Part of the appeal of being a wholesaler is that you have access to products at a cheaper price. You can buy materials or entire products in bulk and resell them to retailers or direct to consumer.
While getting products cheaply is exciting, pricing them is a completely different story. Not only do you have to take labor and parts into account, you have to consider emotional factors, like psychological pricing strategies.
Learning how to become a wholesaler and understanding how to buy wholesale items and products is a great place to start. You can take it further by browsing a popular wholesale directory and reading about how to get a wholesale license.
It may appear as though you can pick a price, list your product, and make wholesale sales, but there’s more than meets the eye. Continue reading to learn how to price your wholesale goods and the differences between pricing methods.
What Is Wholesale Price?: Wholesale Price Definition
Wholesale price is the cost a wholesaler or distributor pays a manufacturer for their goods. As you can imagine, wholesale pricing depends on multiple factors, any number of which may be present or nonexistent in a given business.
Each supplier has a different material sourcing, manufacturing, B2B marketing, and sales process. As a result, pricing for similar products can vary across suppliers.
Wholesale costs can also change based on material availability, economic conditions, the growing enterprises of business owners, and customer demand. It’s wise to routinely check your suppliers’ costs in the event of raw material shortages or economic downturns.
How to Calculate Wholesale Price
The wholesale price you use will depend on whether you’re a distributor or manufacturer. If you’re a middleman between suppliers and retailers, your pricing can and should look different from that of a product creator.
Getting your wholesale price just right is a subjective process, because there are so many factors playing into a single product. As you develop a successful wholesale marketing plan and strategy, remember that your pricing will naturally change over time.
Here are a couple ways to calculate wholesale price.
If you’ve been in the wholesale industry for years, it may have been too long since you reevaluated your supplier relationships. If you just got started, it’s even more important to choose suppliers whose prices reflect their value.
Wholesale goods are already known to be cheap, but that doesn’t mean they should be of poor quality. You should research wholesale items to sell, so you have realistic expectations of current prices.
Apply the following questions to the suppliers you’re evaluating, as well as their prices:
- What is their customer service like? Do they follow up quickly with helpful responses? You want to select a company that prioritizes how they interact with other people and business owners.
- Is their pricing competitive? It’s not worth your time trying to uncover value where it doesn’t exist. A price that’s wildly above or below similar products (not including shipping costs) typically means something isn’t right.
- What is their distribution and shipping network like? Will you receive new orders on a timely basis? If your supplier’s turnaround times are lagging, ask them about any alternative distribution solutions they may offer.
- Do they offer bulk discounts? This is one of the easiest ways to save money as a business owner. If they aren’t a business that runs promotions, you may be better off with a different company.
If something seems off during your research, it probably is. It’s better to take your time in starting a partnership than wish you hadn’t started one at all.
Control Your Costs and Labor
Calculating your parts and labor costs is necessary for determining effective prices. This is also called prime cost, which is labor expenses plus your cost of goods sold (COGS). In nearly all cases, your prime cost will comprise the majority of your expenses.
Once your labor and fixed costs are accounted for, ask yourself if there’s still room for variable expenses, fees, and profit. If there isn’t, or your profit margin will be unusually low, it’s time to make adjustments. Don’t be afraid to modify your production methods if it will lead to stronger profits.
Maintain Low Overhead
Overhead expenses like rent, equipment, shipping, and advertising need to be included in your pricing evaluations. That $2,000 eCommerce PPC campaign will cut into your profits if your product pricing hasn’t already accounted for it.
The tricky part about overhead costs is that they usually vary. Instead of stressing about what costs will change and when, start with your predictable overhead expenses. Then figure out what you can reduce. Every measure of efficiency you implement will simplify the final price you select.
Consider a Minimum Advertised Price
It’s well known that wholesaling is a competitive marketplace, which only intensifies as a product gets closer to retail. One way you can strengthen relationships and combat losses is by using a minimum advertised price.
A minimum advertised price (MAP) is the lowest agreed-upon price point at which a retailer will advertise a wholesaler’s goods. Wholesalers can’t control the price retailers sell at, but they can ask that a product not be publicly displayed below a certain price point.
If you’ve ever added a product at one price to your online cart only to see it get displayed as a different price later, this is MAP in action. A MAP is used for numerous reasons.
One, solid pricing supports wholesalers’ business model. Ensuring a steady availability of products from manufacturers to the retail market strengthens both sides of the supply chain.
Two, it prevents retailers from engaging in unrelenting competition. Retailers still control their final sale price, but by putting a minimum on the advertised price, it prevents unruly discounts.
Three, it supports brand value. Customers often associate price with value, so if a product is too steeply discounted, they may not shop for it at all. This can help wholesalers demonstrate the power of their brand and encourage retailers to sell products their customers will like more.
Look at Your Budget
Selling products without a reliable pricing method can feel like you’re walking through a fog. You may get where you’re going eventually, but it will take a lot longer than it needs to.
A great way to counteract this uncertainty is by maintaining a budget. Your budget spreadsheet should include the following at a minimum:
- Fixed and variable costs
- Taxes and fees
- Revenue sources
- Category for unforeseen expenses
Once your costs are subtracted from your revenue, divide your monthly revenue by your monthly product sales. This number is your average unit price.
Now, it should be easier to understand whether or not your single unit price is effective. Changing out a product part, improving your advertising copy, or reducing your merchandise inventory may all improve your unit sales efficiency.
Another benefit of budgeting is it instantly highlights anything you’re unaware of. If you discover an expense that is higher than expected or that you didn’t even know you were paying, address it immediately. This can have a fast impact on your pricing.
Determine Final Pricing
Boiling all of these factors down to a final price is often easier said than done. You may be tempted to sell your goods at the exact same price as competitors, but this is a risky move.
One, your production methods may be different from competitors’. Perhaps they are cutting corners to sell cheaper products, which directly affects their product quality.
Two, customers that shop with you chose your brand for a reason, so they have different expectations for your products. Make sure your product reflects what your customers are interested in.
Three, remember to price your goods according to how you see them. When you’re convinced of a particular value, your customers and business partners will be convinced, too.
There’s no exact science that will give you a “perfect” price. That said, you can still make smart calls on pricing. Ask yourself the following questions:
- What price would I be willing to pay as a consumer?
- Does my pricing reflect the value of the product?
- Is this price reasonable for the market I’m selling in?
- Is there a direct competitor selling a similar product for much higher or much lower?
With the answers to these questions, you’ll be setting your goods up for pricing success.
Wholesale vs Retail Price
Understanding the nuances between wholesale vs. retail price is a discipline that even the most seasoned wholesalers practice. There is a myriad of factors contributing to price differences, which include:
- Consumers’ perception of product
- Average market price
- Novelty of product
- Average prices for geographic location
- Retail outlet branding
- Convenience of shopping experience
- Product/material quality
All of these should be taken into account when determining your own products’ pricing. You should also have a value-based plan for your pricing.
A value-based pricing model accounts for buyer demographic interests, public consumer trends, and the unique benefits attached to your product (whether physical or emotional). This ensures you aren’t merely competing for similar customers with similar products.
Retail products are marked up significantly to account for the overhead retailers incur. Whether a retailer is using a B2B eCommerce platform or not, you’ll want to pitch a price that matches the environment in which they’re selling.
Ultimately, an exact wholesale price vs. retail price will depend on your situation. If the retailers you’re selling to have price expectations (and many do), you should work these into your selling scheme.
One of the advantages of the difficult pricing question is that pricing is variable. What works in one eCommerce marketplace may not work in another B2B multi-vendor marketplace. A great way to be smart on pricing is to look at what others are doing. If you can build a similar pricing plan for your products, you’ll be able to keep great sales relationships well into the future.
How to Calculate Retail Price from Wholesale and Markup
Calculating a retail price for your wholesale goods is a crucial part of your business’s equation. Customers bring price expectations to different types of eCommerce businesses, so it’s important to strike a balance between cost and value. It’s also worthwhile to remind yourself of the difference between markup vs. margin.
The average retail price increase from a wholesale product is 30-50%, or at least 1.66 multiplied by the wholesale item’s cost. The reason for this minimum is that it tends to cover expenses, generate profit, and also draw customers in.
It’s not uncommon for retail goods to be priced 100%, 300%, or even 500% higher than their wholesale costs. Clothing is one wholesale niche that’s often associated with high markups, whether customers realize it or not.
Sometimes markup is associated with a product’s brand, other times it’s simply to keep a business running smoothly. If you find that you’re still not making the profit you expected, consider selling goods at double the wholesale cost.
The Difference Between the Wholesale Price and Retail Price
The main difference between a wholesale price and retail price is to cover for retail costs while still profiting. From that point, pricing differences can depend on numerous factors.
Perhaps a retail outlet has earned trust with customers who pay more. In another scenario, a retailer may add a small markup to attract bulk orders from customers. The final price difference depends on multiple sales and marketing elements.
The Price Is Right
Using an effective pricing scheme takes time. It requires diligent supplier research, knowing what your customers desire, and a strong eCommerce marketing strategy. Remember that you can always tweak your pricing if sales aren’t what you expected them to be. Your customers may respond well to the pricing change too, which only helps grow your business.