What does wholesale mean, and how can companies charge a lower price per item because of it?
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**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.
**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.
A couple other comments are correct-ish.
You make paper swans by hand. They cost you 10 cents and people buy them for $1 each. It’s a relaxing hobby and you sell about 10 paper swans per month.
Now you make a paper-swan making machine. It makes 1,000 swans per batch. You buy boxes that hold 1,000 paper swans per box. It now only costs 1 cent to make each of them because you made a good machine with large batches that saves you on labor costs and it uses a bit less paper per swan.
But now there are not 1,000 people in your town who want paper swans. So you call a wholesaler who buys 1,000 swans for $250 dollars (25 cents each).
You now made a 25 times return on that original penny you spent to make the swans. You deduct the cost of the packaging and the labor costs it took to box them up from your profit margin and you’re still only spending less than 2 cents per swan, for perhaps a 15-20 times return, depending on the specifics.
But now you can sell 1,000 swans in one batch instead of 1 and they cost you less than 2 cents instead of 10 cents. And you can now sell as many as you can distribute instead of 10 per month and making only $9 per month after expenses.
The wholesaler sells a box of 1,000 paper swans to department store chains for $500 per box. He doubled his money.
The department store unboxes them and sells them for the original price of $1. They double their money, minus their overhead costs, which they pay anyway because adding one product makes no difference since they sell 800 different products already anyway, and they already have all the staff and shelves and other things ready to sell stuff.
Now you find distributors across all continents. You build a factory full of paper-swan making machines. You open a factory store and host tours. You make millions from being the most efficient and celebrated maker of paper swans in the world.
You do not care that you share the money with other people, because setting up a worldwide distribution system and retail stores is very expensive, might not turn a profit, and other businesses have proven their systems work great.
And now you are super rich because you knew how to delegate everything you were not good at and you focused on the thing you do best.
A couple other comments are correct-ish.
You make paper swans by hand. They cost you 10 cents and people buy them for $1 each. It’s a relaxing hobby and you sell about 10 paper swans per month.
Now you make a paper-swan making machine. It makes 1,000 swans per batch. You buy boxes that hold 1,000 paper swans per box. It now only costs 1 cent to make each of them because you made a good machine with large batches that saves you on labor costs and it uses a bit less paper per swan.
But now there are not 1,000 people in your town who want paper swans. So you call a wholesaler who buys 1,000 swans for $250 dollars (25 cents each).
You now made a 25 times return on that original penny you spent to make the swans. You deduct the cost of the packaging and the labor costs it took to box them up from your profit margin and you’re still only spending less than 2 cents per swan, for perhaps a 15-20 times return, depending on the specifics.
But now you can sell 1,000 swans in one batch instead of 1 and they cost you less than 2 cents instead of 10 cents. And you can now sell as many as you can distribute instead of 10 per month and making only $9 per month after expenses.
The wholesaler sells a box of 1,000 paper swans to department store chains for $500 per box. He doubled his money.
The department store unboxes them and sells them for the original price of $1. They double their money, minus their overhead costs, which they pay anyway because adding one product makes no difference since they sell 800 different products already anyway, and they already have all the staff and shelves and other things ready to sell stuff.
Now you find distributors across all continents. You build a factory full of paper-swan making machines. You open a factory store and host tours. You make millions from being the most efficient and celebrated maker of paper swans in the world.
You do not care that you share the money with other people, because setting up a worldwide distribution system and retail stores is very expensive, might not turn a profit, and other businesses have proven their systems work great.
And now you are super rich because you knew how to delegate everything you were not good at and you focused on the thing you do best.
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