When I started writing this post, I didn’t realise how long this would be so I’ve broken it up in two parts. Part 2 will be published on 11th February 2020 so make sure you come back then.
As a small business who produce your products in-house or in small batches knowing what retailers expect and how to price your products can be really difficult at the start.
Many smaller brands feel like they can not offer retailers the margin they need to take on a new brand and it’s why there are so many different modules to trade with a shop. I feel like this is where the divide starts between them (retail buyers) vs. brands and makers.
I often get a sense of resentment from brand owners that feel a little hurt that retailers will take so much of their “profit” and this is where it can really help to work with a mentor to define your prices and make sure you’re priced “right”, so you and the retailer can both make enough money and build a longstanding and mutually profitable relationship.
Unfortunately, there are no one-size-fits-all when it comes to pricing your products.
Pricing is crucial and I would say apart from creating your product it’s the most important thing to get clear on before you start to wholesale to make sure you can build a successful wholesale business and to make sure you make enough money.
The most common “mistake” when it comes to pricing your products
When pricing your products for wholesale I think it’s important to make sure your recommended retail price, RRP (or MSRP - Manufacturer’s Suggested Retail Price if you’re in the US) is right.
This should be based on market research and value, not on what it cost you to produce your product. Of course, this will also come into it but more important is where you want your product to sit in the market and to nail this down you will need to look at your ideal customer.
The most common “mistake” I come across when speaking to brand owners is that they followed one of the, “one size fits all formulas” that are circling around on the internet. The one I see the most is, double your cost price to get your wholesale price and double it again to get your RRP. I think this is oversimplifying something really quite complex.
If for example Gucci did this a T-shirt would cost far less than it does today.
I also often hear of brands that start off pricing their products low to get their brand known and that they plan on putting their prices up later, in my opinion, this is not a great way to build a loyal customer base that is right for your brand and products. If you undervalue your products you will be building a customer base for that price and it will be difficult to get them to spend more for the same product later.
Instead price your product for your ideal customer and in line with other brands that you aspire to be like (this doesn’t have to be direct competitors but brands with the same customer as yours).
You might end up making a much higher margin on some products and a slightly lower one on others but this will give you a great starting point.
If you read this and realise that you need to put your prices up, don’t worry, I’m not saying you can’t, depending on how much it is your customers might not notice and if they do then it might mean a slight dip in sales while you acquire customers that are your ideal customer. Make sure you spend some extra time on your marketing and messaging to educate your customers on the high quality of your products. If you need some help with your social media I recommend Small and Mighty Instagram for Business online courses (affiliate link).
Your retail price
After you reviewed your RRP it is crucial that you price your products the same on your retail sites, this means that if you sell on Etsy, NOTHS, your own website or markets you need to retail your products at the same price or you will be seen to be undercutting your stockists which is never a good way to start a new relationship.
Of course, like any retailer, you can do a sale or an offer every now and then but you need to be respectful of your stockists that have invested in your range and make sure they still feel valued.
It’s important to point out here that a retailer can choose to retail your products at a lower or higher price than your RRP. You can not hold them to your RRP as it can be seen as price-fixing. Avoid anyone de-valuing your products by making sure you only work with retailers that you feel are a good fit for your brand and if they are pure-play (online only) check what platforms they sell on and do your research about other brands they stock and what they sell their products at.
As I mentioned at the beginning of this post pricing is not a one size fit all and can be quite complex so I wanted to make sure I covered quite a bit which means this post turned into a quite long post so I’ve broken it up into two posts and the next one will be publishing on the 11th Feb 2020.
In the next post, I will talk more about your cost price, what to include and what to leave out, what retailers expect, and I will briefly touch on VAT and the difference in expectations between the UK and US markets.