I recently responded to a gal on a Facebook group who was looking for advice on developing wholesale pricing for her products. Although the question was reasonable, many of the answers surprised (and nearly horrified me). The gal was told to just cut her retail price by 50% and call that her wholesale price!
No, No, and a big NO!!
That is probably the WORSE way to come up with wholesale pricing!
A better way is to use this simple formula to get you started:
Cost of Goods (including labor) x 2 = Wholesale Price
Wholesale Price x 2 to 2.5 = Retail Price
So how and why is this different than retail price x 50% = wholesale price?
For starters, it assumes that you know your costs and added margin before doubling it for retail! But if you don’t know this and go ahead and cut your price in half, you may be horrified by how much the pricing is off — maybe to the point where you are losing money!
“But, if I use your formula, I can’t sell my products for that much?” I am told. So let’s explore how this can be approached. The following is an excerpt for a Wholesale in a Box article that offers some excellent options:
5 options if your retail price feels too high, but your costs make it tough to lower
:
- Keep the price high. …You could certainly keep your retail price higher and hustle on the storytelling and brand-building end of things to really “earn” that price. That means stellar product photos, incredible production story and photos, and a super-strong product. Plus, of course, know that your market may be a bit smaller and you may have to work harder for each store account.
- Take a hit on margin for now, while you build wholesale for later. Another option is to do what many makers do — accept a lower margin while you’re in these initial stages of growing wholesale. … This often makes the most sense if you think your costs will come down with higher volumes. The plan would be to take a lower margin now, build your base of store accounts, and then as your costs come down with those higher volumes, your profit per piece will go up.
- Cut costs. Of course, if there are immediate ways to get costs down, that could help a lot, too. …Are there alternative ways of producing your product? Different materials you could use? Elements you’ve always included but may not actually be crucial? A different supplier?
- Sell only a chunk of your line wholesale. You can also consider limiting your wholesale line to just a sub-set of what you sell retail. .. Then consider making those higher-margin products your wholesale products (and not increasing the retail price) and leave the rest of the line to be retail-only.
- Hold off on wholesale. I think it’s important to have “on the table” that wholesale isn’t right for every maker. (Maybe) giving yourself permission to focus on the things that are already working for you is the right way forward.
If you need more detailed help with your pricing, check out my mini e-guide, “How to Price Your Products”, that details the best ways to come up with a perfect pricing strategy for your products!