A middle man is a person who buys a product directly from the producer, and then either sells the product at retail prices to the public, or sells the product at wholesale prices to a distributor. There can often be more than one when the latter practice is adopted. One person can purchase from the producer, and then work with another person who buys for the distributor. The producer often views the middle man as the alternative to direct distribution.
A small farmer, for example, may not need a middle man. Instead, she may take her produce directly to farmer’s markets, or sell produce directly from her farm. In cutting out person between her and the customer, she gets a higher price for her produce. The end profit of being able to sell at higher prices may not make a significant financial difference, however, because she not only has to put in the time to grow her fruit and vegetables but also to distribute and sell them.
Instead, some small farmers work with a middle man who either immediately distributes the goods at local farmer’s markets or in grocery stores, or who gathers produce from several small farmers to sell to middle men working for grocery stores. Using such a person means that the price offered to the farmer is lower, but often more of the farmer’s wares are sold, which may result in a higher return and less time spent than when the farmer chooses direct distribution.
This same model applies to any manufacturer. The middle man may be responsible for ordering the production of items, or parts of items at a negotiated price with the manufacturer. He or she then either sells these items directly or to other companies that will ultimately distribute and sell the items. For the manufacturer, it can be beneficial to know in advance the quantity of items needed. A pre-order can help make this clear so that the manufacturer makes only what is required and doesn’t spend money making parts that are never sold.
The middle man essentially stands as both buyer and seller. He may need to be a consummate sales person, because he often must advance his company’s own money in the hope that he will be able to sell the product at a profit to someone else. The element of risk involved in purchasing products accounts for the mark-up value on goods purchased from this person. In this model, the producer is almost always reimbursed at the lowest amount, the middle man at a middle level amount, and the retailer at the highest amount. When the person in the middle both buys and sells directly, he may make the most profit, though he also hazards the most risk.
