Should you sell wholesale?

Should you get into wholesale (business to business sales)? We thought it might be helpful to run through some of the pros and cons. It is not an easy decision because there are hidden costs and time demands.

The right numbers

When stockists buy from you, they expect to make at least a 50% (ex VAT) profit themselves on your products. As such, they need to buy from you at a fairly low price, and you need to make sure there is enough profit margin to make it worth your while. Wholesale is a volume game - you can set the minimum order quantity to drive the average order value. This average order value can be higher than when you sell direct to retail customers yourself.

To get started, work out your wholesale cost price:

Your RRP (recommended retail price)/1.2 = RRP without the VAT

RRP without VAT/2  = wholesale cost price for stockist

Example:

£50/1.2 = £41.66

£41.66/2 = £20.83 wholesale cost price for stockist

If your product costs £10 to make, then your % profit margin is:

(wholesale cost price - product costs)/ wholesale cost price = profit margin

(£20.83-£10)/ £20.83 = 0.51 x 100 = 51% profit margin

As you can see, there is a relationship between what the product costs you to make and the RRP. If your product costs are high, then you have to be careful about the RRP being high as well - is there a psychological top price point for your product? It may be that you have to lower your RRP and make a lower margin. And don't forget most stockists will have to add VAT on top of RRP, even if you don't charge them VAT!

You don't have to offer your whole product range at wholesale prices. Pick and choose what works for you, usually it will be your bestsellers. Stockists want to mitigate their risks and feel confident that what they buy from you will be popular with their customers.

Presentation

Your products have to look good on a shelf and clearly communication what they are for and how they should be used. Is your packaging ready? Most larger retailers will use barcodes and these are easy to add to your packaging either via a sticker or as part of the design. We use barcodes from GS1 - you pay depending on how many barcodes you need. (it is around £50 per year for 10).

Secondly, how do you think the products should be displayed? It is fine to make suggestions to stockists about what you think will work, but they may not be able to do it exactly how you'd like.

Line sheet

If your numbers and packaging are looking good, then you'll need to make a line sheet. This is simply a wholesale catalogue and it doesn't matter whether it is one sheet or longer. They key points of the line sheet are:

• Welcome - who you are
• What is special about your products and who they are for
• Your products set out clearly on a white background with the wholesale price and RRP, plus  pack size.
• Add an SKU (stock keeping unit). This is a code you invent to identify each item.
• How to order, lead times (may vary depending on time of year) and free shipping level
• Terms & conditions including minimum order value, payment terms and returns.

The minimum order value or quantity may vary depending on the type of products.

Making connections

Building a wholesale business is about building relationships in order to get repeat orders. You should make a list first based on detailed research regarding who is the best fit for your products. It is much more efficient to have a strategy than waste time chasing long shots! To do this, you may have to make unsolicited approaches to retailers initially, but keep following up even if you don't hear anything back. Lots of independent shop owners are extremely busy! Make it clear who your product is for and why they should take a chance on you. And remember, that stockists think in seasons, so you'll need to plan about 6 months advance.

Websites such as Faire and Ankor Store provide opportunities for independent retailers to find you. However, they'll take a cut of your sales (15-25%) for the convenience of providing the platform. You may need to funnel some of your stockists towards the websites, as some people will be more comfortable using larger platforms than taking a risk on someone they've not dealt with before.

Trade shows

Trade shows can be a good way to be discovered, however, they are costly (usually from £3000 for a small stand at the top shows). On the plus side, the organisers will do huge amounts of marketing for the show and you'll usually appear in printed material and online. It's a great way to build relationships with buyers and get insider information from other traders.

On the day, be prepared with your prices and lead times, so you can take orders right there!

If you can't afford the big shows, try to look for more local or specialised shows. Sometimes there are cheaper rates for first time exhibitors.

Above: Top Drawer, Olympia London, 2026

Costs & cash

As explained above, there are overhead costs to wholesale depending on the route you take. You may need to offer free shipping as an incentive for larger orders. This should be up to 40% more than your average order value.

Bear in mind that your cashflow may also become stretched. Initially you can send out pro-forma invoices (i.e. up front payment) to new retailers but after that, they'll expect invoices with at least 30 days to pay. This means there'll be a gap between you buying/ making stock and actually getting paid for orders. What does this mean if you need to buy more materials or place orders with your suppliers? Do you have time to be chasing up unpaid invoices?

Problems

Your terms and conditions should set out what happens in various scenarios:

What do you do if your products are damaged in transit?

What happens if there is a fault with a product?

Does the product have a lifespan?

You'll have to work out these answers for yourself as every product is different. Try looking at similar businesses to yours and what they've said. 

Conclusions

You should only consider wholesale if you can:

Make enough products to keep up with demand (either in-house or outsourcing)

Work out a profit margin for yourself

Have time to handle processing orders (or use a drop-shipping service)

Deal with the cashflow and invoicing issues.