What does wholesale mean, and how can companies charge a lower price per item because of it?
Shops sell 1 bottle of fizzy pop at a time for $1 a bottle retail price, to sell 100 bottles requires 100 transactions each for $1 a time which costs the shop in staff time and other expenses. Wholesaler sells 100 bottles of fizzy pop in a single transaction for 90 cents per bottle or $90 for the 100 bottles in a single transaction, a lot less staff costs involved even though they take in less money they might make more profit.
Wholesale is the price a manufacturer uses to sell products to distributors and/or retailers. It is the base price of raw materials, labor, overhead, and desired profit margin *for the producer*. Retailers and distributors then mark that price upwards to reflect their costs and required profits for onward sale to consumers. There are other ways to determine “retail” pricing, but that’s the basic model.
Wholesale originates selling the whole case or pallette rather than individual items, basically. Mostly it originally applied to buying in large quantities to break the package and sell individually at a higher per item profit. So like…a comvenience store owner could buy a case of sodas at a unit cost of .50 per drink. They break the case, spend the time stocking them into fridges and sell for 1.00 each. They did other B2B stuff, too. If you’ve got a whole hotel or office building to stock the restrooms for, you don’t want to be buying personal use quantities of soap or toilet paper. You need that stuff by the case if not the pallette.
The big box store he buys from specializes in logistics and scale. They may sell their sodas for less each, but if they’re supplying cases to a pile of convenience stores, concessions stands and so on they get to sell a lot more sodas than anyone else does. They also don’t have to ship to inconvenient locations, spend wage hours breaking down or selling individual items, don’t need as many employees working per item sold, can build their big ass store in a less expensive area since they’re not worried about being convenient to the general public, etc…etc….
At some point folks that went through a lot of stuff figured out they could pay less per unit, especially for nonperishable goods they could load up on occasionally, if they went straight to suppliers like that instead of buying from their local grocer or whatever. Thus was born the Costco/Sam’s model. They still sell to local businesses, but many of their members are just people who are happy to six months worth of toilet paper or cokes, or whatever at a time in order to save money on it.
It’s a bit like buying straight from your grocer’s distribution center. They don’t have to pay for the last mile shipping and stocking of the product, you get a slice of their savings on that as savings in the cost of the items.
**Manufacture:** Someone who makes a product.
**Wholesaling:** Selling product to a retail store rather than DTC (Direct To Consumer)
**Manufacturing cost:** How much money it costs the manufacturer to make each product.
**Wholesale price:** How much money the manufacturer sells their product to the retail stores. This is the manufacturer’s revenue, and the retail store’s costs.
**Retail price:** What the retail stores sell the product for. This is the retail store’s revenue.
**MSRP:** Manufacturer suggested retail price.
Depending on the contracts, the retail store may or may not be to sell lower than MSRP (which is why same tv at BestBuy is the same price at Walmart).
Some stores sell products as a bundle at a discount, **”volume pricing”**. For instance, a 20pc McNugget is cheaper than 2x 10pc McNuggets. If a store does not offer this, it’s likely either contractual or they do so much business that there is no need to offer a discount, as they can sell out of the products individually (think of it like this: a car salesmen is not going to negotiate the price of a car with you if they know someone can walk in 5min later and pay full price).
Another reason they may offer this is debit/credit card transaction fees. They not only are a fixed % of the same price but also a fixed $ amount (say 10¢). 1000 water bottles sold individually for $1 with a 2%+10¢ fee results in $300 lost. $1000 water bottles sold all together for $1000 with a 2%+10¢ fee results in $200.10 lost.
Wholesale means supplying your product to someone who will then sell it on to the wider market. You can justify the lower price on the back of increased unit sales overall and reduced logistical costs such as transport, wages, postage/packaging etc.