A merchant reseller is a business that purchases goods or services from a supplier or wholesaler and then resells those goods/services to consumers at a markup. The merchant reseller acts as a middleman between the supplier and end customer.
What does a merchant reseller do?
A merchant reseller performs several key functions:
- Purchases inventory from manufacturers, distributors or wholesalers
- Resells the goods to end users, either in a physical store, online, or through both channels
- Sets competitive pricing for the products
- Provides customer service and handles returns/exchanges
- Manages inventory levels and restocking
- Markets and advertises the products to attract customers
The merchant reseller makes money by selling the products to customers at a higher price than they purchased them for from the supplier. Their profit margin is the difference between the wholesale cost and the retail selling price.
How does merchant reselling work?
The basic process behind merchant reselling includes:
- Finding reputable suppliers and negotiating wholesale pricing
- Purchasing inventory in bulk quantities
- Receiving and preparing the products for resale
- Determining competitive retail pricing
- Selling products through retail channels
- Providing customer service
- Managing inventory turnover
- Rinse and repeat! Continuously restocking and selling products
Product suppliers work with merchant resellers because it broadens their distribution reach and sales volume without substantial effort on their end. The merchant handles marketing and sales, while the supplier focuses on manufacturing and fulfillment.
Types of merchant resellers
There are a few main types of merchant resellers:
Online retailers
Online retail provides a massive opportunity for merchant resellers. They can set up an ecommerce storefront and dropship products directly from the supplier to the end customer. The merchant never needs to hold inventory or touch the products. Examples include online consumer goods stores that sell clothing, electronics, and more.
Multichannel retailers
These merchants have both a physical and digital sales presence. They operate brick-and-mortar stores alongside ecommerce stores. Omnichannel capabilities give them greater reach and the ability to ship online orders from local stores if advantageous.
Pop-up shops
Pop-up shops allow merchant resellers to temporarily set up physical retail spaces to test products, markets, and locations. It provides flexibility and keeps costs low. A merchant might run pop-ups in multiple regions or for seasonal products.
Distributors
Distributors are a type of merchant reseller focused on business-to-business sales rather than direct-to-consumer sales. They buy large volumes from manufacturers and resell to retailers, commercial businesses, or other distributors. Their customers may include convenience stores, hardware shops, auto repair garages, etc.
Import/export companies
International merchant resellers import goods from overseas manufacturers and resell them locally. They handle logistics like customs clearance. Many focus on bringing unique international products to consumers domestically.
Benefits of becoming a merchant reseller
Here are some of the advantages of running a merchant reseller business model:
- Low startup costs – Reselling requires less upfront investment than manufacturing products yourself. You can start small and scale up over time.
- Simplicity – You focus on sales and operations rather than product design or inventory issues.
- Wider selection – You can offer a large catalog of products across many categories by sourcing inventory from various suppliers.
- Flexibility – You have the freedom to adjust your product selection and suppliers as needed.
- Scalability – You can grow sales exponentially without production constraints.
- Smaller risks – Resellers avoid the risk and effort of developing untested products.
Challenges of merchant reselling
Running this type of business also comes with some potential challenges:
- Narrow profit margins, especially in competitive markets
- Potential lack of supplier loyalty or dependence on few suppliers
- Overreliance on supplier’s inventory, pricing, and product quality
- Difficult to differentiate yourself from competitors
- High working capital requirements
- Taking on inventory management and storage costs
Is it profitable to become a merchant reseller?
Yes, reselling can certainly be a profitable business model. However, profits depend largely on your sales volume, margins, and inventory turnover rate. The key is to maximize sales of products that have a decent margin between wholesale and retail pricing. You can increase profitability by:
- Negotiating better wholesale rates with suppliers
- Streamlining operations to reduce overhead costs
- Choosing the right product mix that sells quickly
- Turning over inventory rapidly to reduce holding costs
- Scaling sales volume across channels to drive top line revenue
What legal and business requirements are there?
Some of the key legal and operational requirements include:
- Business licensing – Register your business and maintain necessary state and local licenses. Business structure affects taxes and regulations.
- Sales tax collection – You must collect and remit any required sales taxes in jurisdictions where you have a physical or economic presence.
- Supplier agreements – Formal reseller agreements with inventory suppliers are recommended to specify terms.
- Inventory and order management – You need systems to track inventory, purchase orders, and sales activity.
- Accounting – Manage bookkeeping, financial reporting, and taxes carefully.
- Insurance – Carry adequate business liability and errors and omissions insurance.
What skills do you need?
To succeed as a merchant reseller, these skills are very helpful:
- Sales and marketing – Ability to promote and sell products through various channels.
- Sourcing and negotiations – Finding reliable suppliers and negotiating favourable wholesale pricing.
- Customer service – Managing customer accounts, returns/exchanges, and satisfaction.
- Organization – Tracking inventory, shipments, and operational processes.
- Analytics – Monitoring sales and financial metrics to optimize performance.
- Flexibility – Adapting product mix and strategy based on changing demand and markets.
You may choose to outsource certain tasks like bookkeeping or web design if you lack skills in those areas.
How do you find suppliers and products?
Finding the right suppliers and products to resell is crucial. Here are some tips:
- Attend industry trade shows to connect with new suppliers and spot trends.
- Search business directories like those from trade associations or chambers of commerce.
- Ask other resellers for recommendations to find reputable distributors.
- Search online marketplaces like Alibaba, Doba, or SaleHoo.
- Look for manufacturers or brands selling direct to resellers.
- Determine criteria for choosing products (cost, margins, demand, seasonality, etc).
- Start small with a handful of suppliers and products.
- Expand your offerings once you have processes down.
How do you manage inventory?
Managing inventory effectively is vital for merchant resellers. Best practices include:
- Use inventory management software to track product levels in real-time.
- Set par stock levels for each product to know when to reorder.
- Maintain accurate purchase orders and receiving processes.
- Organize warehouse storage with barcodes/SKUs for easy order picking.
- Reduce slow moving items and obsolete products in inventory.
- Centralize multi-channel inventory for online, wholesale, retail, etc.
- Dropship items directly from suppliers if feasible.
Keeping inventory turns high reduces carrying costs but may increase stockouts. Strike the right balance for your business.
How do you price products?
Pricing is an important piece of the profit equation. When determining resale pricing, consider factors like:
- Your wholesale cost from the supplier
- Competitor pricing for similar items
- Price elasticity and customer demand
- Your overhead and desired profit margins
- Volume discounts for higher quantity purchases
- Recommended retail prices from the manufacturer
- Passing supplier discounts directly to customers
Aim for competitive market-based pricing that also delivers sufficient gross margin. You may need to adjust prices over time and optimize.
How do you market and sell products?
Marketing and sales are obviously huge drivers of revenue. Ways to promote and sell your products include:
- SEO and content marketing to rank high in search engines
- Paid search and social media advertising campaigns
- Email marketing and loyalty programs
- Retail store displays and promotions
- Sales reps for business/wholesale accounts
- Trade show booths and events
- Referral and affiliate marketing
- Exceptional customer service
Focus on channels and tactics that maximize return on investment and suit your product mix.
How do you handle shipping and fulfillment?
Order fulfillment and shipping can eat into your margins if not managed well. Consider these tips:
- Negotiate account rates with major carriers like USPS, UPS, FedEx.
- Compare shippers and services classes to balance cost vs. delivery time.
- Reduce overhead by outsourcing to 3PL (third party logistics) partner.
- Offer customers varied shipping options with different speeds and costs.
- Set order cut-off times and be clear about handling times.
- Batch orders when possible for more efficient processing.
- Use packing methods and materials that avoid damage.
- Automate processes as your order volumes grow.
Should you hold inventory or dropship?
Holding your own inventory allows maximum control but also adds overhead costs and risks. With dropshipping, you pay no upfront inventory costs and items ship directly from the supplier to customers. However, profit margins are narrower and you have less control over inventory availability. Many businesses use a hybrid model, dropshipping some items while stocking fast moving products and core offerings. Ultimately your inventory strategy should align with your suppliers, sales volumes, and business goals.
How much can you earn as a merchant reseller?
Income potential varies widely for merchant resellers and depends on factors like:
- Your profit margins and volumes
- Breadth of your product catalog
- Channels you sell through – online, retail, wholesale
- Fixed overhead costs
- Whether you hold inventory or dropship
- Size of your target market
- Growth rate and scalability
Most resellers aim for a 20-50% profit margin on products. Those selling high volumes or niche items can earn anywhere from low five figures to well over seven figures in profit. Focus on creating a sustainable, cash-flowing business, then reinvest revenues to scale up.
Conclusion
Becoming a merchant reseller offers entrepreneurs a profitable and scalable ecommerce model with relatively low barriers to get started. By leveraging suppliers’ inventory and focusing on sales, marketing, and operations rather than manufacturing, resellers can build substantial businesses. However, managing inventory, logistics, and cash flow efficiently is vital for success. With hard work and the right execution, merchant reselling can provide excellent income potential.