The truth about wholesale product supply comes as a shock to many ecommerce newbies. The truth is that wholesale prices are those prices set by a true wholesaler. In some cases, the manufacturer may play a role in setting minimum prices. Before we even talk about prices, it is important to understand that a wholesaler is a particular kind of business with a special business license granted by its state of residence allowing it to distribute manufacturer goods without charging sales tax. The wholesaler is in charge of the warehouse space for holding its line of goods, maintaining a sales staff, shipping and handling, and all of the administration involved in order fulfillment and tracking. Although there are some factory direct wholesalers, wholesale distributors are generally the next step in the process of getting goods to the retail market. Thus, manufacturers generally require wholesalers to purchase large quantities of all of their product line. Wholesalers, in turn, make their money by selling their products in volume to retail merchants. The key to their profits is selling in bulk, and their main customers are retail outlets with regular bulk orders.
Because the wholesaler depends on bulk order, wholesalers often reward larger orders with greater discounts and often have levels of pricing. Each wholesaler defines its own levels; for example, quantities of 1 to 25 might sell at one price, quantities of 25 to 50 at a lower price, and quantities of 50 to 100 at a still lower price. Also, some wholesalers may allow their sales force to determine the amount of discount based on their relationship with their client. You can see that prices are flexible and your price will depend on the quantity you purchase as well as how you are valued by your sales representative.
Many people starting out in online ecommerce are stumped by what seems to be the mystery of really low cost goods that appear to be priced almost at or below the wholesale cost. The ability to purchase in large bulk volume and manufacturer rebates is part of the answer; another part of the answer is that some stores buy liquidated stock by the truck load at literally pennies on the dollar. Some ecommerce merchants also sell surplus and auction items. There is nothing wrong with this, but the goods should not be advertised as new because, strictly speaking, they are not. They might be as good as new, but they are not brand new.
Legitimate wholesale businesses in the United States are required to see proof of your sales tax permit, sales tax ID, or resale certificate. A sales tax permit is a document from your state department of revenue that allows you to buy products from licensed wholesalers without paying sales tax. It is understood that when you sell your products to residents of your state that you will remit the sales tax to the state treasury at quarterly tax periods. The sales tax permit is an essential document proving that you are a legitimate retail business.
Newcomers to ecommerce are often advised to be aware of "middlemen." This is an important issue where wholesale supply is concerned. So, what are middlemen and how do you identify them? Keep in mind that you can always identify a true wholesaler because they are required by law to have proof of your sales tax permit. As you research sources of low cost products, you will find some sellers who use the word "wholesale" in their site description and say that they have wholesale prices but otherwise never directly state that they are wholesale distributors. Those sorts of businesses are usually middlemen. In other words, middlemen are retail product distributors selling at a steep discount (but not as cheaply as real wholesalers) to other retailers. This is only bad when a product supplier pretends to be a wholesaler or tries to fool you into thinking it is a wholesaler when in reality it is discount retail outfit. Remember, true wholesale distributors must have a copy of your sales tax permit on file in order to do business with you.
What does it take to set up an account with a wholesale distributor? Generally speaking, they require proof that you are a legitimate business. Minimally, they will need your sales tax permit and proof of your ability to pay. I recall one major DVD and media wholesaler wanted a $25,000 letter of credit. Another required that they have a credit card on file. A wholesaler may require references and proof of a business bank account. The exact requirements will vary from wholesaler to wholesaler. Many people want to know if wholesalers will deal with you if you only buy very small quantities. The answer is yes, most will, but keep in mind that as a small, online business, you are not likely to be their primary customer. When setting up an account, always remember to follow their instructions to the letter, and realize that their primary concern will be that you are a real business and meet the legal requirements for their state.
Because the wholesaler depends on bulk order, wholesalers often reward larger orders with greater discounts and often have levels of pricing. Each wholesaler defines its own levels; for example, quantities of 1 to 25 might sell at one price, quantities of 25 to 50 at a lower price, and quantities of 50 to 100 at a still lower price. Also, some wholesalers may allow their sales force to determine the amount of discount based on their relationship with their client. You can see that prices are flexible and your price will depend on the quantity you purchase as well as how you are valued by your sales representative.
Many people starting out in online ecommerce are stumped by what seems to be the mystery of really low cost goods that appear to be priced almost at or below the wholesale cost. The ability to purchase in large bulk volume and manufacturer rebates is part of the answer; another part of the answer is that some stores buy liquidated stock by the truck load at literally pennies on the dollar. Some ecommerce merchants also sell surplus and auction items. There is nothing wrong with this, but the goods should not be advertised as new because, strictly speaking, they are not. They might be as good as new, but they are not brand new.
Legitimate wholesale businesses in the United States are required to see proof of your sales tax permit, sales tax ID, or resale certificate. A sales tax permit is a document from your state department of revenue that allows you to buy products from licensed wholesalers without paying sales tax. It is understood that when you sell your products to residents of your state that you will remit the sales tax to the state treasury at quarterly tax periods. The sales tax permit is an essential document proving that you are a legitimate retail business.
Newcomers to ecommerce are often advised to be aware of "middlemen." This is an important issue where wholesale supply is concerned. So, what are middlemen and how do you identify them? Keep in mind that you can always identify a true wholesaler because they are required by law to have proof of your sales tax permit. As you research sources of low cost products, you will find some sellers who use the word "wholesale" in their site description and say that they have wholesale prices but otherwise never directly state that they are wholesale distributors. Those sorts of businesses are usually middlemen. In other words, middlemen are retail product distributors selling at a steep discount (but not as cheaply as real wholesalers) to other retailers. This is only bad when a product supplier pretends to be a wholesaler or tries to fool you into thinking it is a wholesaler when in reality it is discount retail outfit. Remember, true wholesale distributors must have a copy of your sales tax permit on file in order to do business with you.
What does it take to set up an account with a wholesale distributor? Generally speaking, they require proof that you are a legitimate business. Minimally, they will need your sales tax permit and proof of your ability to pay. I recall one major DVD and media wholesaler wanted a $25,000 letter of credit. Another required that they have a credit card on file. A wholesaler may require references and proof of a business bank account. The exact requirements will vary from wholesaler to wholesaler. Many people want to know if wholesalers will deal with you if you only buy very small quantities. The answer is yes, most will, but keep in mind that as a small, online business, you are not likely to be their primary customer. When setting up an account, always remember to follow their instructions to the letter, and realize that their primary concern will be that you are a real business and meet the legal requirements for their state.
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