Do you add marketing costs to your wholesale price structure? What do I mean by marketing costs? Well, the time and resources you use to market and sell your products. Many people don’t and thus sell themselves short when they try to expand.
First, marketing costs are marketing costs — whether you are doing the marketing yourself, whether you have a sales rep or distributor or whether you have an in-house sales person. Sales and marketing costs need to be figured in BEFORE you start wholesaling to retailers.
Personally, I have seen too many producers, who have not figured this cost in the wholesale price, come to me for representation. When they find out it is going to cost to sell and market their products, a battle can occur with the producer for how to deal with this issue. Some just raise their wholesale price across the board and I, as the sales rep, end up dealing the angry buyers who think I am responsible for the hike in price (I guess, indirectly, I am responsible).
Here is the story of a gal I was working with that chose another approach: I have included a snippet of the email I received from her when I explained that if she was going to raise her wholesale price, she would also need to raise her price on the handful of accounts she had just opened.
Everything sounds fine except that I will not be changing my wholesale prices to companies I am already dealing with. That is just not right. I also feel it is up to me to decide what I will wholesale my items for when I make a deal with other companies without your assistance. I understand your concern, but since I am doing the marketing with these companies, how could it be right for you to expect me to follow through with those requirements. Basically I am cutting out the middle man (you) when I market to these companies, and it is my choice whether I keep the marketing commission, or pass it on to my customers.
Unfortunately, this gal had not done her homework before jumping into the wholesale market. And she, like many others, is unaware that this practice is not legal, according to the Robinson-Patman Act.
If you are not familiar with the Robinson-Patman Act, here is the Wikipedia definition:
The Robinson–Patman Act of 1936 (or Anti-Price Discrimination Act, Pub. L. No. 74-692, 49 Stat. 1526 (codified at 15 U.S.C.§ 13)) is a United States federal law that prohibits anti-competitive practices by producers, specifically price discrimination. It grew out of practices in which chain stores were allowed to purchase goods at lower prices than other retailers. An amendment to the Clayton Antitrust Act, it prevented unfair price discrimination for the first time, by requiring that the seller offer the same price terms to customers at a given level of trade. The Act provided for criminal penalties, but contained a specific exemption for “cooperative associations“.
NOTE: More on the Robinson-Patman Act.
As it turned out with this gal, we both went our separate ways. She did have the right to maintain her wholesale pricing, less the marketing expense, but I doubt she or anyone else who makes the same decision, will succeed with their business.