Maximise your return through wholesale stock and/or indent ordering
You can maximise your return in two ways: through improved supplier negotiation resulting in better margins, and reductions through the introduction of Ordergofer’s innovative wholesale ordering app.
But first, what is a wholesale business? A good starting point when searching for a meaning is, of course, a dictionary (not applicable to everything in life, it's true!). The online Oxford Dictionary describers wholesale as:
"…the business of selling of goods in large quantities and at low prices, typically to sell on by retailers at a profit."
With that definition in mind, let's step through your potential returns using examples.
Reducing the margins
Low prices are another word for reduced margins, and the following quick example demonstrates wholesale business margins of 60% for a product.
Wholesale cost breakdown
|Product Gross Margin||60%|
|Product Mark Up||150%|
|Product Gross Profit||$15.00|
We can easily increase our wholesale business margins to 73.33% for a product by reducing the product cost by 20% through better negotiation with suppliers, and then increasing the wholesale price by 20%.
|Product Gross Margin||73.33%|
|Product Mark Up||275%|
|Product Gross Profit||$22.00|
The gross profit P is the difference between the costs to make a product C and the selling price or revenue R.
- P = R - C
The mark up percentage M is the profit P divided by the cost C to make the product.
- M = P / C = (R - C) / C
The gross margin percentage G is the profit P divided by the selling price or revenue R.
- G = P / R = (R - C) / R
Our first example shows us we have a variable product cost of $10.00 that can be improved through better negotiation with suppliers.
The gross profit of $15.00 provides the cash flow to pay our business overheads or fixed costs, which are due no matter if we produce 1 item or 10,000.
Reducing business overheads will maximise business net profit by leaving more of our gross profit per product available as overall net profit.
Reducing the fixed costs
A reduction in business overheads or fixed costs can only be achieved if we first identify the true costs of operating your business. Our objective is to identify the typical processes and then associated costs to determine if using Ordergofer’s innovative wholesale ordering app will deliver the expected financial benefits.
Most products are sold by wholesale stock or indent ordering, so once we’ve mapped these processes we can review the order management costs across the different wholesale ordering methods required to support these current operations.
Your aims: to optimise your overall business ordering process, and ensure the process achieves its objectives with the minimum amount of time, money, people or other resources. While it’s important to deliver customer satisfaction, and their subsequent retention as your clients, you should also see an increase in profits.
Typical Wholesale Stock Ordering Process
Stock is the product you sell to generate revenue only – and the numbers are tracked daily. The inventory includes the products you sell and all the fixed assets (such as the computers) that go into producing the products you sell, and this is replenished as required.
Fixed asset numbers are not tracked daily, so it is far simpler to exclude inventory and only track stock during daily business operations. Hence, we use the term ‘wholesale stock ordering’ to describe a product that we track quantities for, and one that is available for shipment directly after taking an order – and not the alternate term that is sometimes used: ‘wholesale inventory ordering’.
As shown in the diagram below, orders are placed directly or through a local or foreign agent during a specified order period; this constitutes a contract of sale between the retailer and the wholesaler, subject to the sale terms and conditions.
The selling period order form lists the available products and quantities across one or many warehouses, using the stock control product list. Available product numbers are displayed on the order form – minimising rework for the retailer after the order form submission (which performs a final validation to ensure only available product quantities ordered).
Products are then shipped from the wholesaler’s warehouse(s) to the retailers.
Ordergofer provides a single page order form with brochure and displays available stock quantities with ability to download brochure and line sheet. This will save you and your customers time because everything required for placing an order is in one place.
Typical Wholesale Indent Ordering Process
This term refers to products produced after the close of a selling period. Orders are placed directly or through a local or foreign agent during a specified ordering period; this constitutes a contract of sale between the retailer and the wholesaler, subject to the sale terms and conditions.
After the selling period has closed, the wholesaler will review sales for individual products to ensure minimum production quantities are met. Products that fail to meet the minimum quantity thresholds are cancelled, and the retailers notified before acceptance of their remaining order by the wholesaler.
Wholesalers will then generate supplier purchase orders for delivery at the end of the agreed production cycle. At the culmination of production, products will be direct-shipped from the suppliers to the retailers or into the wholesaler’s warehouse before shipping to retailers.
Ordergofer eliminates costly errors by providing a single, simple, error proof way to process indent ordering data. The wholesale ordering service's customer notifications are automatic, and this includes when products are cancelled.
Typical Wholesale Order Management Costs
The majority of these management are fixed costs, such as rent, power, Internet and full-time staff salaries. Variable costs are items such as sales agent commissions paid based on sales.
In mature economies, staff salaries are usually the largest component of fixed costs. So, let’s base our cost breakdown on staff salaries and use the minimum hourly rates from a group of countries in our example. (These are US dollar estimates due to currency fluctuations.)
Note: Wikipedia provides a complete list of minimum salaries (wages) by country.
For brevity, calculations are based on sample country listing.
|Average (Total $78.15/Countries = 7)||11.16|
Typical Wholesale Stock Order Management Staff Costs
Let’s first break down the costs associated with a business that primarily uses the wholesale stock ordering method.
Frequency is usually weekly, 52 weeks of the year, and here we are using our average salary hourly rate of US$11.16.
|Method to take orders||Number of orders and hours spent per week (40 hours).||Weekly total using minimum average salary cost ($11.16)||Annual total using minimum average salary cost ($11.16) over 52 weeks|
|Sales representative||20 orders 2 hours per order||$446.40||$23,212.80|
|Telephone||20 orders 30 minutes per order||$111.60||$5,803.20|
|20 orders 30 minutes per order||$111.60||$5,803.20|
|Fax||20 orders 30 minutes per order||$111.60||$5,803.20|
For completeness, variable costs associated with sales agents, orders, value and related commissions have been included.
|Commission 12% of order value||Number of orders and order value per week||Weekly (12% commission) 1 week = 9 orders||Annual (12% commission) 52 weeks = 468 orders|
|Sales agent||9 orders $100 per order||$108.00||$5,616.00|
Now our analysis will cover a business that primarily sells using the wholesale indent ordering method.
Frequency is usually twice yearly, eight weeks in duration for each indent selling period; with sample methods to take orders, and hours spent using our average salary hourly rate of US$11.16.
|Method to take orders||Number of orders and hours spent during one indent selling period||One indent selling period total using minimum average salary cost ($11.16) over 8 weeks||Two indent selling periods annual total using minimum average salary cost ($11.16) over 16 weeks|
|Sales representative||20 orders 2 hours per order||$3,571.20||$7,142.40|
|Telephone||80 orders 2 hours per order||$1,785.60||$3,571.20|
|80 orders 2 hours per order||$1,785.60||$3,571.20|
|Fax||80 orders 2 hours per order||$1,785.60||
For completeness, variable costs associated with sales agents, orders, value and related commissions for two indent selling periods (selling period one = 80 orders; selling period two = 80 orders) have been included.
|Commission 12% of order value||Number of orders and order value during one indent selling period||Indent selling period (12% commission) 8 weeks = 80 orders||Annual 2x indent selling periods (12% commission) 16 weeks = 160 orders|
|Sales agent||80 Orders $2,000 per order||$19,200.00||$38,400.00|
How much money has our conservative analysis shown you are spending on wholesale ordering management?
- An average business operating a continuous wholesale stock ordering function has average fixed order taking costs of US$10,155.60 per year.
- An average business operating a continuous wholesale stock ordering function has average variable order taking costs of US$5,616.00 per year.
- An average business operating two selling periods per year with a wholesale indent ordering function has average fixed order taking costs of US$4,464.00 per year.
- An average business operating two selling periods per year with a wholesale indent ordering function has average variable order taking costs of US$38,400.00 per year.
In reality, the actual order management cost is much higher for the average business – when you include all wholesale specific sales, purchasing, customer service, logistics and finance costs. You also must take into account customer satisfaction when they order from you, and their subsequent retention as a customer.
All businesses operate using finite resources, including time and money. Using Ordergofer the average wholesale business can streamline your complete order management costs in a way that is easy-to-use, efficient and cost effective.
Ordergofer cloud-based ordering system provides end-to-end management for your ordering – and our Starter subscription costs just $24.95 a month ($299.40 per year), with no contract.
Take the opportunity today and become another customer whose favourite wholesale order app is Ordergofer.