The modern supply chain gives business owners today multiple ways to get a product into the hands of consumers. Wholesaling and retailing are two types of business models for a product-based business. Read on to learn the difference between wholesaling vs. retailing and find out which is better suited for your business.
What’s The Difference Between Wholesaling Vs. Retailing?
The primary difference between wholesaling and retailing is that the former is a business-to-business model and the latter a business-to-consumer model.
In a wholesale model, you don’t sell products directly to consumers. Instead, you obtain products from a distributor and sell products to a third-party business, usually in bulk. This third-party is often a retail business (like Target) who then sells to the buying public. But, it could also be a retail distributor (a business that distributes products to Target, for example). Finally, some wholesalers sell to other wholesalers. Wholesale businesses can revolve around virtually any type of durable or non-durable product. Durable products include furniture while non-durable products include groceries.
In a retailing model, you obtain products from a distributor and sell products directly to consumers. Department stores like Macy’s or The Gap are examples of retailers. Some retail businesses sell their own branded products. Others sell products from third-party brands. Still, others sell a combination of their products and third-party-branded products.
Distributor vs Wholesaler & Distributor vs Retailer?
A distributor can either supply products to or receive products from a wholesaler. Wholesalers obtain the inventory they need to sell to a third-party by buying products at a discounted rate from a distributor. But they can also then sell products after they acquire them to a retail distributor for distribution to a retail business.
On the other hand, the relationship between a distributor and a retailer is always a supplier to consumer relationship. The distributor supplies products to a retailer who then sells them to a consumer.
Wholesaling Vs. Retailing: Which Business Model Is Right For You?
Retail businesses are in charge of everything from marketing to order fulfillment. That means you have a much greater degree of control over how and how much you sell your product for and to whom. But retailing also comes with a great deal of responsibility. Retailers have to wear many hats, from marketing guru to salesman. Retailers that sell their own branded products may have the added responsibility of product ideation. If you enjoy being creative and staying involved in most every aspect of the supply chain, a retail business model could be for you.
Wholesaling businesses need not be involved in any aspect of direct consumer marketing or sales. Nor do they have to be concerned with the costs of operating and maintaining a storefront that consumers will frequent. This is good news for business owners who aren’t as confident with customer interaction. However, there are a lot of logistics involved in a wholesaling business. If you can proactively coordinate multiplier supplier and consumer relationships, a wholesaling business may be for you.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.