How do wholesalers make money?

Question

I just am curious because it seems like im the one getting profit instead of them

Answer 1

My company, a manufacturing company, works this way: We manufacture a product called StaphWash which kills staph and MRSA bacteria. We sell it to our distributors for $12 per unit. The distributor sells the product to wholesalers for $24.50 per unit. The wholesalers sell the product to retailers for any price they choose, but usually between $24.50 and $30 per unit. The retailer usually sells the product for $39.95 per unit. Now, for more detail: The $24.50 is a "wholesale fair value" price which means that it can be sold at a wholesale price greater than, but not less than $24.50 per unit. The $39.95 is a MSRP (manufacturer's suggested retail price) but it can be sold for any price the retailer chooses to sell it for. The manufacturer is responsible for requiring all distributors to sell for the wholesale fair value price, which is covered in a written agreement between the manufacturer and the distributor. If a distributor is found to be selling at a wholesale price less than the wholesale fair value price, then the manufacturer is obliged to discontinue sales to the distributor who violates the distributor sales agreement.

Answer 2

The reason why wholesalers are able to make money and still offer lower prices is because the purchase items in mass quanities.
Example: Buying recliners.
Furniture store buys lets say 500@ 300.00ea= Cost of $150,000
Sells it at 450.00ea
They need to sell about 345 to get back the 150,000 investment.

Wholesalers buy 1000@200.00ea= Cost of $200,000
Sells at 275.00 or 300.00ea
They need to sell about 665 to get their investment back.

It's all about Return on Investment Capital (ROIC)

Because the wholesaler purchases more upfront they are able to get better pricing which allows them to sell for less, typically wholesalers are no-frills places to shop as well. Most stores look like warehouses and may not offer delivery or installation services.
Look at Ikea the prices are unbeatable but you must put together everything you buy and I believe they do not offer delivery.
They cut costs in the hope of selling more of the item.

Look at the business model of Wal-Mart. The customer service is horrible in the stores but the prices they can offer have people going there no matter the service they receive.

Answer 3

Wholesale Monopoly, Volume, Economies of scale, Low Overhead, Just in time inventory(timely delivery)....

Wholesale Monopoly
1st, Generally a manufacturer only sells its products to wholesalers[i.e. purchase and store for sale to retail sellers], extremely large retailers[e.g. Walmar], or its own retail chain[e.g. Ford, GM, Chrysler] Retail customers are either directly turned away or required to buy such a large minimum quantity that the average retail person would not have the desire nor the means to transport, finance and store the mass quantity of product.

Economies of Scale, Volume, Low Overhead
When purchased in large quantity, fixed and variable costs per unit drop greatly... Hence a small profit on a large volume with low per unit costs creates the opportunity for profit.

Just in time inventory(timely delivery)
A manufacturer is likely to have only 1 or a few plants. The Geographic distance is likely to impose time constraints on delivery. Wholesalers(Warehouses) can keep finished product nearby and provide it quickly when retailers need more product. Further, this relative closeness of finished product allows the retailers to carry less inventory and decreases the expenses of greater operating capital required to carry greater inventory.

Well, thats enough for now.

I am not getting paid enough.

Answer 4

Some times they don't. If they do there profit comes from a high volume of sales to a retail distributor of sorts. Personally, I make Celtic jewelry and wholesale my products to Irish Shops for them to retail to the public. I offer a volume price (10 like pieces) which enables them to mark each individual piece up a bit and sell it to the public. Email if you need further explaination. Good luck.

Answer 5

Wholesalers are the "middle men" in business.They buy direct from manufacturer or importer and resell at a given profit.They deal usually in large quantities so the small profit is magnified......George

Answer 6

They buy items in bulk for a set price, mark up the price a bit, and resell to retailers or to consumers. They make a bit more than they paid, which is what profit is.

Answer 7

There is nothing wrong with it. You must report it as income. You did not mention how old you are. You need to apply for a tax id#. Since you are reselling the items for money. The IRS wants their cut. Sorry that's just how it works.

Answer 8

By selling in bulk quantities to retailers.

Answer 9

They get better prices than you by buying directly from the manufacturers in BULK.

Answer 10

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