customer profile for each market segment you want to pitch to, getting as specific as possible. Go ahead and get wordy. This information will give you clues on where to find your customers. Moving to wholesale is a full-time job to get going and if you put in the upfront work, your sales will steadily rise. Hang on to all of this information, you will need it for your marketing and sales plan.

HINT QUESTIONS:

• Who are they? Give this group a name.
• What connection does this group have with your product?
• Where does this group get their information?
• What is their biggest pain point concerning your product type?
• How do you want them to feel after they get/use your product?

3. PRICING

This is a huge breaking point for many budding wholesalers. They don’t want to offer the discount needed for a retailer to invest in their product. If you started out your business as retail, you are very proud of your prices and most likely customers love the deal you are offering them. Here is the bad news, every crafter I have coached that went from retail to wholesale fought me on this. Well, they tried to fight me, but math is math…

Retailers want a minimum of a 60 percent markup. Back in the day, keystone or a 50 percent margin was enough. Nowadays, if retailers can’t do a 2.25 to a 2.5 times markup, they won’t be able to make their margins, so they may pass on your product. Before you curse the ground that they walk on, remember that they have overhead costs every day no matter how much they sell. Make room for this margin when you are setting your own wholesale and retail prices. Keep in mind though, it is much easier to lower your price than raise it. Here is a quick rule of thumb for handcrafted products:

M + L = DIRECT COST

(Materials Costs generally equal Labor Costs)

D + O = GROSS COST

(Direct Cost generally equal Overhead Costs)

G X 1.10 = PROFIT MARGIN

(Add your desired Profit Margin on top of your Gross Cost, 10 percent is the recommended minimum)

Start looking at your numbers in this simple way, then start to prove them true or false through process flowcharts, materials list, and the overhead required for you to run your wholesale business. I have spent three decades tracking my costs and I redo it every year to check my math. I too started by selling my products at the cost of materials and labor alone, by doing this, I ran out of money after the first batch! I doubled my price, and I ran out of money as soon as I expanded. I didn’t have any profits to tap into to fund the expanded needs for any raw materials, equipment, or marketing. I added marketing and commission to my overhead costs, and I had to raise my prices another 15 percent. So, don’t be afraid of raising your prices. Every customer will complain, but if you have excellent quality products that turn over well, they will come back. Best pricing advice I ever got was “anyone can come in 50 cents cheaper, so stick with quality.”

4. BIG SCALE

Are you willing to make this same product over and over again? Are you able to repeat the same quality, recipe, label, marketing, over and over again? Keep in mind, retailers like repeatability. When they get a product that sells well, they want to do more and more of it. Is your production technique scalable and easily trainable? Can you do 50 more in a day without massive reinvestment? Will you hate this to your soul in six months?

I learned this lesson years ago when I made this adorable candle that had a bright color core, a semiprecious earring pushed into a die-cut label and wrapped with sheer fabric. It was lovely, a good seller, underpriced, and not sustainable to make batch after batch. My choices were, quadruple the price or drop the line. We ended up hating the process, so we dropped it. What a blessing! That savings in time allowed us to focus on the better-selling product and expanding in a profitable way.

5. SHIPPING

Making the product is only the first step, you need to consider and add shipping too. Customer expectation of turnaround times has gone from 10 days to two days. If it takes too long to get the order out, your reorders will slow down. Shipping is not an afterthought, but a focused process that either adds to or detracts from the value of your product. Each box shipped is an opportunity to promote your brand and build customer loyalty. Why not create a pleasurable unboxing experience. You don’t have to make confetti pop out (retailers would hate the mess), but you could pack your products in a way that make them easy to check in and put in stock.

6. THE STORY YOU TELL

Remember the work you did on the customer profile? You need it when you build your marketing program. This is not a small task and the details could fill an article on their own. To make your marketing sing, you need two good things: a story and analytics.

Building a Story Brand by Donald Miller is a fast read that will inspire you to create a powerful story to use in all of your marketing streams. Use this story on your website and promote it through social media. Double down and track the movement it creates with a tool like Google Analytics.

If marketing does not make your heart sing, hire it out. There are many options from social media experts to full-service companies. Trying to be an expert at everything makes you a master of none. Marketing is how you get noticed, you and your customer service team is how you close the sale. Don’t go cheap on marketing. Without attention to this part of the business, the quality of your product won’t matter, because no one will see it. This investment is as important as your raw materials.

7. THE ULTIMATE GOAL

The first order you get from a customer is the most expensive, return business is where profit grows. Turning your first-time buyers into long-term loyal customers is the ultimate goal. They will be your brand ambassadors better than any social media influencer. Is your business set up to promote customer loyalty? The average life of a customer is about 18 months or three orders.  What do you want your average to be and what are you willing to do to get there? Build your relationships for the long haul and it will pay off more often than not. Using the first six keys will make the seventh more successful.