Wholesalers are the primary distribution channel for most goods on the market. They act as the middlemen between producers and retailers and can specialize in one or more industries. There are furniture wholesalers, grocery wholesalers, wine wholesalers and so on. This career path can be very lucrative for those with strong sales skills and an eye for business.
What Does a Wholesaler Do?
Whether you want to sell clothes, electronics, beverages or home accessories, you'll most likely purchase them from wholesalers. Sure, you can negotiate directly with manufacturers, but that may not always be possible. Buying from retailers is going to be expensive, especially if you need a large supply. A wholesaler, on the other hand, can facilitate this process and give you the best possible prices.
What if you want to become a wholesaler yourself? That's perfectly fine as long as you comply with the law and know your responsibilities. In this case, you will need to obtain a wholesale license. The requirements vary depending on the industry and type of business. There are several types of wholesalers, and each has a role. These include:
- Merchant wholesalers
- Limited-service wholesalers
- Full-service wholesalers
- Specialty wholesalers
- Agents and brokers
Merchant wholesalers, for example, are responsible for purchasing, storing and reselling goods. In general, they handle a wide range of products, from house cleaning supplies to electronics. They buy in bulk and sell in small amounts. Since they don't focus on a particular type of product, they don’t have expert knowledge in one area or another. They do, however, carry a large inventory and offer competitive rates.
Specialty wholesalers, by comparison, will have extensive knowledge about the products they sell. One that offers wholesale computer accessories, for instance, will be able to explain how each part works, what its perks are and whether or not there are better alternatives available.
No matter what path you choose, there's a good chance you can find a profitable niche and grow your business. Wholesalers make money by purchasing goods from manufacturers at a low price and reselling them to retailers or distributors for profit. Beware that starting this kind of business isn't going to be cheap. Besides the initial investment, you will need to lease or purchase a warehouse, hire employees to handle your products and constantly replenish your stock.
Why Get a Wholesale License?
A wholesale license, also known as a wholesale permit, allows you to start and run a business in this industry. Just because you have a business license, it doesn't mean you can buy products in bulk and sell them to retailers. This kind of activity is subject to different laws.
Wholesale requirements vary from one state to another and one industry to the next. Take the time to research the laws in your state before you start selling. New York City business owners, for example, must obtain a wholesale permit if they plan to operate in a designated public wholesale market and sell food or agricultural supplies. The license must be renewed every three years.
Without this type of license, you may not even be able to purchase goods in bulk. Manufacturers will want to see your wholesale permit to ensure that you're not buying their products for your own use. Additionally, the failure to present this evidence to legal authorities can result in hefty fines.
Apply for a Wholesale Permit
There are a few things you need to do before applying for a wholesale license. First, it's necessary to legally register your business. Start by choosing a name and legal structure for your company. Decide whether you want to register a sole proprietorship, a partnership, a limited liability company or a corporation. This will determine how much tax you must pay and with what laws you are expected to comply.
Next, apply for a tax ID number on the IRS website. This unique identifier is similar to a personal Social Security number. Without it, you will not be able to pay taxes, open a business bank account and invoice customers. After you obtain a tax ID number, take the steps needed to get a general business license. Also known as a seller's permit, this document is issued by government agencies. Its price depends on your type of business and its location. For example, if you live in California and plan to operate in that state, you can apply for a business license on the state's official website.
Once these steps are completed, you may apply for a wholesale permit. This document allows you to not pay tax on the goods you purchase. Wholesale requirements differ among states. For example, say you need to obtain a wholesale license for selling alcoholic beverages in Massachusetts. In this case, it's required to provide electronic copies of an Alcohol & Tobacco Tax and Trade Bureau license, a Criminal Offender Record Information release form and surety bond. Also, it's necessary to have your warehouse registered with the FDA and submit copies of its floor plan. The fees vary between $3,000 and $10,000. You can apply online on the state's website.
Business owners who plan to sell prescription and over-the-counter drugs are subject to different regulations. Again, it's necessary to obtain a wholesale drug license or pharmacy wholesale license. If you live in Washington, you'll be required to answer several questions as part of your application. These will be related to your credentials, partners, professional liability and other key aspects. Before a license is issued, you will have your facility inspected to ensure its compliance with the law.
The state of Indiana requires drug wholesalers to obtain a Verified Accredited Wholesale Distributors accreditation before applying for a license. If you plan to operate in Montana, you must fill out a National Practitioner Data Bank self-query and provide a copy of your facility's floor plan along with a description of the security measures in place. The application fee is $240. Drug wholesalers who reside in Iowa are required to have a Controlled Substance Act registration.
Grow Your Wholesale Business
Once you've obtained a wholesale license, focus on growing your business. In this industry, relationships are everything. Make a list of manufacturers, request multiple quotes and compare their offers side by side. Purchase goods that are not widely available in your area. This will give you a competitive edge and allow you to charge higher prices.
Leverage the power of technology to streamline inventory management, sales and billing. Research your competitors to see what they offer and how much they charge. Next, reach out to potential buyers and make them a better offer. A good way to promote your wholesale business is to send out samples. This way, retailers will have a chance to try your products before committing to a long-term contract.
Consider offering special deals to buyers who purchase in bulk. For example, if a restaurant orders large quantities of wine or spirits, you can provide regular discounts or free bottles. Another option is to create an incentive program for retailers who recommend your goods and services to other local businesses.
Don’t forget to build your online presence. Set up a website that describes your services and highlights what sets you apart. List your best products and mention any discounts available. Contact potential buyers by email and encourage them to visit your website and request a free quote.
- Marketing 911: 6 Types of Wholesalers – What Are the Different Types of Wholesalers?
- City of New York: Wholesale Business Registration
- State of California: Apply for Sellers Permit
- Investopedia: Wholesaling
- Commonwealth of Massachusetts: Apply for an Alcoholic Beverages Wholesaler License (ABCC)
- State of Indiana: Who Needs a Wholesale Drug Distributor License
- Montana Board of Pharmacy: Wholesale Drug Distributor Application Instructions
- Iowa Board of Pharmacy: Wholesaler Distributor General Information