The Disadvantages of Wholesaling

by Peter Grant; Updated September 26, 2017

Wholesaling goods of is selling goods in large quantities at lower prices so that others can mark up the good's price and sell it for retail. Depending on your business goals and needs, you may want to engage in wholesaling, however it's important to bear in mind that this sales strategy does carry some distinct disadvantages.

Limited Quantity

Wholesale contracts often come attached with a minimum quantity that must be purchased or the order will not be fulfilled. For example, a clothing company may dictate that a retailer must purchase a minimum of 100 pairs of jeans at a time or else they face paying a higher price per item, thus reducing the overall profit margin that can be obtained through retail sales.

Higher Production Levels

Wholesaling goods also requires manufacturers to increase their output and production levels. For unprepared companies, this can come at a high cost that sinks the company into debt. Higher production levels typically require more money to be spent across the board on staff, raw materials, capital expenditures and delivery.

Production Consistency

As wholesaling scales up and wholesalers take on more customers, there is an increasing need for production consistency. Ensuring quality when producing any type of good can contribute to increased production costs. It's important that wholesalers be able to maintain a consistent quality and quantity when working with their customers otherwise the customers may grow impatient.

Pricing

While wholesaling can offer lower prices to customers who are buying in bulk, the company who is producing the goods may not be able to obtain profit margins that are equal or greater than the margins seen by selling the goods individually or in a retail environment. For example, some companies such as Apple Computer create their own line of retail stores and ship directly to them, cutting out some of the wholesale contracts that it may normally carry with retailers.

About the Author

Peter Grant has been a professional writer since 1998 and software engineer since 1995. He has contributed to academic papers, open-source software projects and technical documentation across several industries. Grant holds a master's degree in public policy from National University.