Wholesale vs Direct to Consumer: How to Choose

Most founders never choose a channel. Someone offers to stock you, you say yes, and three years later the whole business is built on a model you never actually picked. I did that.

Should you sell wholesale or direct to consumer?

Start with the channel your margin can carry. If your product does not retail for at least four times its landed cost, you cannot afford wholesale yet, so sell direct and fix your costing first. If it does, wholesale is the faster way to move volume and the easier way to forecast, and direct is the slower way to build something you own. Most product businesses end up doing both. The expensive mistake is doing both at the same price.

What wholesale actually pays you

Wholesale is usually half of retail. A product that retails for $120 sells to a stockist for $60. If your landed cost is $38, you keep $22 a unit before you have paid yourself anything.

That $38 is the number everything rests on, and it is not your factory quote. If you have never worked out your landed cost line by line, do that first over on Source Haus before you quote a single retailer.

Then there is when the money arrives. You fund the stock, you pack it, you freight it, you invoice, and then you wait 30 days. In practice plenty of retailers pay at 45 or 60. So the $22 is real, but it turns up months after you spent the $38.

• One order, one invoice, one conversation. 200 units can move in a single email.
• No marketing cost attached to the sale. The retailer does that work.
• No customer. You get a trading account, not an email address.
• Forecasting gets easier, because orders come with lead time.
• Reorders are the whole game, and you usually find out late that one is not coming.

What direct to consumer actually pays you

Same product. You keep the full $120. Take out the $38 landed cost, about $3 in card fees and say $9 to post it. You are left with roughly $70.

Now take out what it cost to get that sale. The ad, or the discount code, or the email platform, or the two hours you spent answering questions in your DMs. If you are doing it well that is $18 to $25 a sale. You keep somewhere around $45 to $50.

So direct wins on margin per unit. It is not close. What it loses on is volume per hour of your life. Wholesale moves 200 units in one email. Direct moves 200 units over three months, most of your weekends, and a lot of content you did not feel like making.

Why going all in on direct is not the safe choice people say it is

There is a strong story in product circles that cutting out the middleman is obviously more profitable. The data does not really support it. BMO Capital Markets looked at this again in 2024 and found that brands expanding their direct business did not see a notable lift in revenue, merchandise margins or operating margins. Direct-only businesses sat below their own five-year average on operating margin. The ones running both channels sat above it.

The brands that did improve were the ones selling at a high enough price point to absorb the cost of fulfilment, logistics, heavy marketing and returns.

That is the real test, and it is a useful one for a small brand. Direct to consumer only beats wholesale on margin if your price point can pay for its own marketing. On a $29 product it almost never can. On a $220 product it usually can.

What I got wrong at Incy

Incy Interiors was children's furniture and homewares. Stockists built it. We ended up selling in nine countries and almost all of that came through retailers, because cots and beds are things people want to see and push on before they buy.

I loved wholesale for the wrong reasons. The orders were big, the forecasting was easy and it felt like real business. What I did not do was price for it properly. I set my first prices off the factory quote instead of the landed cost. Freight, duty, packaging and breakage were not in my number. The retail price looked healthy. The wholesale price, being half of it, was barely above what the product had cost me to get into the warehouse.

It took me about a year to unpick that, and the only honest fix was raising prices on retailers who had just started stocking me. Not a conversation I would like to have again. If you only read one other thing here, read how to price a product so wholesale doesn't kill you, because that is the mistake in full.

The second thing wholesale cost me was the customer. For years I knew exactly how many cots a retailer in Perth bought and almost nothing about the family sleeping in one. When I wanted to launch something new I had no list to launch it to. I had to buy that audience later, and buying it back costs far more than building it as you go.

The order I would build it in now

1. 1Sell direct first, in small numbers. Fifty to a hundred units. You are not there for the revenue, you are there for the information.
2. 2Fix your costing, then set retail at four times landed cost. If the market will not pay that price, you do not have a wholesale product yet.
3. 3Collect every email address while you do it. Every direct order is one.
4. 4Then open wholesale, to a small number of stockists you chose on purpose, rather than everyone who asked.
5. 5Keep selling direct the whole way through. It is your margin, your pricing floor and your early warning system when a category goes quiet.

When wholesale should be your first channel

• Your product needs to be touched, sat on, tried on or smelled before someone will spend the money.
• Your category is still mostly bought in shops.
• You have no audience and no appetite for building one.
• You have enough cash to fund stock and then wait 60 days to be paid for it.
• Your retail price is at least four times your landed cost.

When direct should be your first channel

• Your price point is high enough that one sale can pay for its own marketing. Roughly $80 and up.
• You already have an audience, even a small one.
• Your margins are too thin to give half of them away.
• The product explains itself in photographs.
• You plan to launch more products, which means the customer list is the asset, not the first product.

If you are weighing up where to sell rather than how, marketplace versus your own website is the other half of this decision.

You can do both. Just not at the same price.

The fastest way to lose a stockist is to undercut them on your own site. If a retailer buys at $60, sells at $120, and then watches you run 30 percent off, you have just made their stock worthless and their decision easy.

So match the recommended retail price on your own site. Compete on service, range and story instead. Hold your own sales to once or twice a year, and tell your stockists before you run one.

And wholesale is not permanent. Jane from Millwoods went from 51 stockists to direct only at the end of 2024. She will tell you it was about control and margin, not about wholesale being wrong. She chose a model instead of inheriting one. That is the actual point.

Whichever you pick, the thing that kills product businesses is not the channel. It is running out of cash between paying the factory and being paid by the customer. That is the job underneath both of these.

And when you are ready to approach retailers properly, here is how to get your product into stockists.

Pick the channel your numbers can carry. Not the one that showed up first.