Q&As: On Wholesalers, Jobbers, and Distributors

Q: Why should I give a distributor an exclusive?

A: First of all, the distributor probably won’t take you on if you don’t. Why should it have its sales representatives go around to wholesalers and retailers promoting your product if it is constantly risking orders for your products going to another source? Then even if they do take you on, why should they spend time and effort promoting you?

Q: Do I need more than one wholesaler?

A: Many industries have one or more wholesalers who tend to dominate their industry, each selling to almost all retailers, as well as second- and third-tier wholesalers who may only sell to a portion of the retailers.

There are several advantages to having your product at more than one wholesaler. A few retailers may buy little product from some wholesalers or may even have an exclusive buying arrangement with only one wholesaler. Also, if one wholesaler is suddenly out of stock on one of your products for any reason, then there is the possibility that another wholesaler may still be in stock.

However, there are disadvantages to working with more than one wholesaler, particularly for very small firms. For example, you may not be able to sustain the minimum volume required by more than one wholesaler. Also, you may be required to carry more inventory to stock two wholesalers, especially if each has multiple warehouses. You will probably have to partake in some of each wholesaler’s promotional programs and make sales calls to each account. Also, some wholesalers may push your product more aggressively (acting to some degree like a distributor) if they know they are the only wholesaler selling your product.

Q: One wholesaler I approached insisted on a deeper discount. What should I do?

A: It is bad business practice, and at least in the United States violates fair trade laws, to give one wholesaler better terms than another unless there is a solid economic reason for doing so. Furthermore, many wholesalers insist that you sign a contract stating that you are offering them your best terms. Bottom line—in general, you are best off treating all wholesalers (and retailers) equally.

Q: Should I sell on consignment?

A: Consignment basically means that you have not sold the goods until your wholesaler or distributor has sold the goods. On a practical level, this means that you won’t get paid until after the ultimate consumer has the goods—if then. I would, in general, avoid selling on consignment, especially to wholesalers, and certainly to retailers.

However, if you have an exclusive distributor arrangement, where the distributor really goes out and solicits orders for your product, consignment selling might make sense. This would be particularly true if the distributor acts as your personal sales force, warehouse, and credit and collections department.

About Bob Adams

Bob Adams is a Harvard MBA serial entrepreneur. He has started over a dozen businesses including one that he launched with $1500 and sold for $40 million. He has written 17 books and created 52 online courses for entrepreneurs. Bob also founded BusinessTown, the go-to learning platform for starting and running a business.