Future of Commerce Blog

How to Balance Wholesale and Direct-to-Consumer Sales

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One of the challenges retailers have to tackle is assessing and maintaining various sales channels. Multi-channel brands offer products across many channels, generally both online and offline. And while multi-channel is a fantastic strategy to bolster your bottom line, juggling multiple sales channels can be chaotic at times.

This is particularly true for retailers that may have started out with direct-to-consumer (D2C) sales but are now juggling multiple wholesale accounts. Both sales channels boast pros and cons, and managing the two simultaneously can be a big job for any business. When massive sales orders come in from wholesale clients, it can eat into your inventory for your D2C sales and put those revenues in jeopardy.

Fortunately, with the right strategy in place, it is possible to manage both sales channels. We talked to one merchant who successfully manages both wholesale and D2C about why it’s worth it for their business, and they offered some advice for other brands who aim to do both (and do both well).

But before we dive into strategies to help you balance large sales orders with your growing D2C business, let’s take a closer look at the advantages and disadvantages of both channels.

Read more: Multi-channel vs. omnichannel selling: understand the difference >

D2C: The pros and cons

Many businesses start out selling directly to their target customers — and that’s because cutting out any middleman has its upsides.

Some of the advantages of D2C sales include:

  • Generally requires less inventory: Because D2C sales happen in much smaller quantities at once, you likely need to have less inventory on hand as you’d need with wholesale. That can translate into a major cost saving.
  • Better margins: When you sell directly to your own customers, your profit margins are better because there’s no store/distributor taking a cut of sales. You can also pass those cost savings onto customers, which can help your brand compete on price as well.
  • More control: When you sell your own products straight to consumers, you control every step of the sales process — how products are portrayed, marketing initiatives, customer service, and more.
  • Direct feedback/customer connections: Selling straight to your target customers offers you the chance to interact directly with them. They can offer on-the-spot feedback on products and you can build a strong one-on-one relationship with them, which leads to more brand loyalty and a higher customer lifetime value.

 

These are precisely some of the reasons many brands sell D2C. For example, Geraldine Brouwer, owner of pet food brand Big Country Raw, says customer relationships is one of the major motivations behind offering D2C sales for her company.

“Offering D2C sales gives you an opportunity to get to know your customers better,” Brouwer says. “This helps for product development and also your sales approach.”

And while D2C is a primary sales channel for many brands both big and small, this channel also has its drawbacks. These downsides are ultimately why many retailers decide to expand their sales channels with wholesale accounts or others.

Some of the challenges D2C sales pose are:

  • No cost sharing: This is the flip side of brands getting all the profits from D2C sales — they also have to bear the brunt of all the costs. From customer acquisition to product distribution to marketing, you’ll have to shell out cash for all these activities.
  • Inconsistent sales: Depending on your products and niche, leaning heavily on D2C sales can mean revenues fluctuate heavily from month to month (or season to season). This instability can be difficult for businesses to prepare for.

 

Wholesale: The pros and cons

When it comes to wholesale, just as with D2C sales, the sales channel offers a number of benefits:

  • Brand discoverability: When you stock your products in a store or big-box retailer (think Amazon, REI, Nordstrom, etc.), you increase the chance more customers will see your products. This is particularly true if you’re in specialty retail — bigger stores, both online and offline, get more traffic than niche brands.
  • Consistent cash flow: Having a wholesale account (or multiple) creates a steady stream of revenues for your brand. That’s because wholesalers tend to make recurring orders (i.e. every month or quarter) in large quantities, which means you get large injections of cash at regular intervals.
  • Clearing out inventory: Have inventory that’s gathering dust in a warehouse or on your shelves? Wholesale customers can often take stale stock that’s not selling well D2C off your hands and sell it to their own customers.

 

But for those D2C brands that are growing into wholesaling, you know that managing large orders also poses its own unique challenges, like:

  • Large orders eating inventory: As we mentioned above, you have to maintain inventory levels carefully because large, wholesale orders can eat into inventory you intend to use for D2C sales. Losing your D2C stock can jeopardize that sales channel and drive away customers.
  • Wholesalers dictate terms: When you sell your products to a middleman, they run the show. While there’s sometimes room to negotiate, wholesalers have control over how they market and sell your products.
  • Lower profit margins: Because of the large quantity of products wholesalers purchase at once, brands sell products at a discounted rate, which means smaller margins for specialty retailers.

 

Now that you understand the pros and cons of both wholesale and D2C, let’s take a look at how to manage it.

How to balance wholesale with D2C sales

Tightly manage inventory levels

As we established in the last section, one of the biggest challenges D2C brands face when expanding into wholesale is maintaining inventory levels. If you don’t keep enough product on hand, you risk losing out on D2C sales if a large wholesale order comes in. But on the other hand, overstocking products is expensive and wasteful.

So, what’s the solution? Plain and simple: good inventory management.

You can tackle your inventory management in a few ways to ensure you keep stock levels consistent for both D2C and wholesale:

  • Centralize sales channels: Retailers may use a multitude of systems to take and fulfill D2C and wholesale orders — and disparate systems can lead to over/underestimating product counts based on current orders. So, centralize your sales channels so you can get an at-a-glance view of all your orders (both D2C and wholesale) at once.
  • Reserve inventory for D2C sales: To avoid overselling, set aside a specific number of products in each inventory cycle for D2C sales. That way, you aren’t turning customers away because of sell outs.
  • Stock levels: Make sure your stock levels are accurate. Anything from incorrect processes to human error can cause levels to be off, so keep tight control of these numbers so you know exactly how much product you have available at all times.
  • Automate tracking: Ditch the manual tracking — that’s where many errors are introduced. To avoid this, use your inventory management solution to automate some of your tracking processes.
  • Hold regular audits: At regular intervals, audit your product counts and the processes you use to keep track of them. Periodic audits can surface mistakes and minor issues before they become major problems.

 

Only maintain wholesale accounts that are worth the payoff

Not every sales channel makes sense for every brand — and the same is true for wholesale accounts.

Take a hard look at all your current wholesale commitments. Which ones offer the best ROI? Which stores regularly sell out of your product and order more? Which don’t often meet sales goals and have to discount your merchandise to move inventory?

To balance wholesale with growing D2C sales, it’s wise to focus on the wholesale accounts that bring in the most revenues, are seamless to manage and/or offer a high concentration of loyal customers.

If you find that a wholesale relationship is no longer serving your business, it may be time to cut the cord.

Grow wholesale accounts slowly (and use one channel to grow the others)

While it may be tempting to dive head first into wholesale, grow these sales slowly and intentionally.

If you focus on growing new sales channels (like wholesale) strategically, you can grow your team as needed to support those channels. That ensures you’ll be able to meet all your wholesale commitments and easily fulfill customer orders.

To achieve this, brands can use their D2C sales to grow their wholesale accounts and vice versa. This is one tactic that Big Country Raw recommends (and that they use themselves).

“We generally find that some customers will always prefer to shop in-store versus online,” Brouwer says. “We sell frozen raw food, so there are challenges to selling direct. For example, you need to have someone home to accept delivery. They also may pay shipping fees if the order size is less than $150.”

For potential D2C customers who need food immediately or don’t want to pay shipping fees on their order, Big Country raw can refer them to their closest pet store for their products.

And Brouwer says that growing a loyal base of D2C shoppers also feeds their wholesale business, which she says accounts for approximately 60% of sales for Big Country Raw.

“If we set up a wholesale account, generally there is already a consumer base ready to shop in-store,” she said. “This is an immediate reward to the wholesale buyer, as they don’t need to look or work for customers as we have an established customer base ready to shop.”

Brouwer also notes that the feedback you get from D2C customers is also fantastic for your wholesale buyers. She suggests passing that info onto your wholesale sellers to increase sales and create a win-win for everyone.

“Use your knowledge of your experience in selling direct to consumers to show your wholesale customers on how to sell and when they are successful they will order more which grows the brand.”

Currently, Big Country Raw maintains wholesale accounts with a variety of pet store chains (like Pet Valu and Global Pet Foods) as well as independent specialty retailers. The company also sells directly to customers via their ecommerce website.

Hire some helping hands

If your wholesale accounts and D2C sales continue to grow and you simply can’t keep it, then it may be time to outsource of your to-do list to an expert.

You can either hire an in-house account manager to handle wholesale commitments or a fulfillment specialist to handle ecommerce orders. Or, you can outsource fulfillment to a third-party logistics company.

Moving forward with wholesale and D2C sales

While juggling wholesale commitments and direct-to-consumer sales can be a difficult balancing act, it’s possible to do both. Just remember to regularly examine the ROI of both sales channels to ensure the payoff for both makes the juggling worth it.

Learn more about choosing the right sales channels for your business >

Ellie Kulick

Ellie is an experienced Marketing Communications and Content Specialist based out of San Francisco, CA. Passionate about technology and health, she is constantly looking for new challenges in effective communication and creative content development to help businesses grow and engage with current and prospective customers.

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