Wholesale Products and the Middleman-Chain

Wholesale Products and the Middleman-Chain

There is an explosion in the quantity of wholesale companies over the past 5 years. A great majority of this growth can be related to the growth of the Internet. The world wide web offers the small-time operator a destination to market their products without having to lay our a fortune in a physical store front. The phone number of men and women that can now sell products is no much longer restricted to their grocer owners, so we now have an enormous population of Net entrepreneurs looking for products to sell. This big demand created a very big supply of apparent companies claiming to be wholesale companies specializing in selling wholesale products to Internet entrepreneurs. Salehoo Salehoo review

Are generally of these new wholesale companies really selling wholesale products? The short answer is not! Not even close… but let’s review the longer answer to get an idea of what types of functions the majority of these apparent wholesale companies operate. 

In the event that I was forced to make my best think of the percentage of true wholesale companies at the rear of all the Internet and Opportunity magazine advertisements, I had declare maybe, just maybe, 0. 5% of those companies is an genuine lagitimate wholesale company. Naturally that means I feel that 99. 5% are not true wholesale compaines.

If perhaps a many the wholesale companies being advertised are not true wholesale companies, then what are they and where are they getting their products? They are likely just middleman working within a chain of middleman.

A Middleman-chain occurs when a business buying its resale products from a single wholesale company, who in return purchases the products from another wholesale company, which may also purchase the products from another low cost company, and so on. Note: I am using the term ‘wholesale’ very loosely here.

For example, we will say you have a resale business and you are buying products from a wholesaler, who we will call Wholesaler-A, at 20% discount. That is likely that Wholesaler-A is actually purchasing the same products from another wholesaler; let us call them Wholesaler-B. Wholesaler-B could get the products for a 40% discount and then sell them to Wholesaler-A at the thirty percent discount level, thus making 10% profit. There may even be another level, Wholesaler-C, which gets the products for a fifty percent discount and then provides those to Wholesale-B at forty percent discount, making another 10% profit. See a graphic representation of the process at http://www.victorykey.com/images/middleman_chain.gif.

Unsurprisingly from the diagram in the above link, there can be multiple layers of bulk suppliers building a chain of middlemen for you to cannot afford.

Just as a result of middleman-chaining, each layer adds on its profit and you are left struggling to contend because you are not purchasing the products at a low enough price to stay in business. If you, by chance, get orders, each company in the chain is a point of failure in your transaction.

For example, let us assume you have a source for a product which is in popular and you are paying what you think to be a true wholesale price, say even just the teens discount. Afterward you launch an advertising campaign that brings in a sizable volume of purchases only to find that one of your back-end suppliers somewhere up the chain cannot handle the volume. Your customers clearly want their money again (including shipping & handling) and you realize that you have lost a lot of money in advertising and created a couple of angry customers that will probably never buy from you again!

One question you may well be asking is why will not every wholesaler just buy from the manufacture and get the deepest discount? The answer is simple – only a few wholesalers (or companies claiming to be wholesalers) are able to afford to acquire the minimum bulk-order requirements that a manufacture requires. Subsequently, many manufactures only do business with companies that are established. So now you are left to do business with a level-1 wholesaler (Wholesaler-C in above diagram), that can be very profitable if the products have demand. However, a level-1 wholesaler may also require a bulk purchase that is away from budget of many small internet business operators, and/or they simply might not exactly want to do business with a tiny home business. Eventually you may find that the higher-level flower nurseries (level-2, level-3, or higher) is all which can be found to the home business user, and you simply can not make any significant money as of this level. Sadly, just about every flower nurseries you see advertising in the ability magazines or Net is a level-2 or higher wholesaler.

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