If your business (or business-to-be) is all about selling physical products, be it through an online platform or a brick-and-mortar store, you’ve most likely studied the pros and cons of a retail and a wholesale business model. Which one is better depends on several factors, most of which are highly personal in nature.
Here we look at the differences between the two, and their advantages and disadvantages. Hopefully, these will give you an idea which one will be a better fit for you.
Retail and Wholesale: What’s the Difference?
Simply put, retail means selling individual products directly to the end user, whether you make the product yourself or buy them from a manufacturer, while wholesale means selling a bulk of products to a middle man (like a distributor or a retailer), who will then sell those products on a per-piece basis to the end user.
There are various products that work very well for both business models, such as fast-moving consumer goods — things like office supplies, consumer electronics, fashion accessories and clothing, and non-perishables like canned and preserved foods and candies. Cosmetics and various personal care products are also viable for both wholesale and retail. In fact, buying Asian cosmetics on wholesale may help open more business opportunities on both ends, as some items may be more difficult to find locally or may become too expensive for direct consumers when they buy from overseas.
The trick is to first identify your target market, understand its needs, and then find or develop products that will cater to the demand. Choosing between a retail or a wholesale model depend mainly on how you want to deliver your products to the market and the kind of customers you want to deal with.
The Pros and Cons
If you’re not keen on the idea of interacting with a lot of people, i.e., individual customers, then the wholesale path may be the better fit, since you’ll basically be dealing only with a couple of people per retailer or distributor you have. Going the wholesale route also means that you can cut down on your marketing and advertising activities — word quickly gets around in the B2B circle and as long as you’re consistently doing a stellar job, other retailers and distributors will spread the news. On the other hand, selling on a wholesale basis means you will end up receiving a lower per-piece price for your products.
Following a retail business model means you will receive the full retail price — which is definitely bigger than the wholesale price — almost immediately. This is because you have more control over the product, like when, where, and how much it is going to be sold. The main downside of retail is that you’re dealing with customers one-on-one, which can be harrowing if you’re limited on manpower. You’ll also need to work double-time on promoting your brand and your products.
If your skills are more aligned with research and logistics, rather than creativity, the wholesale business model may work better for you. A large part of wholesale is composed of vetting your clients, maintaining inventory, and figuring out the logistics of how you can fulfill a large number of orders within a tight schedule. Depending on the products you are selling, you may even have to oversee the manufacturing process to ensure that each item is up to standard. You’ll also be doing business in a more professional environment, so if you do end up taking the wholesale route, you need to brush up on your business skills.
On the other hand, if you’re making and selling your own products, it may be best to first go on a retail route, since you’re going to have to contend with the speed and amount of output, logistics, and pricing, among many other facets of business. Retail is also ideal if you thrive in social situations, as this model puts you face-to-face with the customers. Just be prepared to deal directly with people who are may not be as receptive to your products and marketing efforts. Brand-building is also central to retail, so if you find this to be fulfilling, then by all means push through with it.
It’s also possible to be both a retailer and a wholesaler, but you may end up facing other problems like going into direct competition with your retailers. Just make sure you are ready to make certain adjustments in pricing and marketing activities, to name a few.
Remember that financial freedom is achievable both through retail or wholesale — it all depends on choosing the right business model based on your own strengths and weaknesses.