Is direct to consumer or wholesale a better sales strategy for your business? Which one will make you more money? Let’s discuss the pros and cons of each method and how they work.

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Direct To Consumer Vs. Wholesale

I have experience in both of these sales methods. Most of my business for Bodomint, my bag company, is done direct to consumer (DTC), but I have done a little bit of wholesale through Faire. I plan to branch out a little bit more in wholesale by reaching out to buyers.

Recently, I took an online course that I really recommend called, Paper Camp by Proof to Product. I learned a lot there. Unfortunately, I haven’t had that much time to implement those things that I learned, but I am in the process. Through that class, I found that wholesale was a good fit for me.

Also, I have experience working for brands like Hurley and O’Neill, where most of their sales are made via wholesale. However, they also have websites and their own retail stores where they sell direct to consumer.

Okay, let’s just dive in!

Direct to Consumer

Pro: Higher Profit Margins

The most obvious and biggest pro of selling DTC is that you have higher profit margins. You get the all of the profit. You don’t have to give half of it to the retailer who buys your product.

Obviously, that’s a huge pro, especially for newer businesses and handmade businesses. If you’re making these products yourself, it takes a lot of your time, money, and energy to make each product and therefore you usually have a lower profit margin. You want to increase your profit margin, but you don’t want to increase your retail price so high that you price yourself out of the market.

So the direct to consumer strategy for smaller or handmade businesses is sometimes the only way to go. With time and growth, you can outsource your manufacturing and therefore lower the cost and amount of time you’re spending to have each unit made.

Because you cut out the middle man, the profit margins are so much better when you’re selling direct to consumer.

Profit Margin for DTC

Let’s use a really simple example. Let’s say one of my bags costs me about $35 to have made, including having it shipped to me and the fees associated with that. After analyzing the market, comparable bags sell for $135 to my target audience.

If I’m selling it direct to the customer for $135.00, I get $100.00 profit. That’s kind of simplifying things a little bit by not considering things like overhead costs like storage or the cost to ship to the customer, but let’s just go with it for now.

Profit Margin for Wholesale

Now, if I’m selling it wholesale, I’m going to sell to the retailer for half the price I would DTC. That’s the standard. Half of $135.00 is $67.50. So the wholesaler would pay me $67.50 and my profit would be $32.50. That’s a lot less than $100.00.

So that’s the number one point to consider when choosing if you’re going to sell wholesale. You will have a lower profit margin.

Pro: Control Over the Customer Experience

Number two, when you’re selling direct to consumer, you have more control over the customer experience. You have control over how your products are presented and explained. You know your target market and the story you’re trying to get across. You’re passionate about it and the customer can see that through how you tell your story. This creates brand loyalty when you’re going directly to the consumer with your product.

You can communicate your brand story, your brand values, and your unique selling propositions (USP) which we talked about in the last episode, Understanding Market Placement And Brand Identity With Laura Bonnell. You know, better than anyone, what differentiates your brand from others so you know exactly what to point out in your marketing.

Pro: Customer Feedback

The third point is that you get to build relationships with your customers. It’s so valuable to get your customer’s feedback. They can tell you right there, “I do not like how this pocket is” or “I don’t like the way this zipper is placed,” and you take that feedback. Then the next time you have your products made, you can make those changes. Also, when you know your customer’s needs, you can create solutions to their problems in your future designs or purchases.

When you’re selling wholesale, you don’t always get that feedback. The customer might tell the store that they bought it from, and that buyer might tell you, but maybe not. If you have a sales rep, the sales rep might give you the buyer’s feedback, which is helpful, but it can be like a game of telephone. You’re not sure if you’re going to get the message that a customer would directly tell you.

You can do a lot of analytics based on customer preferences. You can identify the market trends and make more data-driven decisions based on that feedback.

Con: More Work Per Sale

Acquiring Customers

DTC requires a lot more leg work to reach each customer yourself through marketing, even if you have a social media manager, you have to find every customer yourself. Whether that’s through email, organic or paid ads, there’s a lot of marketing involved. Marketing costs cut into your profit when you’re selling direct to consumer.

Shipping Each Order

You also have to ship each order which can increase the cost for the customer or decrease your profit when you pay for shipping. Additionally, if your products are on the bigger side, like my bags, that can really add up when you’re paying for postage for each individual customer.

Plus, shipping takes a lot of time. You have to pack each order and take it to the post office or schedule a pick-up. You can hire what’s called a 3PL, or a business that houses and ships your products for you, but that also cuts into your margins.

There are a lot of pros and cons to selling direct to consumer. The higher profit margin is a huge pro though and worth considering.

Wholesale

Pro: Broader Distribution

What are the pros and cons of selling wholesale? Well, the first pro is that you get a broader distribution and a wider reach to customers. Stores have their own following, their own audiences, and they’re doing their own marketing. Those shops are doing a lot of that marketing and outreach for you so you have to spend less of your own time, money, and energy reaching each customer.

Pro: Increased Sales Volume

Another pro of selling wholesale is that it gives you an increased volume of sales. With wholesale, you set a minimum order amount and/or a minimum quantity that buyers have to order per product. So yes, you will be making less profit per product, but they are ordering more.

Additionally, you don’t have to ship every order to each individual customer. You will send several, 10, 20, or whatever your minimums are, to the store. There is less labor involved with shipping and the increased sales volume increases your revenue.

Pro: Less Marketing Outreach

When you’re selling wholesale, you still will be doing outreach and marketing, but instead of focusing on the customer, now you’re focusing your marketing outreach efforts on the buyers of each store. Definitely still send out emails with new products, tell your brand’s story, and what makes your products unique, but now you’re focusing it on the buyers.

It’s a little less time intensive because there are fewer people that you need to reach out to. The buyers are going to market to the customers. You just need to reach out to them and they can relay that message.

Build relationships with the buyers. Know what they need and want and communicate with them. Take their feedback and adjust your offerings based on any consistent feedback that you receive. Provide that customer service and support to your buyers, like you would to your DTC customers.

Which Strategy is Best for You?

So those are the pros and cons of both direct to consumer and wholesaling. Ultimately, it’s up to you which is a better fit for your business. However, for me and many businesses, it is a combination of both of these methods.

I started out with direct to consumer, which I think is a good way to get your feet wet, see if people like it, and if it’s well received in the marketplace. Make any tweaks or improvements to your product. Adjust your offerings or assortment based on the feedback and then dip into wholesale.

Some brands are ready to go straight into wholesale, depending on your business model and experience. I think it’s great to do both.

You just want to make sure when you do wholesale that you have that profit margin there. Don’t undersell your product and get hardly any profit margin on it. That’s not a sustainable business model. Make sure that your cost to have the product made is low enough that you will make a profit when you’re headed into wholesale.

Free Product Launch Guide

I hope you found this episode interesting and helpful for you as you are growing your business. Please check out my free product launch guide that I made to help you as you are either starting or scaling your product-based business. I spent a lot of time putting it together and put a lot of really good information in there. This guide can help anyone that’s in a product-based business gain a little bit more insight into how to grow and increase their revenue.

Links Mentioned

Bodomint

Faire

Paper Camp

Proof to Product

Understanding Market Placement And Brand Identity With Laura Bonnell