Buying products in bulk to resell is a business model centered on purchasing goods at a low per-unit cost and selling them at a higher retail price for profit. This approach offers significant profit margins, as larger quantity purchases unlock lower prices from suppliers. A well-managed bulk buying strategy allows a business to maintain inventory, meet customer demand, and build a scalable retail operation.
Establish Your Business Foundation
Before purchasing inventory, you must establish a legitimate business structure, as professional suppliers require proper documentation to ensure they are dealing with a credible business. This step builds the trust needed to form long-term supplier relationships.
The first step is to obtain a business license, which grants you the legal authority to operate in your city and state. You will also need an Employer Identification Number (EIN), which functions as a Social Security number for your business. The IRS provides EINs for free, and this number is required for tax purposes and opening a business bank account.
A resale certificate, or seller’s permit, is another required document. This certificate allows you to purchase goods from wholesalers without paying sales tax, on the condition that you will collect it from your customers. Suppliers will require a copy of your resale certificate before selling to you at wholesale prices.
Find Potential Bulk Suppliers
Once your business is legally established, the next step is to identify sources for your products. Your choice of supplier will depend on your business model and industry, so researching different channels will help you find the right partners.
Wholesalers and Distributors
Wholesalers and distributors purchase goods in large quantities from manufacturers and sell them in smaller batches to retailers. The benefit of working with them is that they have lower minimum order requirements compared to buying directly from a manufacturer.
Manufacturers
Buying directly from the manufacturer provides the lowest per-unit cost by cutting out the middleman. This option is for businesses that can handle high minimum order quantities (MOQs), as manufacturers sell in very large volumes. Direct purchasing also offers opportunities for product customization and building a relationship with the producer.
Liquidation and Closeout Companies
Liquidation and closeout companies sell inventory that other businesses could not, such as overstocked items or customer returns. The advantage is the potential for very low prices and high profit margins. The downside is that inventory is inconsistent and may be sold in mixed lots.
Trade Shows
Industry-specific trade shows allow you to connect with many suppliers in one place. These events bring together manufacturers and wholesalers, letting you see products firsthand, compare quality, and negotiate deals in person. Trade shows are also useful for building relationships with suppliers and discovering new trends.
Online B2B Marketplaces
Online B2B marketplaces like Alibaba, Faire, and Global Sources connect businesses with thousands of suppliers worldwide. These platforms offer a wide selection of products and provide tools to help verify supplier legitimacy. They are accessible for new businesses to find and compare suppliers without travel.
Vet Your Chosen Suppliers
After compiling a list of potential suppliers, you must conduct due diligence to mitigate risk and protect your business’s reputation. Rushing this stage can lead to problems with product quality, shipping, and communication.
Start by researching the supplier’s reputation by looking for independent reviews and complaints filed with business bureaus. Ask the supplier for references from other businesses they have worked with, as speaking with other retailers provides candid insights.
Direct communication also helps gauge their professionalism, so pay attention to their response time and clarity. Before committing to a large order, request product samples. This allows you to assess the quality of the merchandise firsthand to ensure it meets your standards.
Navigate the Purchasing Process
After selecting a supplier, the next step is the purchase, which involves negotiation and formalizing the agreement. You will encounter the Minimum Order Quantity (MOQ), which is the smallest number of units a supplier will sell in one order. For a first order, it may be possible to negotiate a lower MOQ if you can demonstrate the potential for larger future orders.
Pricing is tiered, meaning the per-unit cost decreases as order volume increases, so negotiate on price for larger orders. You can also negotiate payment terms, such as Net 30, which gives you 30 days to pay the invoice. Once terms are agreed upon, you will place a Purchase Order (PO), a formal document detailing the items, quantities, prices, and shipping information.
Calculate Your Total Costs and Set Prices
To ensure profitability, you must calculate the total “landed cost” for your products, which includes all expenses to get them to your location. The per-unit price from a supplier is only one part of this calculation. A precise landed cost is needed to set retail prices that cover all expenses and generate a profit.
The formula is: (Product Cost + Shipping + Customs/Duties + Insurance) / Number of Units. This includes the price paid to the supplier, freight charges, import duties and taxes, and insurance to protect the shipment.
Once you have the landed cost per unit, you can set a resale price. This price must cover the landed cost and your business overhead, such as marketing and storage. The remaining amount is your profit margin.
Arrange Shipping and Storage
The final step is managing the logistics of shipping and storing your inventory. After paying for your order, you are responsible for arranging transportation and having a storage plan.
For large orders, you will need to arrange freight shipping. Less-Than-Truckload (LTL) shipping is a cost-effective option for shipments that do not require a full truck, as your shipment shares space with others. Your supplier may assist with shipping, or you can use a third-party freight broker to find the best rates.
Once the inventory arrives, you need a place to store it, which could be a garage or spare room for new businesses. As your business grows, you may need to rent a storage unit or use a third-party logistics (3PL) warehouse. A 3PL provider can handle storage and order fulfillment, including receiving, storing, picking, packing, and shipping orders to your customers.