Preface: Wholesaling inventory often has additional costs and additional benefits. This blog outlines some of the typical areas of thought on gearing-up revenue with the wholesale option.
Wholesaling inventory
So you’re thinking maybe your business should wholesale inventory? Businesses with large inventory capacity and market presence can often develop a profitable niche in wholesaling inventory. Inventory wholesaling of product can lead to greater to volume and increased inventory turnover. Wholesaling gives higher visibility in the marketplace, and draws more customers to your business. While these advantages are explicit, the implicit risks of maintaining an adequate inventory level for proper service of the marketplace without high inventory obsolescence costs, and the additional overhead of general and administrative costs such as costs of capital to store inventory and employees to service the wholesaling component are important factors to consider.
Wholesaling requires advertising, cataloging, and tracking significant volumes of inventory. Yet, only exceptional service, competitive pricing, and high volume will result in success in wholesaling business. Exceptional service is the goal of every business, but it must be consistent. You must train your wholesale staff on providing service on hundreds, or maybe thousands of parts in inventory. Maintaining a warehouse catalog or online presence with inventory is not inexpensive, and requires well planned logistical product visibility. The future is in digital warehousing, i.e. inventory management, and you will need to compete against other vendors who may have a competitive advantage in scalability.
Service also involves delivery. Can you deliver the inventory to customers in a timely and price competitive manner? Do you have a network in the geographical region your wholesale business is (or plans on) servicing?
Competitive advantage
You must understand your competitive advantage in wholesaling. You can have the greatest warehouse, but does your inventory contain the products or components to be the go-to name for your potential customer base?
Don’t embark on wholesaling just because it can increase volume and has a sizeable profit margin. There are hidden costs. Depending on your product or components your business is, or could wholesale, accounts receivable can be substantial on the activity. One of the most significant risks with large volume wholesaling is in delinquent accounts receivable. You will need to monitor closely your outstanding customer receivables to prevent significant write downs of bad debt from uncollectible accounts receivable.
Wholesaling works best if your business has the capital to finance inventory organically vs. credit lines. A wholesaling division can be a way to reinvest capital earned on your business back into the business.
Business forecasting of wholesale customer levels will provide more successful inventory management. To succeed at wholesaling inventory you will need staff that understands more than excellent service to customers. You will need an expert on managing inventory levels and inventory cash flow.
Drop Shipping
Wholesalers that drop ship never take physical possession of products. Drop shippers do not have a warehouse. Drop shippers sell products as a wholesale business with network contacts to suppliers (warehouse.) Drop shipping is often useful with large orders where transportation and product handling costs are high. Drop shopping inventory often has lower risk, but market rate prices can be inefficient.
Summary
Wholesaling inventory while appearing a profitable avenue for your business with additional volume and high profit margins can have hidden costs, i.e. bad debts, inventory storage, obsolescence. Before you get too entrenched in wholesaling, make sure you have assessed the logistical and strategic benefits and risk to your business.