Wholesale Primer + The Words You Need to Know
On Friday, I talked about why anyone would want to wholesale their handmade soap. So if that's you, but you are totally new to what exactly wholesale is, I've got you covered with a primer on what is wholesale (and what totally isn't.) Plus, the words you will need to stack up in your vocabulary.
Stacks of Cases from one of Amathia's First Major Orders on My Kitchen Table(!)
What exactly is wholesale?
Wholesale is when you sell your handmade soap & skincare products as is to another company at a discount with the explicit purpose of resale at retail price.
Most wholesale is offered at keystone, which is 50% of the retail price. (No one says you have to keystone, it's just the standard.) However, the discount must allow a retailer to resell the products while covering their own overhead and labor costs associated with selling, as well as marketing and profit.
That doesn't seem so confusing, right?
Well, it seems it CAN be...
- If you sell your handmade soap & skincare products in a store that you receive a percentage of sales, that's not wholesale. (That's consignment!)
- If you sell your fabulous soap to a boutique at a discount for the purpose of generic resale WITHOUT your packaging or branding in the mix, that's not wholesale. (That's a crazy little hybrid between contract manufacturing + private label!)
- If you sell your handcrafted skincare to a spa at a discount for the purpose of resale with THEIR packaging and branding, that's not wholesale. (That's private label!)
- If you sell your soap & skincare to another person or company at a discount in order to gift it to their clients, auction for a fundraiser, give as gifts, etc., that's not wholesale. (That's giving a customer a bulk retail discount!)
- If you sell soap & skincare products that you custom formulated for someone else at a discount for the purpose of resale, that's not wholesale. (That's contract manufacturing.)
Wholesale is the straight sale of the products you make in your product line with your packaging and branding, sold to another entity at a discount for resale at full retail price. It expands your brand exposure & reach, profits your business directly, and provides an influx of cash flow.
There is nothing wrong with contract manufacturing, private label, or other aspects of selling your soap & skincare products, IF they are right for your brand! (In fact, I loved doing contract manufacturing and still do!)
If you want to know what's in it for you to wholesale, find out why you should consider wholesale as a sales channel in this blog post.
So, now that we have a clear understanding of what exactly wholesale is, let's go over some common terminology found in this bustling little section of biz!
The Words You Need to Know to Wholesale
There are a lot of special biz terms that pop up in wholesale that you should be privy to before jumping in with both feet. Once upon a time, I was a buyer + inventory gal, so I got a head start on the lingo. Some of these are specific to certain retail industries, which you may or may not run into. But hey, it's always worth knowing!
Let's do a quick glossary!
Buyer - A buyer is the person responsible at a company for purchasing wholesale products for resale at retail. Sometimes, this is also referred to as the purchaser. If you are looking to wholesale, this is the person you need to woo!
Case pack - Case Pack Quantity (CPQ) is the number of products you sell of a product at one time in a single carton or case. Oftentimes, soapmakers start with a CPQ of one unit - allowing retailers to order however many they want. This is called an individual pack.
I personally recommend figuring out your batch size, and splitting it into case packs for smooth production. For instance, if you make batches of 60 bars, a CPQ of six units will yield ten cases of product from a single batch of soap. This is also sometimes referred to as the inner pack or shelf pack.
Retailers usually expect this to be a small enough number to fit on the shelf at one time. A smaller item, such as lip balm, can have a higher CPQ because more product will fit on the shelf. A larger CPQ will deter purchasers if they cannot fit it on their shelves, everyone hates backstock (on-hand product that is stored off the retail floor).
A master pack or master carton is a case pack of multiple inner packs. Let's say, you have a CPQ of six bars of soap, and want to make your master pack the same size as a batch. That means your master pack quantity is sixty bars (ten cases of six bars each.) This is entirely up to you!
One last thing to throw into the case pack ring! You can also use inner packs to offer a variety of fragrances or flavors of soap or skincare products, this is sometimes referred to as a mixed or variety pack. For instance, you sell your lotion in six varieties and have six units (one of each variety) in a mixed case pack. You can also mix product lines in a mixed pack.
Catalog - A catalog is a detailed collection of information about your company, products, and pricing for a wholesale buyer. It's usually picture heavy, including editorial or lifestyle photography (for example, soap in it's "natural" environment, like at a sink or lathering in someone's hands) and linesheet photography (clean, simple photography that shows just the product itself, usually with a solid background.)
Cost of Goods Sold (COGS) - I hope you are already familiar with this term! Your COGS is the total absolute cost of the products you sell, which includes the raw materials, packaging, labor, and overhead.
Free Fill - Free fill is when you provide your products for free to an account. It is usually an opening order, but a retailer can ask for a free fill in different situations like when they reset their shelves (change the way products are displayed, bringing in new products, etc.) or when a new store in a chain opens. Global fill or global free fill is common when a national chain brings your product on across the board, and is asking for free product for every store in the chain that is going to carry it.
The theory for retailers is that if your product does not do well in it's stores, they aren't losing an investment in bringing in your products. It's putting the risk of a product not selling on you as the manufacturer. This is an extremely common practice in regional and national chains in the grocery & natural foods industry (I'm looking at you, Whole Foods.) Remember, an important tactic in biz is the power of negotiation.
Guaranteed sales - When a buyer or distributor asks for guaranteed sales, they are offering to purchase the product upfront with the promise that if the product does not sell by a specific date, it can either be returned or discarded for a full refund. This is common with dated product that have a set shelf life (such as a lotion), so the retailer is not out of it's investment if the product does not sell before it goes bad.
Amathia's Soap Line Priced at a Retailer (The Giovanni product above them are line priced, too!)
Line pricing - Line pricing is a set retail price that is the same across the board on a line of products. For instance, if you sell all of your soaps for $8 per bar, they are line priced. Retailers will often line price products, even if you do not.
Line sheet (Sell sheet) - A line sheet (or sometimes called a sell sheet) is a quick bite of all the necessary information a buyer needs to purchase your products. Usually, it contains the company's location information, product line (with simple line sheet photographs of the product on a solid background), pricing, case pack quantities, terms, and an order form.
In my experience, retailers prefer these over a catalog in a chain environment, where smaller boutiques like to get to know the company in a catalog. It's great to have both, but if you can only pump out one or the other, go for a line sheet.
Manufacturer Suggested Retail Price (MSRP) - The MSRP is the retail price at which you, the manufacturer, recommend a retailer sells for. It is assumed that the manufacturer (you!) sells at or above this price (never under) to the general public.
Also, in this arena is Minimum Advertised Price (MAP) policies, where a manufacturer asks a retailer to never advertise their price below the MAP. This is relatively common with manufacturers who try to protect their brand integrity. However, please be wary that there are laws and regulations against price fixing, which is essentially what MAP is. It makes it sketchy territory to play in!
Net Terms (NET) - Net terms is when the payment due date for a product is delayed by a certain period of time after delivery. It can be anywhere from 15 days to 90 days, and is expressed in the format of NET 15 or NET 90. Net terms are extremely hard on a tiny biz, but they totally are do-able and negotiable. The net time frame is not the amount of time a retailer can wait to cut a check, it's the deadline and due date of the payment.
Some retailers will offer a shorter period of net terms, if an additional discount is given. For example, they want an additional 5% discount if the due date is fifteen days after delivery, or the full amount due by thirty days after delivery. It is your choice whether to take on accounts with net terms, and remember: negotiate!
Out of Stock (OOS) - If a retailer emails you and says "your Super Smooth Body Cream is oos," they are telling you they need a re-order stat! OOS is short term retail terminology for out of stock, completely empty, no more product. Boom.
Plus out - A plus out is when a corporate buyer purchases product for an entire chain of stores instead of each buyer at each store ordering and purchasing product. This is a mixed bag because you don't have to contact every store for their order (yes!), but this also means beginning to establish your relationships with each buyer after they already have your product (boo!) Oftentimes, a plus out is only on the initial opening order, but some store chains only order plus out.
A blast from the past: One of Amathia's super old POP Displays for Lip Balm
Point of Purchase (POP) Display - A POP display is a display case for product at the point of purchase. The easiest way to think about this is to think of the lip balm display cases! They fold into a completely closed case for shipping. When the retailer receives them, they can open them and fold up the display portion. Ta-da, POP display!
Another common display type is a shipper, which is when an entire master case is removed from the outer carton and displayed on the floor. I'm sure you have seen these in local stores for a variety of products, from food to accessories.
Shelf Tag - A shelf tag is the price tag on the shelf of a product. If a buyer asks if you'll set your own product, they're asking you to place your product on their shelves and may hand you shelf tags that correspond to each product by UPC or SKU. These are specific to each retailer and not something you supply.
However, a shelf talker is a form of shelf signage that sticks out from the shelf and draws attention to the product. These are usually your responsibility, and are a great addition to your products for retailers.
Short shipping - If a retailer contacts you and says they received their order and it was short shipping, it means it was missing product. Make sure to consider how to handle this situation if it happens, and put a procedure in place to prevent it from happening. It's not happy times for a retailer. ;)
Short-coded product - Short-coded product (or short-dated product) is product that is close to it's expiration date. A retailer may ask for a partial or full credit or refund for short-coded product (for example, a lotion). And they'll be none too happy if they receive short-coded product in an order from you. Consider wrapping this into your terms or your wholesale plans to know how to handle it!
Stockist - A stockist is a person or company that stocks products, and is also used as a general reference to the stores that carry your products. For example, you may have a page on your website called "Our Stockists" that lists the stores that carry your products (smart idea that retailers love!)
Stock Keeping Unit (SKU) - A SKU is an unique identifying number for each individual product. This is not the same as your UPC! If you make a lotion in three different sizes and three different scents, each combination carries it's own SKU. It is a short form way to refer to a specific product.
For Amathia, I assigned each SKU as a multi-part number indicating the product line, scent, and size. For example, all soaps began with 12, each scent had it's own two digit number (01 through 12, I assigned them alphabetically so they would be easy to remember), and each size (full or half bar) had it's own number (01 = full or 02 = half). So, a full sized bar of Calm was 120101, a half size bar of Calm was 120102. While a full sized bar of Detox was 120401, and a half sized bar of Detox was 120402.
Amathia's products from an order that included a TPR that the retailer is passing on to the customer
Temporary Price Reduction (TPR) - A TPR is a temporary price reduction, which is usually a further discount provided on top of the wholesale price to a retailer and passed on to the customer on an opening order. It can also occur as a seasonal discount or limited time sale. It's also referred to as a temporary price decline (TPD).
Terms - Your wholesale terms are the foundation of your wholesale program, which dictate what is and is not acceptable or offered through your wholesale program. Your terms usually include the minimum opening order or re-order amount, the shipping arrangements, if you accept returns, or offer credits, etc.
Universal Product Code (UPC) - The UPC of a product is the bar code used to scan a product, and can be unique to each product or an entire product line. Whether a retailer prefers a UPC to be unique per individual SKU or across a line priced product line is dependent on the industry and type of retail outlet, including how they sell and inventory products. It's safest to use an unique UPC for each individual SKU.
Pro tip: Buyers love it when you provide them the UPC and SKU information before they receive the order, so that they can place it in their inventory tracking system before the product arrives (if they have one!) Instead of having your swanky new products chilling in their stock room waiting to be entered into the system, they can be catapulted straight to the shelf!
Vendor - A vendor is the company selling a product to a retail establishment. If you handle the wholesale portion of your business, you are both the manufacturer and the vendor!
Whew! That was like stepping into a mini library, wasn't it?
And if you can believe it, I left a few terms off for the sake of brevity!
While there is a whole 'nother world of lingo in wholesale, it's not as scary as it seems when you come to the table armed to the teeth with vocabulary, right?
Are there any words you've encountered that you are dying to know what they mean? Pop them off in the comments!
And stay tuned, because next week, I'll cover the absolute bare necessities you need to get started wholesaling.
Want to snag weekly advice on building a successful soap biz directly in your inbox?
Of course you do! Sign up for our newsletter below for more tips and tricks to make bank in your biz.