The Truth About Wholesale - Are You Still Paying Full Markup?

This is the result of several entities trying to make money (nothing wrong with that), what I like to call distribution inflation (the ever growing attempt to make the consumer pay for the middleman's ability to distribute more product), and of course the ignorance of the fact that you can actually skip most of these "middle men" and purchase the product at a reasonable price void of credulous markups that are unnecessary.

This article will explore the industry, how a product goes from manufacturer to consumer, how the markup process has it's good side (creates jobs, more) it's downside (too many middle men being "employed"), how the Internet is changing the rules, the industry, and giving people far more opportunities to stretch their hard earned dollar than ever before. De-victimizing you from overzealous retail markups.

You may already know how much this works, but you may just learn a few things you didn't know here!

____________________________________________________________________________

The problem is the "profit" markup happens at each of the distribution points (of which there are often far too many) any given item goes through to market it and raise awareness of its very existence. Any given item may go through 5-10 or more price increases (that incorporate likely a 30% profit at each "juncture" and that absorbs the distribution point's costs over a bulk of the item) before it reaches the retail shelf!

Most of this is a means to distribute the product to the largest cross section of consumers possible. You can cut distribution down to a few people and acquire things extremely cheap with a few extra steps and some awareness of the system itself.

Weather you want to purchase products to sell on eBay, in your own on-line (or off-line) store, or you just want to make your hard earned dollar go further, knowing how the system works and how to beat it is in your best interest! (yes that's a pun). Let's talk about that system next.

Let's Talk About How And Why The Mark-Up's Exist And Why They Are Actually Stimulating The Economy (but unfortunately stimulating your wallet too)!

After manufacturing, there is not only the cost of materials, labor, and packaging, there's also the cost of distribution and delivery (from the manufacturer to the shipping/wholesale warehouses). There's also the cost of labor in distribution to the store itself (private transport, unpacking, shelving, etc...) before the final shelf price is set.

The store also ads their other overhead such as advertising, shrinkage (theft), and other costs (calculated overall then applied uniformly across all products to come up with the final value price)

By the time you pay for items in most stores, the amount you pay is primarily all mark up! Very little of what you spend at all reflects the actually price of the product or cost to manufacture it. You can rest comfortably knowing you employed several dozen people you didn't have to... go economy!

This doesn't mean the individual stores themselves- even higher priced ones- are doing all the marking up- most of the time they are faced with an already high price they have to mark up substantially just to survive. Their margins are too low so they have no choice.

Although the cost of manufacturing has gone down over the years, the cost of distribution- an umbrella term covering many of the mark-up steps- has been the one that's gone up. The cost of advertising is a major part of that equation.

Each Step in the Process, A Middle Man Takes Their Slice of the Pie- Called a "Margin".

In the old days of wholesale, only the businesses with (a lot of) money to spend and those willing to buy in bulk (or attend trade shows) were able to get a true wholesale price.

True wholesale is not "cost" or manufacture direct cost. Wholesale also has many markup steps involved as well.

You don't really hear about it unless your in the game.

The wholesale path from the manufacture often looks something like this:

• Manufacturer (manufacturer has overhead from equipment, acquiring resellers, to trade show fees to display their wares)

• Trade Show Sellers (the first group to purchase from the manufacturer other than those that deal direct in the first place). In this section the manufacturer may just sell direct to businesses as well.

• Wholesale sites; on and off-line businesses that buy direct from the manufacturer then resell at wholesale level II to the smaller businesses. They are usually like brick and mortar businesses that sell to stores, on-line retailers (including small businesses using eBay/Amazon to retail products)

• Small Retail Stores (they purchase often from the level 1 wholesalers)

 ____________________________________________________________________________

The Level I wholesale purchaser doesn't get the "at cost" price. The manufacturer has to make money too so the wholesale price is the cost of manufacturing/packaging if applicable plus a small profit.

The profit for the manufacturer is minimal and made mainly in bulk sales.

The only exception is if the manufacturer and the wholesaler are the same company.

This is happening more and more these days) they make the highest markup, but also deal with distribution (selling both direct to the customer and to wholesalers to trickle down the ranks to retail).

The higher up the chain (closer to the manufacturer) you go the lower the per item markup's are (but the more items you have to purchase at one time).

The closer to the retail end you get the higher the markup gets. This is because these people/businesses have higher overhead and are trying to sell one item at a time. It's harder to make a profit this way as it takes time, resources (electricity, rent for the store building, advertising costs, shrinkage, etc...).

There Is A Good Side To The Many Levels Of Mark-Up's Created Between Manufacturer And Consumer.

Having this kind of a system certainly helps society by offering jobs to many of our citizens and to stimulate the economy because all these mark-up points become in effect new businesses. This "business" is now going to pay someone at the customer's expense.

Weather or not this is a bad thing is strictly opinion.

Some of the areas that benefit and create jobs are:

• Inventors

• Product manufacturers

• Ingredient manufacturers (the components used in creating the products or pieces of products)

• Small and large business owners (and their employees)

• Shipping companies

• Packaging companies

• and more...

The real value of the product is likely a tenth of what you pay for it- however you also must realize that had all the steps, the business owner, manufacturers, trade shows (where they sell them wholesale), and so on- not been there this product may never have made it to the point where you could buy it in the first place. Distribution is not only about getting a product out to more people it's about diluting the costs of bringing an idea to market and successfully allowing it to thrive.

If it's a product you absolutely need, enjoy, and that brings you joy, productivity, and so on- then the cost is often worth it because it simply, it exists!

Another variable at these levels is having to deal with theft/shoplifters or what is called "shrinkage" in the industry. These losses have to be made up and for many of the smaller businesses that can't purchase in large bulk for the lower per item rate (usually 10,000 pieces at a time for the best price) the only way to do this is to pass the costs to the consumer/customer.

Due to high theft rates, many smaller businesses/stores have been forced to charge ridiculous prices for their merchandise just to survive. Although some stores with tight security and very low shrinkage have used this as an excuse to raise their prices (the market mentality based on just about every store out there charging a certain rate), most stores are not charging higher rates because they are greedy, they do so to survive.

This makes it hard to compete in the market, however many of the larger chains have taken advantage of this to compete and sadistically, to raise their base prices because they know the smaller businesses can't lower their prices and survive. This has sparked a lot of controversy about large chains moving into neighborhoods and making it impossible for smaller businesses barely surviving as it is, to compete!

____________________________________________________________________________

The larger companies like Wal*Mart have massive purchasing power and often can order direct from the manufacturer so they eliminate all the mark-ups in-between that limit the smaller businesses. They can handle more "shrinkage" than the smaller business for this reason and have taken advantage of the price hikes to create a higher price point on items due to public perception (they will raise prices to the highest the market can bare at any opportunity).

In a small way this helps the smaller business as it changes the perception that they are simply gouging their customers with high prices by showing they are just selling at the "market rate".

This does more harm than good to the smaller business, however, as this gives bigger business a reason to raise their prices safely and riding on the backs of those surviving to make a profit instead!

____________________________________________________________________________

They often will raise their "normal" prices to the same as many of the stores around them for a few weeks then lower THEIR prices lower than the smaller business can, and people end up going to the bigger store for the lower price. People often will only go to the smaller business for items because it's more convenient- leaving that the only real way to compete. Some people are faithful to the small business and go there regardless for the service, convenience, and even because they understand how it all works, but in this economy not everyone has that luxury.

Many businesses will ultimately try to make 30% on the retail price but like to have a buffer just in case the item doesn't sell or there are leftovers they can discount without losing money- this also raises prices once again.

In the old days before the web got so proficient at marketing products direct from the manufacturer (or 1-2 middle men vs. 10) it was difficult or inefficient to purchase wholesale products.

Today, however, many manufacturers are offering their products at wholesale prices online or are selling them to middle men (as well as direct).

The mentality of the retail landscape has evolved. Manufacturers can both sell direct to the customer or any layer of markup that exists in the hierarchy, and to the retail stores at wholesale. It all boils down to the way people purchase things today.

Some people order certain products online that they can't find offline or that they don't mind waiting for. They prefer to get other things at the store for the experience and convenience like groceries or the experience of thumbing through books at a book store to make a decision.

Many have a duality to how they purchase consumer products and will, depending on their mood, needs, and other variables, order online or go to the store. There is likely very little loyalty to one or the other exclusively. This means both avenues of retail can thrive simultaneously. Those wanting savings over convenience will often use the web for higher priced items or buying several things from one place. Another popular trend is doing price watching in both places.

____________________________________________________________________________

Price Shopping Online But Experiencing The Product First, Offline

I will often when purchasing anything check to see if it's available online cheaper (including shipping). I go to the store to get the experience of shopping, seeing the item in person, and even sizing it up (comfort, aesthetics in person, etc...) but I will go online to see if there is another store selling it cheaper. This way i get my cake and eat it too.

It's actually possible to get just about anything at wholesale prices (in low bulk or no bulk) online.

You just have to know how to find them! I'll give you a clue- you don't find them by searching for "wholesale products"- as the word wholesale has become somewhat ambiguous online.

Many not so wholesale retailers are claiming to sell at or below wholesale costs but in reality it's just lower retail (and in some cases exactly the same + shipping).  In the end the best way to go is to just search for a product by name, product model number, or even by type (sometimes there is a better version that's not a recognized name brand). All of which you can find at any store right on the sign.

____________________________________________________________________________

This is another area that's been abused by unscrupulous "list sellers" but there are some authentic and useful lists available if you do your homework. A list is essentially a listing of on and offline wholesalers and even phone numbers or secret sites you can go to to order direct from the manufacturer.

There is a much easier and more lucrative way to find the direct from the manufacturer pricing, but you will have to purchase in small bulk. We'll get into Trade Shows further down. Personally if I were going to create a wholesale list to use I'd just take my business license, wear a shirt and tie, then go to the trade shows where I'd make direct contacts with the manufacturers or wholesalers. Many people go there JUST to get those contacts. They can then figure out their pricing (at the show) and go back to the office and plan ahead, order what they need, and no BS in between!

There are some more local and per item purchasing concepts you can do right in your town and without requiring you to acquire a business license. I'll cover a bunch of great money saving ideas that I do and that have saved me literally hundreds if not thousands a month on everything I buy. I never pay retail unless it's something I can't find or get in bulk or just cheap enough that it's closer to the actual value of the product. (more below)

Example List for Polo Clothing and Accessories:

Costco, a membership store that doesn't require you to be a business to join, is a low bulk store. Typically they offer either products in "packs" like a case of soda, a 48 pack of Gatorade, and the like, or simply larger than you'd find in any store packaging.

The packaging being larger means the company can save in packaging costs (vs. individually wrapping items) so they can charge less.

The store selling these items can also sell them cheaper and often sell these things to small businesses that sell products made with the items. As a normal consumer you can purchase these things as well for home use and save money. Most people don't think in the "hive mind" sort of way so they think "what am I going to do with all that butter? Won't it go bad? How is that saving?"

The thing is you have to think about it more logically and in the group mentality. In a way, a business is nothing more than a place to buy things and customers who buy them in individual pieces.

The store buys a box of 35 Snickers candy bars for one price, then resells individual bars so collectively they make more money- a profit. There is a simular model that works domestically. You and all your friends/family/extended family are consumers- that takes care of the "Customer" end.

One trick me and my family (and extended family and friends) have figured out is that there are several warehouse stores such as Cosco and Cash n Carry, that offer amazing prices in bulk. We all started to hold on to our name brand/individual volume bottles and plastic packages (like coffee containers) and realized that we all needed pretty much the same stuff every month.

We would go in and buy the super large gallon size of coffee at a fraction of the cost and just divvy it all up at home into our saved containers! We did this with everything from instant burritos, coffee, cooking oils, sugar, Lipton Tea and tea bags, and even paper plates, paper towels, and toilet paper. You'd be amazed how much you save this way. It's also a great way to get everyone together as we generally have a big dinner that night, a BBQ that day, and hang out.

We also did this on Halloween at Cash n Carry, they have the industrial sized boxes (and even the resale versions in bulk at dam good prices). We got 3x the candy we would have buying at the grocery store or even the dollar stores (although the dollar stores had some great deals too!).

It's all about just realizing you have more resources than you think. Many stores are starting to buy their warez from the same places so why not cut out the grocery stores and buy almost direct? We end up with twice as many groceries for half the cost!

They also don't have to throw away their plastic containers- this saves landfills!

You get the experience and convenience of the smaller, individual sized bottles/packaging, but save money on the contents!

Some ways to get easy quick access to wholesale distributorship is to find "drop-ship lists".

The drop-ship list is essentially a list of companies that offer products at wholesale to you but don't require you to store or ship anything. This is a pure example of the manufacturer or even a wholesaler (level 1) offering their goods direct to the public as well as offering bulk purchase orders to small businesses (big businesses skip the wholesaler and go direct to the manufacturer).

They offer what is called a drop ship option where by anyone can just create a catalog online and when someone clicks to purchase something the online store owner will take these orders and often even automate expediting the info over to the drop shipper's site through an API (programming interface that makes the sale look like it came from you but it really gets relayed and drop shipped (shipped directly from the manufacture after the order is placed) to the customer in a plain box (no markings that indicate it was purchased from the manufacturer).

You simply offer their warez for sale on eBay, your site, or anywhere else where you can sell it and have it "drop-shipped" (likely this is two markups in, the manufacturer, the distributor (purchases from the manufacturer direct and offers it to a long list of drop ship retailers.

_____________________________________________________________________________

Many catalogs are designed this way and have been for many a decade.

You may think they have all those products in some warehouse but the reality is most catalogs are ALL drop-ship products they went out and took pictures of and compiled into a catalog! It's a version of commerce and a once mail order only business that's now become the norm on the web. Many eBay stores are set up this way as well. They make a deal with the manufacturer direct most of the time (power sellers) and because they can show people are buying a lot of product from them the manufacturer will give them a wholesale rate so long as they maintain a certain sales volume.

Anyone can create a catalog this way but the best way to do it today is to use a website instead of an expensive to manufacture catalog.

In fact many companies are set up to facilitate this by even offering you an online catalog already built- you just promote it, send traffic to it, and collect the profits.

In this scenario often they handle all sales and simply cut you a check for your share monthly.

Another great way to garnish wholesale items for selling on eBay (home business) or anywhere if your willing to purchase in small bulk, is to go to trade shows.

_____________________________________________________________________________

Trade shows are open to any business owner. A business owner is qualified by having a business license essentially and looking the part. You pay an entry fee and enter a huge lot of wholesalers and manufacturers direct.

Many new products on infomercials and eBay come from here. Many products are designed for re-branding as well (known in the industry as "white labeling"). For example, remember the sham WOW?

It wasn't sold at the trade show as a sham-wow, but rather generically as an absorbent shimmy cloth. The Sham WOW guy is just one of many who purchased the material in bulk and possibly even had to cut it to size and add the branding "Sham Wow!" to it. He found an infomercial company and convinced them to make a commercial (or often paid for this service and prayed he'd sell enough to recoup his money back and a profit).

____________________________________________________________________________

State Fairs And Carnivals, Level 3 Trade shows (retail)

When you go to a state fair and go inside the buildings where the infomercials live, you'll see the Sham Wow and many renditions often (they may offer exclusivity so no other competitor can sell their similar product) of the product. This is a bit like what a trade show floor looks like. The only real difference is that your dealing with a retail seller not the manufacturer or even a wholesaler- they sell them at full price there.

Anyone with a business license and knowledge of when the trade show will hit (a very big one happens often in Las Vegas) can go in there and purchase in low bulk (higher price than high bulk) anything on the floor then can re-brand it or offer it as is at the fair. Many people are starting to do this actually for a living. They start with one product then with profits purchase more PLUS a new product to offer and 3 years later they're hitting up the fair circuit and trade shows all over the world and selling their products.

Many manufacturers will let you re-brand it into your own product so you can sell it uniquely and take your market by storm. They are not often worried about branding but rather coming up with and offering in bulk unique products..

You'd be surprised how many different products that are the same (but generic)- literally ARE the same product re-branded! Regardless of how they advertise it.

____________________________________________________________________________

White labeling often occurs at big chain stores. This is where they purchase actual Excedrin PM, for example, then slap the "Safeway" or store name on it and sell it as a generic at about half the price of the name brand (even though both are name brand in reality). The manufacturer will often change it up enough so you don't think it's the same side by side and the general public is none the wiser.

What may really surprise you is that stores like the dollar tree or 99 cent store (or equivalent) have the same purchasing power as wal*mart and will go to the manufacture often through trade shows and order super bulk.

The markup on some items is so ridiculous that you wouldn't realize it's only really worth .50 cents! To the left is the dollar tree version. Notice how they used "Wow" but not "Sham".

They've essentially re-branded it to look similar to the sham wow, even putting "as seen on TV"- which most people think means this IS the sham wow SEEN on TV. It's the same product (so they aren't lying really), but repackaged and named. Other than the sham wow guy being possibly upset at their similarities in branding- nobody is being "tricked"- because it's literally the same product- in fact they may have been in line behind sham wow guy purchasing a "spool" of the stuff! Technically the sham wow is bigger and they give you 6-10 of them so you're getting a better deal in "bulk" but who needs "bulk" sham wows?

You can get a few for small spills (contrary to the advertisements, these are NOT good for big spills- I know- I tried to clean one up and it was a nightmare). Even if you purchased 20.00 worth of them from the dollar tree, however, you're getting a better deal at the dollar tree. Why? Because your not paying for advertising and overhead for the "brand name" itself. Your getting the wholesale price (level 3)! I've even seen people purchase things like this at the dollar store then sell them for 3.00 at the flea market/swap meet/whatever you call those "auctions" that have no actual auction *smiles*.

I actually purchased the sham wow at a fair one day on a whim, later I purchased the dollar store version and tested them- they were identical other than color. One was bright/dark yellow, one was light blue.

You may not realize it but MANY products sold on TV for 20.00 end up at the dollar store- especially those that cost 10.00 (then they jack you with the second "free" set just pay processing of 10.00!!!).

____________________________________________________________________________

The energy shots you get for 4.00 are at the dollar tree and guess what? They are more powerful than the expensive counterpart! Those trigger lighters (for candles) cost 4-5.00 at the grocery store or even Wal*Mart but you can get them at the dollar store too.

I remember wanting those soda can toppers that turn a can into a bottle essentially and keep your carbonation going as it's air tight- and didn't get them. They were at (and still are) the dollar tree 2 weeks later. It was a 20 pack not a 10 pack like on the commercial. I did some reading on the package and realized it even stated the same exact manufacturer! The one you ordered from TV was the same package of 20, they just "marketed" it as 10 + get 10 free and pay some imaginary processing (because why would their be additional processing in the same package?).

____________________________________________________________________________

I'm pretty insulted by the latest scams in infomercial buying. Half the time your credit card is hijacked even if you cancel a "membership" so you can't trust anything on there, the other half the time they are pretending to give you more but laws stopped them from lying about shipping costing more for the "phantom" free stuff- so they switched gears to tricky marketing that makes you still believe you get something free, but you pay for it in reality- and can't say, oh I don't want the free stuff, so I don't need to pay extra "processing"- they won't let you do it- because there is no way to separate ONE packages contents!

I refuse to purchase anything on TV, why should I only to get swindled and later find out it will, if it's worth it's weight in gold, end up in a retail store? Did you know infomercials are not just another way to sell things- it's a beta test. That makes you a beta tester if you purchase things off TV infomercials! Most things that are truly a good value will become store items. I love that many of the lower value (but still cool stuff at a reasonable price) ends up at the dollar stores!

____________________________________________________________________________

Buying Wholesale Exercise Equipment

I'll leave you with a final tip- most of that cool exercise equipment like solo-flex, bo-flex, tummy crunchers, ab builders, and the like, are sold on television but often you won't find them at retail stores. They may be, but not always easily found.

What I've come to learn is that most of them are overpriced and the "beta testers" with money bought them, eventually paid them off (or their credit card) and shoved it into a room where it sits for years collecting dust.

They eventually will try to sell it but quickly realize nobody will pay the price or even close, that they paid. This launches them on Craigslist and eBay often at a severely discounted price- even if it's brand new and only used twice! Most of these people are being harassed by their significant other about how much space it's taking up and not being used- this drives them to sell it faster and cheaper.

I bought a bow-flex (the one pictured actually, above) for 200.00 on craigslist. It was brand new and the guy said he never used it. He paid 1700.00 for it! Take a look, you'll see just about everything there. Just get the products official name i.e. "Bowflex Blaze" or whatever it's called and start a search on Craigslist. You'll likely find a bunch of people who haven't figured out nobody is going to pay a grand for what 10 other people are selling for 200.00! You ignore the former and buy from the latter, of course. You may even find they can be talked down.

The price they were asking for the one I bought was 500.00. I paid 200, and my sole reason for buying it was to resell it for 500.00! (I haven't tried yet and am still myself in the stage of "I'll use it someday", but Michelle want's it gone so I'll let it go for a mere 300.00 (that's 100.00 profit). I'm noticing the ones on CL right now are between 300-1700 (the sweet spot being about 350-400).

You can also do this to get equipment cheap (price watch for a while then grab it on the lowest price and wait till all the others go up and list yours just under their price to sell it fast).

I get all my "TV" exercise equipment this way. I say let those with the money pay retail, then I'll buy it from them when they tire of it at wholesale!

_____________________________________________________________________________

People That Buy These Expensive Toys Take GREAT Care Of Them

What's interesting about these expensive "toys" is that the people who bought it at 1700.00 or whom paid it off over 3 years tend to take VERY good care of it. Their mentality isn't that they will sell it one day, it's that they paid a lot f money for it. Some think they will sell it someday for most of what they paid but soon figure out they can't. This doesn't change that they took good care of it for whatever reason... It's brilliant to buy used "as seen on TV" exercise equipment!

Good Luck Out there!

If you have any ideas to share please comment- I'm sure my readers would love to hear about them (I know I would!). Just make sure you list where you are (USA, UK, or even what state as some stores only exist in certain areas or sides of the country.