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Setting wholesale minimums


#1

I’m finding that there is a small wholesale market for the animal
charms I make, mostly with people who are using them to make finished
jewelry that they sell at craft fairs, etc. I was reading through the
archives looking for on consignment recently, and found a
post that suggested setting a wholesale price that covers all
expenses plus a profit margin, and double it for keystone retail.
Then adjust your attitude to think of it as getting 100% when you
wholesale (or consign) and 200% when you sell retail. I like that
mental attitude adjustment. (original post was
http://www.ganoksin.com/orchid/archive/200105/msg00690.htm ) I was
not thrilled with the idea of selling wholesale prior to that mental
kick, but now I am seeing it as a better opportunity.

My question, after all this rambling is, how do I determine
reasonable minimum order quantities and how do I determine who
should/shouldn’t be allowed to purchase from me at wholesale? I don’t
want to end up with people asking to buy 1 of this, 1 of that because
they want to make themselves a charm bracelet cheaply.

–Kathy Johnson
Feathered Gems Jewelry
http://www.featheredgems.com


#2

So far the only wholesale customers I have had are obviously dealers
with stores. I’m sure I will eventually be approached by someone I
am unsure of. I think it has been traditional that those who merit
wholesale prices should be able to produce documentation that they
are legitimately in the business of reselling our products. I have
not set minimum orders yet, but I do give some discounting for larger
orders. On the other hand, I am trying to break into this market at
this point, so I am reluctant to do anything to discourage sales.
Eventually, I suppose, I might have to set minimum orders to qualify
for wholesale pricing. I should be so lucky, I guess. Jim


#3

Hello Kathy, Your query:

    My question, after all this rambling is, how do I determine
reasonable minimum order quantities and how do I determine who
should/shouldn't be allowed to purchase from me at wholesale? I
don't want to end up with people asking to buy 1 of this, 1 of that
because they want to make themselves a charm bracelet cheaply. 

If you use the same criteria that is applied to yourself so far as
wholesaling, it’s pretty simple. The person has to have a sales tax
number. For your own tax purposes, you’ll need that number on the
invoice to indicate you did not collect sales tax. My state is
pretty insistant about collecting sales tax and with the current
financial deficits, they will probably become totally demanding
about it!

It would also make sense to build in a price cushion, so that you
can give a volume discount with large quantity purchases. A small
purchaser pays a higher percentage. You can scale it any way that
makes sense. Companies that allow single item purchases (like Fire
Mountain) sell those at near retail and offer price breaks at
several levels. The greatest quantity buyer (like >25 items) gets
the lowest (read wholesale) price.

Using your example, if your retail price is 200%, the wholesale
price for single pieces should probably be more like 175%, and the
wholesale price for a large volume purchase becomes the 100%.

I’m not an economist, but this makes some cents (pun intended). Judy
in Kansas - leaving for Tucson on the red eye flight tomorrow.

Judy M. Willingham, R.S.
Biological and Agricultural Engineering
237 Seaton Hall
Kansas State University
Manhattan KS 66506
(785) 532-2936


#4

Kathy - wholesale prices should only go to those people who have a
business license for retail, and are actively creating or selling in
the correct field (i.e. a business license to sell cars should not
get them a wholesale price on jewelry or components!). Amounts are
up to you. Many wholesalers DO sell one piece, even small pieces,
but adjust the wholesale price - so that when a buyer purchases a
small quantity that buyer pays more than when the buyer purchases a
large quantity. Look at a catalog from Fire Mountain for examples.
It is really up to you, and how much trouble it is. Many wholesalers
also require a minimum order ($), to be sure it is worth their time,
as opposed to a minimum quantity.

I would think in your situation, requiring the business license (it
is quite common to require a copy of it for your files), and a
minimum $ order, would be a good way to go.

I also like what you said about wholesale/retail prices, and
although I don’t currently sell wholesale, I have set up my price
system so that I could, if I wished. Interestingly, I have it set up
the way you mentioned! Having been a gallery owner in the past, I
know I marked things up 100%, so I just set my prices that way to
begin with.

Beth


#5
 Kathy - wholesale prices should only go to those people who have
a business license for retail

OK, I’m going to display my ignorance (well, a little of it,
anyway). What exactly is a business license? Is it the same as a
resale certificate? I’ve done art fairs for maybe 20 years, as well
as consigning and wholesaling, but I only have aforesaid
certificate. Am I missing something? --Noel


#6

Hi Noel,

What exactly is a business license? Is it the same as a resale
certificate? I've done art fairs for maybe 20 years, as well as
consigning and wholesaling, but I only have aforesaid certificate.

It really depends (in the US) on where you’re located. Different
states, counties & cities have different requirements. At the very
least, it could be a Sales Tax permit, usually from the state. In
other locales, it could be the sales tax license along with a county
or city ‘business permit’.

Probably a good place to inquiry about your area would be the local
Chamber of Commerce or some one at City Hall or the County Court
House. If that fails, you could always check with an attorney.

Dave


#7
      wholesale prices should only go to those people who
have a business license for retail 

Let’s try this again…

I do no retail business. Do you really think that I shouldn’t get
any wholesale prices? I sell to retailers. I don’t collect taxes. Why
should I need a sales tax number? I pay sales taxes on those goods
that I use just like everyone else. The goods that I sell through
retailers are taxed at the retail level.

Wholesale prices are for those that buy in wholesale quantities. If
someone wants my business, they will give me the deal that will merit
my business. Otherwise, I’ll walk.

I have a friend that will be sliding into the “wholesale” section of
a rather large gem show in coming weeks because he will show a sales
tax ID. He’s a carpenter! What is he doing getting “wholesale”? Well,
he ain’t really. He’s just going to slide on the sales tax.


#8
Why should I need a sales tax number? I pay sales taxes on those
goods that I use just like everyone else.

If nothing else to save the cost of the tax which is 7% in my area.
7% more I can put into my pocket when I sell my work wholesale.
Also, some wholesalers will not do business with you unless you have
a tax license. One example is my local lapidary and jewelry supplier.
Their retail prices are near what the mail order places charge and
then they give me an extra 10% off and don’t charge me sales tax
because I have a tax license. It ends up being cheaper than if I
would buy from the mail order places and pay shipping.

A sales tax license can get you into some wholesale shows. Also,
having a tax license legitimizes you as a business. When you file
with the IRS, especially if you are reporting a loss, the IRS
sometimes likes to check if you are running a legitimate business and
not just using a shell to write off expenses…

Just my US$.02 worth…

Rick Copeland – Silversmith
rick.copeland@Covad.net
home.covad.net/~rcopeland
Colorado Springs, Colorado


#9

Some communities require a business licence for you to do business
within their incorporated area and may charge a fee. A resale licence
is issued to one who is allowed to buy materials without sales that
they use in a product designed to be resold. The sales tax is paid
by the retail buyer. If you sell the product at retail you are
obligated to collect retail tax which you pass on to, say the state
of CA. And these entities are very aggressive in making sure you are
collecting and passing it on to them. Depending on your volume you
may be required to fill a monthly, quarterly or annual report. If
you consign you must have a form filled out by the consignee and
signed by them stating that they are collecting the sales tax which
you are obligated to keep on file. Regulations and laws may vary. If
you haven’t been doing these things you might want to check with
your local and state governments. Things can come back to bite you
in the posterior and at great cost.


#10
    If nothing else to save the cost of the tax which is 7% in my
area. 7% more I can put into my pocket when I sell my work
wholesale. 

My point was that a sales tax number does not license someone to get
the best price breaks. It seems to me that newcomers are made to
believe that if they have an account set up with the state to ease
the collection of legitimate sales and use taxes, that someone will
give them a better deal on the goods that they buy. This is not
necessarily true.

    Also, some wholesalers will not do business with you unless
you have a tax license. 

Too bad for them. As I was trying to point out, I will deal with the
dealer that will give me the best bang for the buck. I very rarely
run into a “need” for tax number for my purchases.

    One example is my local lapidary and jewelry supplier. Their
retail prices are near what the mail order places charge and then
they give me an extra 10% off and don't charge me sales tax because
I have a tax license. 

And if he wants to continue to do business with you, he’ll keep
offering the discount to you. This is hardly a “wholesale” purchase.
I see 30, 40, 50 and even 60% discounts at the malls every day. This
doesn’t make them “wholesale” purchases. Anyone that wants to buy
wholesale needs to do volume, volume, volume. As for the tax
discount, in my state, I am required to pay the sales tax on the
tools and equipment that I use as a use tax. Same tax.

    A sales tax license can get you into some wholesale shows. 

There are plenty of ways around this in most cases and any show that
lets a person in just because they have a sales tax account isn’t a
real wholesale show. Plumbers and carpenters have the same accounts
and they get in as well.

I might add that when you support shows like this, you are
supporting your competition. Good going.

    Also, having a tax license legitimizes you as a business. 

Laborers are legitimate busimen. They are selling their labor for
the best price that they can get. Such sales have nothing to do with
whether or not they are legitimate.

   When you file with the IRS, especially if you are reporting a
loss, the IRS sometimes likes to check if you are running a
legitimate business and not just using a shell to write off
expenses... 

Let 'em check. If you aren’t dealing drugs or stolen goods, you
aren’t making frivolous claims or avoiding legitimate sales and use
taxes, what do you care?

Bruce
JACMBJ