Why Buying Wholesale Can Be Misleading

Share On Facebook

A good number of phone calls we get for our ecommerce business are from customers asking for wholesale pricing on our products.

And because we have no desire to be in the wholesale business, my default answer is always no. Instead, I offer them attractive discounts if they purchase above a certain quantity threshold.

Now what’s funny is that when customers hear the words “no wholesale”, they almost always hang up without asking for pricing.

Why Buying Wholesale Can Be Misleading

What these customers don’t realize is that the discounts we offer are competitive with many of the wholesalers in the US and these customers are missing out.

Do they think that wholesale is synonymous with lowest price?

Here’s the thing.

Most new shop owners believe that buying “wholesale” magically means that they are getting the lowest price possible.

Most shop owners think that obtaining wholesale pricing means that they can make at least a 50% margin when they list their products for sale.

The truth is that the term “wholesale” is just a bunch of BS. Admittedly though, the word implies “major discount” which is why most people fall into the wholesale trap.

Here’s the reality.

Wholesale pricing does not guarantee a certain margin and it’s based on an arbitrary MSRP or manufacturers suggested retail price which is often bogus.

Here are some things to keep in mind if you are looking to buy wholesale.

You Will Not Be The Only One Selling That Product

Identical Product

If you were able to find your wholesaler easily, chances are that a bunch of other people have as well.

Even if you receive attractive pricing for the products you want to sell compared to the manufacturer suggested retail price(MSRP), the low barriers to entry will lead to severe pricing pressure in the marketplace.

This phenomena is especially prevalent on Amazon where you potentially have hundreds of sellers trying to sell the exact same wholesale item.

Even if you manage to find a wholesale product that is under served on Amazon, it’s only a matter of time until other sellers find the same distributor and start competing against you.

Once that happens, it will quickly become a race to the bottom in terms of price.

Even if your manufacturer offers MAP pricing(minimium advertised price), at best you will achieve price parity selling an identical product with very little added value.

In addition, your prices for wholesale purchases will be tiered based on quantity. As a result if you are a beginner, you will be competing against larger volume players who have more favorable pricing.

Wholesale Prices Aren’t Always The Lowest

dollar

When my wife and I were shopping for vendors for our online store, every single person we talked to claimed to a be a wholesaler.

But the price ranges were all across the board. Believe it or not, some of these wholesalers had prices that were more expensive than if I just went to Walmart.

How can that be the case? Shouldn’t wholesalers offer the most competitive prices?

The fact is there are many retailers out there who offer only a few products, buy in extreme bulk, and focus on volume.

In many cases, wholesalers (at least in the US) are just small businesses that…

  • Don’t have the capital to purchase large enough quantities to get the best pricing across the board
  • Import their goods from China, do a little quality control and markup the item 100%

Several years ago, my wife and I attended the annual San Francisco Gift Fair held at the Moscone center (It’s no longer called this). And as with most wholesale tradeshows in the US, the majority of vendors offered a suggested retail price which was roughly 2X the wholesale price.

Now normally tradeshows like the SF Gift Fair are a great place to meet vendors because hundreds of companies congregate under the same roof for several days.

But what we found was that the MSRP prices were outrageous.

The problem with shopping at a trade show is that unless you have some context for the pricing of the goods you are buying, you will have no idea whether the wholesale prices you are getting are the absolute lowest.

After all, the “retail price” is usually just a bogus number that you can’t really expect to charge.

Now there were several vendors at this show that sold the same or similar products that we offer in our online store. But the wholesale pricing that they were giving us was a good 2-3X higher than what we could get directly from our vendors in Asia.

In some extreme cases, the markup was upwards of 8-10X. But if you looked at their retail pricing, it didn’t appear to be a bad deal. That is why you have to be extra careful and do your homework before making a bulk purchase.

The reality is that anyone out there can call themselves a wholesaler as long as they do the paperwork. There aren’t any guidelines or certifications required so the term “wholesale” can mean a huge range of prices.

Amazon Has Changed The Wholesale Game

Amazon

Today Amazon is the most shopped on ecommerce platform on the planet. In fact, 49% of retail consumers start their product searches on Amazon. 49%!?!?

In the past, you could get away with selling other people’s products online at higher prices because there was no single dominant platform. Back in the day, consumers relied on comparison shopping engines or Google to get the best price which was a much more tedious affair.

But today, you can simply go on Amazon and instantly compare multiple identical products and get the best price. As more and more people start selling the same wholesale product, the price can drop almost immediately.

One of my friends had a wholesale product that sold well for many years until a rash of new sellers started listing the exact same item on Amazon.

Within a single month, the price had dropped so significantly that he was stuck with an entire warehouse of unsellable inventory.

Because half of all consumers start their shopping on Amazon, there’s much less incentive for a manufacturer to sell you their products wholesale unless you run a brick and mortar establishment.

After all, why should they sell their products to you at wholesale prices when they can sell on Amazon and make double the margin?

Should You Buy Wholesale And Sell Other People’s Products?

If everyone can obtain “wholesale” pricing, things look pretty bleak in terms of starting your own online retail business right?

This is absolutely true if you choose to sell easily obtainable or highly competitive products.

For this exact reason, I would never sell electronic goods. Not only is this market extremely competitive, but your products have a time element involved as well. If your electronics go obsolete, you may never be able to liquidate your inventory.

I would also avoid selling other people’s branded products. In highly competitive markets, similar products are susceptible to price erosion.

Since you’re probably getting the same pricing as everyone else for identical products, a price war is likely to erupt which will erode your margins.

One of the most popular questions I get asked is whether to start a dropshipped online store. And for the exact same reasons outlined above, dropshipping is not a good long term business model.

Related: Why Dropshipping Isn’t As Easy And Simple As You Think

But if you insist on starting a dropshipped online store, you should do so with a plan to transition to your own branded products at some point in the future.

In fact, here’s a good game plan if you are starting an online store with little or no money

  • Start out with a dropshipped store to see what items are popular. Your goal is not necessarily to make a profit during this phase. Your main goal is to gather information. Use a service like Worldwide Brands to help find pre-verified wholesalers.
  • Once you know which products sell well, then buy and carry these products wholesale in your store at higher margins.
  • Finally once you have enough capital, private label your own brand for maximum profit.

The Best Way To Sell Online

brand

The best way to sell online today is to source your own products and establish your own brand. The term “buying wholesale” inherently means that you are selling someone else’s products.

And as a result, it’s much harder to establish a strong value proposition when you are selling the exact same items as everyone else.

Fortunately, creating your own private label brand is not as intimidating as it sounds.

Here are some resources on how to get started

Moral of the story: Pick the market less traveled. Choose a small niche and sell products that are not readily available. Private label your own line of products so no one else can sell exactly what you sell.

There Will Always Be Competition

No matter which market you choose to pursue, there are always going to be competitors even if you own your own brand. If there aren’t any, then chances are your market isn’t even worth pursuing.

Most people who want to open a store (myself included) often balk during the research phase because they do a Google search only to find several competitors already in their market space.

Often times, some of these competitors offer rock bottom pricing making you second guess whether you can make a decent profit. Ultimately, there’s more to the success of your store than just the lowest price.

It all starts by establishing your unique selling proposition. What makes your store special? How can you set yourself apart from the rest?

Our wedding linens store offers similar products to over a dozen other websites and we charge more money for some of these products. And guess what? The stuff still sells. Not everyone is going to make purchasing decisions strictly on price.

If the market you have selected is large enough, you will still make sales if you can make your business stand out. With our store, we pride ourselves on our customer service and the useful information we provide on our website.

Do you offer superior customer service? Do you offer higher quality items? Don’t hesitate just because you see a bunch of lowball competitors.

If you think you can provide value, your business idea may still be a viable one.

Avoid Competing Against Big Box Stores

It can be extremely frustrating to go up against large retail giants, so don’t.

Don’t go head to head against larger establishments because you will definitely lose. Instead, offer items that aren’t covered by the large retailers.

Large companies have to determine whether it’s worth it to carry a certain product and factor in all of the logistics with physically stocking and transporting items to their stores.

Often times, they need to sell an enormous (to you and I that is) amount of product to make it worthwhile. But for a small business, if you can find that product that is not worth selling for a large company and sell it in your store, you will be well on your way to making some serious money.

Ready To Get Serious About Starting An Online Business?


If you are really considering starting your own online business, then you have to check out my free mini course on How To Create A Niche Online Store In 5 Easy Steps.

In this 6 day mini course, I reveal the steps that my wife and I took to earn 100 thousand dollars in the span of just a year. Best of all, it's free and you'll receive weekly ecommerce tips and strategies!

Share On Facebook
Note: This post above may contain affiliate links, which means that I may receive a commission if you make a purchase when clicking a link. Please consult our privacy policy for more information.

Similar Posts

Have you read these?

19 thoughts on “Why Buying Wholesale Can Be Misleading”

  1. Matt Keegan says:

    I have always felt that the term “wholesale” was a bit misleading. Sure, some companies offer wholesale prices, but they aren’t necessarily the cheapest prices out there.

    WalMart, for instance, can use its vast buying influence to obtain prices below wholesale and turn around and sell much of their merchandise for less than what even a wholesaler charge.

    Blame consumer learning habits for thinking that wholesale is the best way to go, without looking at what really matters which is a competitive price, service, return policy and the like.

    1. Steve says:

      @Matt
      Most of the time, I ask for the product number and the quantities required so I can provide these customers with a quote, but they rarely follow up once they hear the words “no wholesale”. It should be more about pricing and service but they don’t even give things a chance. Oh well.

      @Ron
      We could just claim that we sell wholesale. But if we do, we can’t charge sales tax and we have to take down a Tax ID number since they are just reselling our products. Your story about quantity discounts is hilarious. This happens to us all the time.

  2. Ron says:

    Why not just say, “Yes, here are our wholesale prices” and make ’em happy? After all, you set the minimums to get those prices!

    I’ll never forget the day a guy asked me the price on an interior door. I told him they were $69.95. He asked if I gave quantity discounts. I asked how many he had in mind. His answer: TWO. I told him we gave discounts on the same quantity breaks that we received them — half of a tractor trailer!

    He bought the two doors anyway.

  3. Small Steps to Health says:

    I see “wholesale” going down the same path as “outlet.” Now their is even “premium outlet” which cost almost just as much as the regular stuff on sale. All marketing and hype to get us thinking that we got a good deal.

  4. Mark Schrag says:

    I totally agree with your statements. I had a home furnishings retail store for 33 years, but closed last year. The term wholesale can mean many things depending who is using it to their advantage. Also, does it include, free freight, terms, advertising allowance, etc. The lowest possible price , for the most part, means just as stated, no other conditions exist. I also have a wholesale business, in which I use “my price to you” (the lowest price to you). For most buyers you really have to spell out the exact price. Buyers will keep asking for more special terms to them. That is an endless pit, since generally someone, somewhere will always have a lower price, but not always for the exact same product. Let the buyer beware!!! To the small lot buyer integrity, honesty, quality still count.

  5. Pingback: wholesale distributors
  6. Pingback: Find Products To Sell Online – Create A Profitable Online Store Part 2 | MyWifeQuitHerJob.com
  7. Pingback: Find Products To Sell Online – Create A Profitable Online Store Part 2 | Wizpress.com
  8. Pingback: Buying Wholesale Versus Buying From A MiddleMan | Wizpress.com
  9. Chris says:

    Unless there’s some governing body that can certify the term “wholesale”, there will always be scammers

  10. linkpromotions says:

    Thank for providing such a useful information and this is very useful us .

  11. Nick Reid says:

    Although this article was interesting and semi beneficial for me personally, I am more interested in reselling as a fle market vendor. I have been trying to read up on buying “wholesale” or “bulk” or any of the other terms that are being used. I thought and thought about a particular product or product category that would be of interest to the clientele of shoppers in this town and at this flea market.

    I finally decided on socks. For years I have seemed out the “sock guy” at any flea market in any state/city I have resided in. I love the sock guy. Ha ha. Where can you get a package of 6 black or white socks for $4.00? The flea Market. I did research and the particular flea market I have once sold at before and now going back once again to establish myself as the certain product vendor type instead of the buy used goods (yard sale items, auctions, etc…) and reselling for a profit. The only place even close by to this flea market that folks can go to buy socks (and other foot related novelty items – creams, toe rings, anklets, polishes, flip flops for the warmer months as I live in the carolinas) is “Family Dollar”.

    So I did some looking around on line and found the web site “Dollar Days”. I can get really good prices from that site. Example…6 pack of socks (crew style white or black) If I purchase 240 of them my total cost with shipping charges would be at or round $150.00. The flea market I am at is open 7 days a week and doesn’t have the traffic like the large flea markets or swap meets that are open on weekends only. I rent my 10×30 space for $150 a month. The closest retail type store (Walmart) is roughly a 20 min drive from this flea market. There are no other vendors in the building that sell socks or feet related products.

    Seems to me this is a very good product (socks) for me. Everyone needs socks, there are a ton of types and styles. This product will never be “outdated” like electronics, clothing and other top products that are currently being sold either on line or small resale stores.

    With all this being said, what are your thoughts, advice, any better sites other than Dollar Days? Just seems like the profit margin would be very high for me…$150 investment on 240 units. I sell them at $4.00 or 2 for $7.00…seems like a no brainer to me but if it seems to good to be true…it probably is, so any insight would be great and appreciated. Thanks

  12. Pingback: Buying Wholesale Versus Buying From A MiddleMan
  13. Reed C. Warren says:

    Not every one is out to make a profit… Yes!!! I too was misled by the term wholesale, my inquire was to assist those who are in need and there is NO Prefit when the money comes out of my pocket and the food is given to folks in need (NOT SOLD), Mostly to single parents and the elderly…..I know, whole sellers, may say, these folks can go to food banks to obtain food, BUT, not all have transportation or are not strong enough to make it to a food distribution center… I personally am on a fixed income, but my desire is to assist those who are in need, not for profit but I just believe it’s the right thing to do. Mainly because, it would be pleasing to God…After looking at whole sell prices, I can buy MORE FOR LESS at a grocery store……Thank you for opening my eyes to the misconception of wholesell….

  14. Reed C Warren says:

    Excuse me, that is wholesale, not wholesell.. In me frustration of you folks thinking everyone is out for a profit, I incorrectly spelled WHOLESALE.

  15. D ward says:

    I have been in business for 40 years and did not ask for advice

  16. Raviraj says:

    Hello,
    This article is very important to me personally about my business.You describe very essential topic for wholesale business.

    I am a beginner businessman.Please keep continuing your writing!!

  17. robert says:

    buying on wholesale is misleading because customer don’t get more option from there i like your information.

Leave a Reply

Your email address will not be published. Required fields are marked *