Last week I talked about my love of wholesale. This week, I’m addressing some of the drawbacks to running a wholesale business because I think its so important to understand the big picture before diving in! I’m #TeamWholesale all the way because in my eyes, the benefits outweigh the costs, but everyone is at a different place in their business. These are a few of the scenarios you need to be aware of.
You need to carry more inventory
To get the volume discounts from suppliers you will have to commit to more units up front. This means that your money is tied up in inventory before orders go out the door. It can be scary, so you need to make sure you plan your inventory strategically. Pre-selling is a great way to gauge interest and get orders before committing to your inventory purchase.
You may be chasing down customers for payment
Small stores usually pay with a credit card while larger retail chains work on terms. When stores pay with a credit card you can run into issues when the card on file expires or if they'd like you to call for a card before shipment. Buyers are suddenly MIA and now you’re sitting on goods. Set your sales parameters in advance so you have a set script/guideline for when this situation occurs (which it will!)
Your costs can change quickly
If a supplier's cost goes up chances are yours will too. How will that impact your product costing and margins?Can you absorb the price increase? Will you need to increase prices? What if your supplier closes their doors tomorrow? Be aware that change can happen quickly and impact your business overnight.
Shipping becomes more complicated
While smaller stores are pretty straight forward the higher you set your sights in the retail hierarchy the more challenges you will face. Major retailers will supply you with routing guides that detail shipping guidelines so make sure you read them, otherwise, you are probably going to set yourself up for a chargeback.
Opening new accounts is hard
Making cold calls, sending emails and dedicating time to research potential retailers takes time and patience. Even experienced sales people play the waiting game! Buyers are busy so it can take weeks or months to get an order. (I once spent an entire year trying to get a product into a major bookstore!) Don’t be discouraged, but be realistic.