Should You Sell Retail or Wholesale?

Do you know what type of business you will be venturing in? Will it be b2c (business to consumer) or b2b (business to business). All retail businesses fall into the first category which is b2c while most wholesale businesses fall into the second category which is b2b. There are some exceptions to this of course. Quite a big number of sellers are selling wholesale to the public provided that the customers follow the sellers terms such as ordering the minimum amount or ordering in bigger quantities. So how do you know which business is more suited for you? The following are some factors that you should consider while making your decision:

Profit margin

If you choose to be in a b2b type of company what this means is you will be selling your products or services to resellers. If you are selling products, your profit margin must be reasonable and low enough so that your customer can markup substantially and make a good profit for himself. If your prices are too high how do you expect your resellers to sell your products? Unless you are selling a unique product that can’t be found elsewhere, marking up too high is not a wise idea.

Marking up too low can be a problem as well as it will affect your company’s long term profitability. Please sit down and discuss with your business partner about setting the right profit margin for your business. What is your company’s sales target and how much do you need to make per month? Compare prices with other b2b suppliers selling similar products to yours. If you are offering an added value service then increasing your prices a little higher can be justified.

Cost

You would need to have a bigger capital if you are selling products to resellers. The reason for this is most B2B companies selling wholesale to distributors would need to have ready stock available. There will be overhead cost (for warehousing), big inventory cost as well other miscellaneous cost such as bookkeeping, employees salaries and others.

Minimum order amount

Most b2b companies will set a minimum order quantity or MOQ. If you plan to start a b2b company, you might decide to do the same as well. Having a MOQ is justified because customers who purchase from you enjoy wholesale prices and since most b2b have a low profit margin per style having a minimum order amount is important for the company’s long term profitability. You may think having a no minimum order amount might attract potential resellers but do you have the modal and capacity to handle a 1 quantity order for most of your customers?
If you answered yes then you should focus on setting a fair minimum order amount which is competitive in your industry. You can however have a no minimum order amount but raise your prices so that your profit margin is higher. This alternative may work for some sellers as mentioned in the previous paragraph.

Final thoughts

The greatest power that a person possesses is the power to choose. -J Martin Kohe

So have you thought of whether your business will be b2b or b2c? What are the main reasons for driving your decision? Why not drop a comment below and share with the rest of us?

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