While wholesale business can be a great source of profits, poor planning and haggling can actually result in wholesale transactions costing more than they are worth. Here’s how you can optimize your wholesale operation to ensure it’s really worth the work, and bringing in profits, every time.
The wholesale conundrum
If your supplier cut your discounts and incentives, would you absorb the cost and continue to offer the same discounts and pricing? Most dealers agree the obvious answer is ‘NO’, however, when it comes to wholesale business we often see dealers absorbing costs just to make the sale. When beginning to investigate your wholesale business, the most important consideration is just how much profit (or loss) you’re experiencing from wholesale sales. It takes twice as much energy and resources to generate profit in wholesale as it does retail so wholesale sales should always be a compliment to retail sales. Begin by investigating your current wholesale operation- what are your profit margins? If they’re not great, it may be time to make some major shifts.
The ideal wholesale customer
Can you quickly think of your favorite wholesale customer? What makes them great? Most will likely agree they’re consistent, pay their bills on time, and don’t try to haggle on everything. Finding and retaining those exemplary customers is key to creating a thriving wholesale operation. We recommend you think about your wholesale customers in three categories: green light customers, yellow light customers, and red light customers.
Green light customers are those that pay on time, buy consistently and with a good volume, and send back very little for credit. For these customers, give the best discount you can while maintaining profitability. Treating them great will pay off in the long run. Yellow light customers are inconsistent in purchases, use you as a secondary source, buy erratically, have a high percentage return rate and are often slow to pay their bills. While you shouldn’t give them the best discount possible, it may be worthwhile to nurture the relationship toward a green light. Red light customers are the ones that make you sigh just thinking about it. They’re difficult to work with, buy erratically, return most parts, pay bills extremely late, and always make it seem like you’re the one with the problem. These customers shouldn’t be given discounts and should receive the least amount of attention. They are often costing you money, and losing them would just mean freeing up more space for better customers.
For more tips and examples on creating a thriving wholesale business, download our free Wholesale Business ebook. To browse the entire ebook library, click here.
PartsEdge was designed by a Parts Manager and a DMS specialist who saw the gap between the demands on Parts Managers’ and the lack of resources to get everything done. We take all the guesswork out of DMS management and sourcing setup and optimization and, as a result, our clients see on average a 20% drop in total inventory, 15% less idle inventory, a 50% increase in ROI, and a 20% increase in parts sales. If you’re ready to put our parts power-tool to work, send us a message! We’ve been helping dealerships for over 20 years and our testimonials speak for themselves.