How to start a wholesale business

Starting a wholesale business can be an exciting and lucrative venture. However, it requires careful planning and preparation. The first step is to research the market and identify potential customers and competitors.

It’s also important to determine the products or services you want to offer, and the suppliers you will work with. Once you have a clear idea of your target market and product range, you can start creating a business plan, which should include financial projections, marketing strategies, and operational processes.

You’ll also need to register your business, obtain any necessary licenses and permits, and secure funding if needed. With the right approach and a solid plan in place, starting a wholesale business can be a fulfilling and profitable journey.

Typically, wholesalers act as intermediaries between manufacturers and businesses like hair salons and shops. When you’re starting your own business, you’ll need suitable premises and plenty of capital.

You should also inquire about any discounts that may be available for larger orders. Once you have found a suitable wholesaler, you can place your first order and start selling.

Research your target market

Before you can start selling your product or service, you need to know who your target market is. To do this, you’ll need to conduct some research. First, consider your target market’s needs and wants. What are they looking for? How can your product or service meet those needs? Next, think about your target market’s demographics.

This includes factors like age, gender, location, and income level. Once you have a good understanding of your target market, you can start creating marketing materials that are tailored to their specific needs. Only by taking the time to research your target market will you be able to create an effective marketing campaign.

You should estimate demand before planning your wholesale business, as well as consider what makes you different from your competitors. You can start by studying the market.

Estimating demand

A business like yours needs to be in an area with enough room for it to prosper. Look at your competition first. Count the number of wholesalers who already offer similar goods in your area. There are a large number of operators operating as single depots as well as those who are affiliated with larger groups.

Check out Yell.com as a starting point, although you should be aware that not every wholesaler in your area is listed. In addition, you shouldn’t neglect wholesalers in your chosen sector that sell online and deliver to businesses in your area (such as by courier), although it may be difficult to calculate the level of competition your business will face until you begin trading.

There are also many manufacturers who sell directly to their business clients, thereby raising the level of competition for your proposed business even further.

Next, you need to determine how many businesses in your area might become your clients. You may consider the following customers if you are planning to open a food wholesale business:

• Newsagents, convenience stores, ethnic food shops
• Petrol filling station forecourt shops
• Catering establishments of all kinds, including pubs, restaurants, cafes, fast-food takeaways, sandwich bars, nursing homes, schools and nurseries, and office canteens
• Guest houses, hotels, bed and breakfasts
• Social clubs

Why will customers choose your business

Consider that most of the existing companies you identify as your prospective customers already use wholesale suppliers. Thus, it will be necessary to compete with your competitors to attract customers. To do this, you should check out the competition to see:

• Their product ranges and how many they have
• The services they offer
• What prices they charge
• What their opening hours are
• What type of customer are they attracting?
• Do they have a smart and modern facility?
• If there is ample car parking and easy access
• Is it possible to order food online and have it delivered for free?

Find out what customers want

As any business owner knows, customers are the key to success. Without them, there would be no one to buy your product or use your service. That’s why it’s so important to find out what customers want.

The best way to do this is to ask them directly. Send out surveys, hold focus groups, or simply strike up a conversation the next time you’re interacting with a customer. Pay attention to their comments and suggestions, and look for patterns that you can use to improve your business. Remember, your customers are your most valuable asset, so treat them accordingly.

Contacting some potential customers can be a great idea to find out:

• If they would be interested in the service you are proposing
• What product ranges they would like you to offer
• What opening hours would suit them best
• Whether they would like to be able to order online and have goods delivered
• What, if anything, don’t they like about their existing suppliers

During your market research, you will be able to identify any gaps in the market that your business can fill. If you are conducting market research, keep in mind that many B2B customers find it convenient to order online. They also appreciate being able to receive their orders.

Estimating sales income

It is important to determine how many regular customers you will likely have and how much they will spend with you in order to estimate your monthly sales income.

It is likely that your customers purchase a significant amount of their stock from you, but they will also use several other suppliers. Consider offering your customers different incentives, such as free display racks or help with refurbishing in exchange for a commitment to buy a certain percentage of their stock from you.

As part of your market research, you will have determined the number of potential customers in your area. Estimate the number of customers you can expect. The number of potential customers is obvious, but it would be more realistic to divide this number by the number of wholesalers who serve them, including your business.

If your trade association produces industry statistics on your sector, they may be able to provide you with figures for average sales per square foot per week – for example, the Institute of Grocery Distribution (IGD) does so for the grocery wholesaler sector. You can estimate your sales income once you have determined the sales area of your premises.

Decide what to sell

Your business’ range of products will be influenced by several factors:

• The size of your premises
• The nature of your target market. Are your customers looking for cheaper, own-label products or do they want exclusive products? Are they interested in fair trade or organic products?
• Specialist storage may be required for some products, such as the handling of cigarettes and alcohol, the inspection of all tobacco products, or the use of temperature-controlled conditions for pharmaceuticals
• The product ranges stocked by your competitors

Manufacturers will sell you bulk supplies and you will break down pack sizes for retailers, hospitality businesses, etc. You might also consider repackaging some lines, either with your own labels or with the labels of your customers.

It is important to identify what will make your business attractive to customers in the wholesale sector, since it is so competitive. Don’t compete solely on price – you may not make enough profit to stay in business.

Quality standards

No matter what type of business you are planning, keep in mind that the wholesale sector is highly competitive, and that customers will expect high standards. Your company needs to ensure it:

• Is clean, smart and professionally fitted out
• Sells good quality products. If you are selling perishable products, throw away or heavily discount anything that is past its prime.
• Displays are attractive and kept up to date
• Is staffed by well trained and smart employees
• Offers a high standard of customer service

Services to consider

It is common for wholesalers to assist their customers to survive in many sectors. For instance, they may offer:

• Symbol group membership for traders
• Display assistance
• Guidance on what product ranges to stock
• Sale or return on some lines
• Cash and carry facilities
• Regular deliveries
• Openings late at night and on weekends
• The ability to order online

You may be asked if you offer a particular service once your business has been established. It would be worthwhile to assess the viability of the proposed service if enough people ask.

Advertising your business

There are many different ways to advertise your business. The most important thing is to choose the method that best suits your business and your target market.

For example, if you own a small local business, advertising in the newspaper or on the radio may be a good way to reach potential customers. However, if you have an online business, advertising on the internet may be a better option.

There are also many other options available, such as television, billboards, and flyers. The key is to find the right mix of methods that will work best for your business. By careful planning and execution, you can ensure that your advertising campaign is effective and successful.

Your potential customers must know about your business, no matter how you choose to operate.

Among the ways you could promote your company are:

• Hand out promotional leaflets to potential clients
• Publish local advertisements or use social media
• Publish your own website
• Utilise social media and networking services like Facebook and LinkedIn
• Employ a tele-sales team
• Market in trade journals, yearbooks and specialist directories
• Purchase space in a local directory
• Approach your suppliers for assistance with a promotion
• Communicate with local retailer associations to announce your opening date
• Provide special opening day offers
• Sponsor local charitable events
• Attend trade fairs and exhibitions
• Enlist your business in an online directory

Your market

Most of your customers are likely to be small local businesses. If you plan to stock certain products, you may want to reach out to retailers, hospitality businesses like hotels, cafés, and restaurants, or service providers like hairdressers and beauty salons. It is not uncommon for local businesses to form buying groups for the purpose of negotiating better terms.

Here are some options:

• You should only offer delivery services using your own fleet and not allow customers to collect goods from your premises
• Only offer ‘cash and carry’ with no delivery option
• Possibly offer a combination of both

You can expect to have customers across the UK if you plan on selling online and using courier services to deliver your products.

Even though some wholesalers sell to members of the public, very many others consider this to be a violation of their relationship with their trade customers, so they take steps to ensure that all customers are legitimate businesses.

Special offers and discounts

If you offer lots of discounts and promotions, be sure that you can still earn a profit. The terms offered by many wholesalers are too enticing to customers, and the business does not cover its costs.

Remember that customers in the cash and carry trade get up to all kinds of tricks to avoid paying for goods. To prevent items from being concealed, make sure your employees are aware that all items on the trolley must be lifted and checked. Customers and staff may also work together to defraud you.

Fairtrade

More and more retailers and caterers in the UK are sourcing Fairtrade-labelled products in recent years as consumer demand for ethical products has grown. By stocking Fairtrade products, you will be able to meet the growing demand from retailers and caterers. By demonstrating your business’ ethical responsibility, you may also attract new customers. It can also be a good way to distinguish your wholesaling business from its competitors if you offer Fairtrade products.

What is Fairtrade

In the developing world, Fairtrade ensures producers and farmers get a fair deal for their work by making sure they receive a fair price for their goods. It costs a little more to buy fairtrade goods in the developing world than similar goods. Fairtrade-marked products are becoming more and more common among retailers and caterers. The Fairtrade Mark is an easily recognizable symbol found on all Fairtrade products.

How does it work

Fairtrade compensates producers for their goods at a set minimum price, thereby ensuring that they receive a living wage. The producers will also receive a bonus to invest in their businesses or communities. A social premium will be paid to them.

As a condition for receiving this bonus, producers must meet certain standards. Fairtrade International, which acts as a global umbrella organisation for Fairtrade, sets these standards. Before producers can use the international Fairtrade Mark, they must be certified by FLO-CERT. In the UK, you’ll likely buy Fairtrade goods directly from registered manufacturers, importers, and distributors. From the Fairtrade Foundation, you can find a list of licensed importers and importers.

Pricing

It is probably true that you will pay more for Fairtrade goods if you buy them from a registered producer or importer. Rather than merely covering the set price and social premium paid to the farmer or producer, these slightly higher trade prices also cover supply chain costs, certification fees, and product licensing.

Fairtrade goods may cost you more to purchase, but you will be able to sell them to retailers or caterers at a higher price. In the knowledge that Fairtrade goods benefit the disadvantaged producer or farmer, people are often willing to pay a little extra for them. Apart from setting the price to be paid to farmers or producers, the Fairtrade Foundation does not control prices anywhere else in the supply chain. As you set your prices, you’ll want to cover your costs and maintain a healthy profit margin, but also keep in mind Fairtrade’s purpose and aims. Fairtrade Foundation guidelines state that fair trade products should not have greater profit margins than similar products.

Promoting Fairtrade goods

You can get advertising materials and advice from the Fairtrade Foundation, a UK-based NGO responsible for promoting Fairtrade in the UK. Fairtrade Marks have to be approved for any promotional materials that use the Mark, including posters and leaflets.

For every Fairtrade Fortnight, the Fairtrade Foundation promotes the Fairtrade system. Your company could benefit from this by attracting new customers and by encouraging existing customers to buy Fairtrade products from you. Wouldn’t it be helpful if they printed a leaflet explaining the benefits of Fairtrade? Potential and existing customers could receive these. Posters promoting Fairtrade products and informing customers of what Fairtrade products you stock can also be displayed in your wholesale outlet. If you are interested in receiving a listing in their online directory of retail wholesalers and catering distributors, you may want to register with the Foundation.

Where to find out more

As part of the international Fairtrade movement, the Fairtrade Foundation is responsible for overseeing all aspects of the Fairtrade movement in the UK, including wholesale and retail. Visit the Fairtrade Foundation website to learn more about Fairtrade, the range of products available, and how you can get involved.

Financing your Wholesale business

You have finally decided to take the plunge into starting your own wholesale business. Whether you are selling products that you have manufactured or reselling merchandise from other suppliers, you will need to think about how you are going to finance your business.

One option is to take out a loan or alternative finance such as wholesale finance. This can give you the capital you need to get started, but it is important to remember that you will need to make regular loan payments, which may put a strain on your cash flow.

Another option is to seek out investors. This can provide you with the funds you need without incurring debt, but it also means giving up a portion of ownership in your company.

Ultimately, the best financing option for your wholesale business will depend on your individual circumstances. But with careful planning and a solid business model, you can ensure that your new venture gets off to a strong start.

Buy an existing business

Instead of starting from scratch, you may decide to buy an existing wholesale business.

Make sure, however, that the price you negotiate with the seller is a fair one for the business you are considering. If the business is for sale, try to find out why it is for sale. Are the owners ready to retire or are there other personal reasons for selling?

You will be able to establish whether the owner is selling because he or she is unable to earn enough income from the business with your market research into the industry as a whole and the locality in particular. Businesspeople who have turned a failing business around often don’t let this deter them. Establishing the current position is essential so that the business can be bought for a reasonable price.

Other matters to consider include:

• the condition of the premises, equipment and so on. Will you have to spend money refurbishing or replacing assets? Remember that the tobacco display ban means that only tobacco retailers and their employees should be able to access displays of tobacco products. If this hasn’t already been done, you’re likely to have to spend money on screening off your tobacco room to comply with this requirement if you sell tobacco products
• the condition of any stock you are buying. Check this over carefully before agreeing a price, particularly if the goods are perishable, or affected by fashion trends
• existing staff rights – TUPE
• how to retain key personnel once you’ve taken over
• does the business owe money that you will be responsible for
• do existing trade customers settle their accounts promptly
• if you are paying for goodwill, to what extent does this depend on the skills and personality of the seller

Consider your accountant’s assessment of the business account for the past three years to determine a fair sale price in light of what the account indicates. Don’t forget additional professional fees, such as solicitors to deal with wholesale business legal issues, valuations, and surveys

How to Start a Wholesale Business in 2023

Conclusion

Starting and building a wholesale business can offer a variety of benefits for entrepreneurs who are willing to put in the work. Firstly, it can provide a significant source of income and allow for financial stability and growth. Secondly, it can offer a sense of independence and control over one’s career path.

Additionally, it allows for the opportunity to work with a diverse range of customers and suppliers, providing new and exciting challenges. Overall, a successful wholesale business can bring personal and financial rewards, making it a great option for those looking to start their own venture.