How to Buy Wholesale

When you are buying wholesale on the Internet, there are some important guidelines that can help you when dealing with a company you may never meet face to face.

If you do not have experience buying from wholesalers and selling as a retailer, knowing what to expect can give you a real advantage. We have used some of our own experiences as a retailer as well as our own research to provide this information that we hope will be very useful to you.

What you need to know when Buying Wholesale:

What to expect from the whole sale company or manufacturer:
	Initial Purchase: You may be required to make a substantial first purchase from the wholesaler. The reason for this is generally that wholesalers do not want to sell to consumers who are merely buying products for themselves. Most wholesale companies want to establish long-term relationships with retailers that will grow over time.
	Credit Application: If you are going to establish an account with the wholesaler, you will probably be required to provide credit information or complete a credit application. You can expect to provide the names and addresses of at least two companies with whom you have done business in your company name as well as a banking reference and possibly credit card information. Some wholesalers prefer simply using credit cards, but that is not the norm.
	"Earning" your Place: Probably, you will not be considered a priority account when you first start buying from a wholesaler. They have other retailers who buy more and have been with them longer who may be given preferential treatment when it comes to filling and shipping orders or even when it comes to access to the best inventory. If you want to become more important to your wholesaler, you may want to consider keeping the number of suppliers you use small so that you are able to buy larger amounts from a single vendor. You should always pay your invoices on time or even early, so that you gain credibility. You should also take care not to complain about unimportant things so that you do not get to be known as the "problem customer." Customers who create many problems can become unprofitable and may lose the ability to buy at all.
	Reseller ID: Sometimes wholesalers will ask you to provide your catalog or price list on your company letterhead as well as your sales-tax reseller ID or business license before taking your request seriously. You can find information about the licenses and fees for your state here: www.businessnameusa.com/tax.php. As a business owner you are required to follow the rules, laws and regulations applicable in your state (and any state in which you have an office, sales office or distribution center) even if you are only conducting business on the Internet. Some exceptions may apply. However, you may only learn about these exceptions, if you contact the appropriate department in your state or consult with your attorney or CPA.


Questions you should ask when buying wholesale:
	Return Policies: Do the written terms spell out the return policy for defective products? Who pays for the freight? Can you get a refund or does it have to be a credit? Is your customer's freight refunded by the wholesaler or by you?
	Volume Discounts: Are there volume discounts available? Sometimes you can negotiate discounts, if none currently are available.
	Order Processing Time: Since the time from when your order is placed until you receive your inventory will affect how much inventory you need to keep on hand, it is important to ask lead time you need to allow between orders.
	Retail Sales Support: Some wholesalers spend quite a lot of time and energy doing things to help their retailers. Others spend almost none. A good wholesaler will help you by providing sales materials, computer disks with high quality
	Terms: You need to ask if there are any restrictions related to your relationship with the wholesales, such as advertising restrictions, relationships with competitor wholesalers, service or support required to be provided by your company and similar terms. You need to be sure that these terms are compatible with your plans for your own company before you sign any contracts.


What's the difference between wholesale buying and drop shipping?
	Inventory: When you buy wholesale, you purchase and store the inventory and then sell it to your customer. When you drop ship, the wholesaler keeps the inventory in their warehouse. Generally, you do not pay for it until you send in an order for the goods to be shopped to a customer.
	Collections: When you
	Your customers: When you drop ship to your customers, you will need to send shipping and other contact information to your wholesaler for shipment. You will, therefore, not be able to keep customer information totally private. Depending on your industry and plans for your company, this may not be an asset you want known outside of your company.
	Risk: Drop shipping involves much less risk for a small start-up business, since you are avoiding the cost of buying and carrying large amounts of inventory. You also do not need to invest in scales to weigh your shipments, boxes, packing materials and the cost of goods damaged during shipment.
	Freight: One of the biggest problems you will run into if you drop ship from more than one wholesaler happens if your customers buy one product from one company and another product from another company.
	Cost: Generally you can expect a much larger profit margin if you carry your own inventory rather than drop shipping. The reason for this is that the wholesaler is doing all the work for you to ship the products, maintain the inventory and make the purchasing decisions. Before you select this option, you will need to weigh this additional cost against the reduced risk to you.


What can go wrong when buying wholesale?
	Legal Advice: The first mistake you can make when buying wholesale is to not ask your attorney to read the wholesale contract before you sign it. Since the contract was probably written by the seller, you can assume the terms are intended to benefit them. Paying for an hour or so of your attorney's time could save you an expensive problem later.
	Damaged or Defective Products: If you are not dealing with a reputable wholesaler, you may end up bearing the full cost of a product return from a dissatisfied customer. Since your company is the one who made the sale, you are the company expected to refund the sales price to the customer. Getting your money back from the wholesaler can be a problem if you are not dealing with a good company.
	Stolen Credit Cards: There is a rather high probability that you will eventually be the victim of credit card fraud, especially if you sell online. If you are selling online and not "swiping the credit card", you have almost no protection if you ship a product using a stolen card. Even if you have the CVN number, an address match and proof of delivery, you will probably not be able to recover the amount of the sale. Basically, the seller (you) are taking all the risk.
	Copyrights and Trademarks: You should discuss copyright and trademark issues with the wholesale company to determine whether or not or in what manner you will be allowed to advertise the products you purchase from them. At times, the rules are so restrictive that you may find that you have difficulty selling the products online. It is smart to ask questions first.


Do your homework!
	Research: Just as the wholesaler will check your business reputation, you need to check the reputation of the wholesaler. Since it is not accepted practice for you to get them to complete a credit application, you have to do your own independent research. here are many places you can go to check the reputation of a company with whom you plan to do business: The Better Business Bureau - www.bbbonline.org Dunn & Bradstreet - www.dnb.com Alexa - www.alexa.com - Look up the website and then click on the "Site Info" link to see if any people have made comments about the company. You may be shocked to see some of the very frank comments people make about some companies. Of course, you need to be careful about relying too much on these comments, but if you see disturbing trends and many negative comments, be careful!
	Competition: Either hire a marketing firm or plan to do your own research of the market you plan to enter as a retailer. You should have a reasonably good idea of how much competition you have in your industry, how you can develop some kind of market niche to distinguish your company from the others and whether or not you will be able to get a large enough share of that market to be profitable.


Plan ahead!
	Business Reputation: Establish your own credibility as a "real" business by doing things like establishing a business checking account, joining your local Chamber of Commerce and joining the Better Business Bureau. You will probably need business references to open an account with a wholesaler.
	Incorporation: Consider incorporating your business. There are several different ways to incorporate, which have different implications and tax consequences. Talk to your attorney and your accountant for details.
	Business Knowledge: If you do not have enough knowledge of taxes, laws related to your business, insurance needs, Internet marketing, shipping options and technical aspects related to your chosen industry, you will need to either take classes, read some industry literature or hire professionals to fill in the gaps in your education. A good place to start might be the free Internet Business Tutorial on the website www.OnCallGeeks.com.