Selling wholesale is a great way to move lots of product with little effort, at least theoretically. But one challenge that goes into wholesale selling is wholesale pricing. Price too high, and you lose potential wholesale customers. Price too low, and you’ll have little or no profit left over to reinvest into your business.
Every retailer at one time or another has wrangled with the issue of product pricing, especially those who sell products wholesale. If you’ve been struggling with this question lately, you’re not alone.
Here, learn how to calculate wholesale pricing and some steps you can take to create successful pricing strategies for your product.
What is wholesale pricing?
Wholesale pricing is what you charge retailers who buy products in large volumes.
The goal of wholesale pricing is to earn a profit by selling goods at a higher price than what they cost to make. For example, if it costs you $5 in labor and materials to make one product, you may set a wholesale price of $10, which gives you a $5 per unit gross profit.
Wholesale and retail prices: what’s the difference?
Wholesale and retail are two fundamentally different processes. Wholesale involves moving goods from manufacturing to distribution, retail involves acquiring goods and selling them to customers.
Producers or distributors charge retailers wholesale prices. Then, the retailer charges consumers for that same product at a higher price—the retail price.
In retail, profit margins are typically higher, though it also usually takes more work and money to make a sale. Comparatively, wholesale might have smaller profit margins, but you’re selling bulk quantities—so it’s less effort to sell 100 units wholesale than it is to sell 100 units direct-to-consumer. But it’s also less profitable. Wholesale also comes with minimum order quantities.
How to calculate wholesale price
Now on to how you can calculate a wholesale price for your products.
1. Research your market
Before you set any product prices, determine your market segment and where you fit in. For example, are you a discount brand, a contemporary brand, or a designer brand? This also determines how your audience perceives you, which ultimately affects your pricing.
If a lower price point is your competitive advantage, keep that in mind while doing your research. Be cognizant of your break-even point, and use the break-even point formula to calculate this number. If your target customers are more budget-conscious or looking for a high-quality, high-end product, consider these factors when conducting market research.
2. Calculate your production costs
Cost of goods manufactured (COGM) is the total cost of making or purchasing a product, including materials, labor, and any additional costs necessary to get the goods into inventory and ready to sell, like shipping and handling.
A product’s COGM can be determined with the following calculation:
Total Material Cost + Total Labor Cost + Additional Costs and Overhead = Cost of Goods Manufactured
3. Set your profit margin
Your target profit margin will help you determine how to price your product objectively. If you’re not sure how to do this, you can use Shopify’s wholesale price calculator. Play around with the numbers to see different scenarios.
4. Consider additional costs
Not sure how to calculate your costs? You’ll need to know your costs of goods sold (COGS) and your overhead costs. These costs include things like rent, customer acquisition costs (CAC), utilities, fees to run your online store.
So while you might make $2 profit per item, it might cost you more than $2 in overhead to sell that item—in which case you’ll need to adjust your wholesale pricing to make more profit.
Here’s how to add it up:
- Calculate your cost of goods sold.
- Calculate your overhead costs.
- Add the two costs together.
Once you have those two numbers, combine them to create your cost price for the formula.
5. Use the wholesale pricing formula
When setting your wholesale price, first multiply your cost of goods by two. This will ensure your wholesale profit margin is at least 50%.
Profit margin is the gross profit a retailer earns when an item is sold.
Apparel retail brands typically aim for a 30% to 50% wholesale profit margin, while direct-to-consumer retailers aim for a profit margin of 55% to 65%. (A margin is sometimes also referred to as “markup percentage.”)
Perhaps you sell swimsuits. If you buy each swimsuit for $25 and sell them for $50 each, your retail margin per suit is $25, or 50%.
Retail margin percentage can be determined with the following formula:
Retail Price - Cost / Retail Price = Retail Margin %
In the case of the swimsuits: $50 (Retail Price) - $25 (Cost) / $50 (Retail Price) = 0.5, or 50% (Retail Margin)
Wholesale pricing methods
There are many different wholesale pricing strategies available, but don’t fret—it’s not helpful to learn all of them if you’re new to selling wholesale.
Instead, here are a few simple and easy-to-use methods you can use today.
Absorption pricing method
Absorption pricing refers to factoring in all the associated costs, including fixed costs and profit margins, when determining your price. It’s called “absorption” because all the costs are consumed in the product’s final price.
The formula for absorption pricing is as follows:
Wholesale Price = Cost Price + Profit Margin
Pros
- It’s easy to use and doesn’t require any training or complicated formulas.
- Your profits are almost guaranteed. If you can account for all expenses, you’ll likely turn a good profit.
Cons
- Pricing gaps are frequent, and it doesn’t take into consideration any competitor’s pricing.
- This method doesn’t account for value perception. You could charge too much, sending potential buyers to other providers.
Differentiated pricing method
Differentiated pricing is a wholesale pricing method that optimizes return on investment (ROI) by calculating the demand for a product. In this case, different buyers in different situations pay different prices for the same product.
Also referred to as demand pricing or time-based pricing, this method is based on the idea that buyer acceptance determines the price on any given market condition.
You can sell seasonal items at a higher price than the average market value during peak seasons. For example, the price of bathing suits can rise quickly at the beginning of the summer season, and then come back down after the demand drops off. This also applies to areas with less competition where customers typically buy products at a higher price, such as a beach resort or an airport.
Using differentiated pricing, wholesalers can also offer products at a lower price.
Pros
- This method can deliver maximum ROI. It takes advantage of market scenarios in real-time, keeps you competitive, and allows you to gain data on buyers.
- When there’s higher demand for a product, buyers are often willing to pay a premium, which means more profit for you. You can use differentiated pricing to sell trending products and other hard-to-find or popular items.
Cons
- There’s a fine line between maximizing profit and overcharging wholesale customers. If you’re perceived as opportunistic or people get the sense you’re price gouging them, it’ll hurt your brand’s reputation. You don’t want to be associated with this kind of greed because buyers won’t come back.
Keystone pricing method
The Keystone pricing method is fairly straightforward. It involves setting the retail price of a product at double the wholesale price—essentially, the retail price is 100% markup over the wholesale cost.
Wholesale Price = Retail Price / 2
So, if you sell a product for $10 wholesale, the retailer would then sell it for $20 to its customers.
Pros
- This is arguably the most straightforward wholesale pricing approach you can take. It’s simple math and doesn’t depend on any advanced calculations.
Cons
- Keystone pricing doesn’t account for factors like competition, demand, or perceived value.
- This approach may not always provide enough profit margin to cover operating expenses and generate profits.
- You need to know the end retail price before you can set the wholesale price. This also limits your buyers to how they can price your products for their customers.
Examples of wholesale pricing
While there are many examples of brands that offer wholesale products, the pricing information isn’t always available. In fact, many brands have a vetting or application process—you’ll need to prove you’re the real deal before they’ll share their wholesale price list with you.
That being said, here are some examples of DTC brands that also offer bulk wholesale pricing:
Girlfriend Collective
Sustainable athleisure brand Girlfriend Collective started selling directly to consumers. It has since built a strong brand that resonates with its core demographic and is in demand by environmentally-minded shoppers worldwide.
Now, Girlfriend Collective sells both DTC and wholesale. You can find its products on websites and in stores like Bloomingdale’s, Zappos, and Backcountry.com.
ChappyWrap
ChappyWrap sells premium blankets directly to consumers via its Shopify website. It also offers a wholesale program for retailers who want to sell its blankets directly to their own customers.
On its website, ChappyWrap promotes its wholesale program that it hosts on Faire, highlighting key benefits and incentives to spark interest. Once retailers enter Faire, they can view wholesale pricing.
Igourmet
igourmet sells gourmet food, snacks, and related accessories on its Shopify storefront. It also offers subscriptions, a great way to generate recurring revenue with little effort.
Another sales channel for igourmet is wholesale. It requires interested wholesale customers to fill out an application, after which they’ll learn more details about wholesale offerings and prices.
4 tips to calculate your wholesale prices
Set a manufacturer's suggested retail price
A suggested retail price (SRP), also known as a manufacturer’s suggested retail price (MSRP), is the price a manufacturer or wholesaler recommends retailers set for their product.
It’s important to ensure retailers follow or at least exceed your SRP so they don’t undercut you or your other retail partners.
Your recommended retail price is calculated with the following formula:
Wholesale Price / (1 - Markup Percentage) = Retail Price
Here’s an example based on a wholesale price of $30 and a 60% markup percentage:
- Convert the markup percent into a decimal: 60% = 0.6
- Subtract it from 1 (to get the inverse): 1 - 0.6 = 0.4
- Divide the wholesale price by 0.4
- The answer is your retail price
$30 (Wholesale Price) / (1 - 0.6) = $75 (Retail Price)
Research your market to see how other comparable brands or retailers set their prices. Then, you can work backward to see if your target retail price is feasible based on the costs you incur to produce your products.
For example, if your target retail price is $60 and you want to give your wholesalers a 55% retail margin and yourself a 50% wholesale margin, you can use this pricing formula to work backward and calculate the wholesale price:
- Convert the markup percent into a decimal: 55% = 0.55
- Subtract it from 1 (to get the inverse): 1 - 0.55 =0.45
- Multiply 0.45 times the retail price
- The answer is your wholesale price
$60 (Retail Price) x (1 - 0.55) = $27 (Wholesale Price)
Then, calculate your target cost price (cost of goods) to maintain a 50% wholesale margin:
- Convert the markup percent into a decimal: 50% = 0.5
- Subtract it from 1 (to get the inverse): 1 - 0.5 = 0.5
- Multiply 0.5 times the wholesale
- The answer is your target cost price
$27 (Wholesale Price) x (1 - 0.5) = $13.50 (Target Cost Price)
Consider a dual pricing strategy
If you wholesale your products to retail partners and sell direct-to-consumer through your website or pop-up shop, it's smart to create a dual pricing strategy to ensure you’ll still profit, regardless of whether you’re selling your products at wholesale or retail.
A dual pricing strategy means you’ll create an external retail price for your products listed on your website that your direct customers see and a separate wholesale price you share with wholesale or potential wholesale accounts in the form of a line sheet.
When you sell wholesale, you’re likely selling a higher quantity in each order, which allows you to sell the products at a lower price.
Here’s where the formulas come in handy. You can do the math to determine your margins and set wholesale and suggested retail prices for your products.
For example, if you design and manufacture swimsuits and sell them via wholesale and retail, you’ll need to look at the following numbers:
- COGS: $15 to make one swimsuit
- Wholesaleprice: $30
- SRP: $75
Then, you’ll be able to calculate your wholesale and retail margins:
- Your wholesale margin: 50% Wholesale Margin = $30 Wholesale - $15 COG / $30 Wholesale
- The retailer’s margin when they use your SRP: 60% Retail Margin = $75 Retail - $30 Wholesale / $75 Retail
- Your retail margin when you sell DTC: 80% Retail Margin = $75 Retail - $15 COG / $75 Retail
With the above wholesale and retail pricing strategy, you’re making a gross profit margin of 50% on your wholesale orders and 80% on DTC orders.
Think about sales volumes
When setting your wholesale prices, think about how much your retailer customers order. Lower wholesale prices for bulk orders can incentivize large customers. On the other hand, if you anticipate smaller order volumes, you may need to adjust your wholesale prices a bit higher to maintain profitability.
Strategically align your pricing with expected sales volumes to balance between competitive pricing and sustainable profit margins.
Review wholesale prices regularly
Things change fast in the retail world, so it’s important to keep up. New competitors, cost-effective suppliers, and fluctuations in customer demand can all impact your wholesale pricing strategy.
That’s why it’s important to regularly audit and review your wholesale prices to ensure profitability and maintain a competitive edge. Remember to consider the cost of everything that goes into your products, as production costs can also change on a regular basis.
Create your wholesale pricing strategy
Now that you have a better understanding of the formulas used to calculate product pricing, it’s time to build your own pricing strategy. Create a spreadsheet that lists your products by style number and name and includes columns for the cost of goods, wholesale price, wholesale margin, retail price, and retail margin.
Use the formulas above to create a costing chart you can plug numbers into each time you need to define pricing for a new product. If you want to use Shopify to run a wholesale business, you can sell on an online marketplace or create a password-protected storefront by adding the wholesale channel in your ecommerce store.
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Wholesale pricing FAQ
What is the formula for calculating wholesale price?
The formula for calculating a product's wholesale price is Wholesale Price = Cost of Goods + Desired Wholesale Margin.
What is a good wholesale profit margin?
A good wholesale profit margin is anywhere from 15% to 50%.
What is the wholesale price method?
Wholesale pricing is the price retailers pay when they buy products from manufacturers in large quantities. The purpose of wholesale pricing is to earn a profit by selling goods at a higher rate than what they cost to make.
What is the average profit of a wholesaler?
There’s no specific data source for the average profit of a wholesaler, though it's widely reported to be between 10% and 30%.
How do you find the wholesale price from the retail price?
You can determine the wholesale price from the retail price by calculating the profit margin and subtracting that from the retail price. The formula is Wholesale Price = Retail Price—Retailer Profit Margin.
What is an example of bulk discounts?
Bulk discounts occur when a customer purchases a large quantity of a product or service from a vendor. For example, a retailer may offer a 10% discount to customers who purchase 10 or more of a certain item.
What is the difference between wholesale and retail price?
Retail pricing is set by retailers and is the final selling price for customers. Wholesale prices are typically much lower than retail prices because retailers are offered a discount in exchange for agreeing to purchase a large amount of product.