As a small business that produces your products in-house or in small batches knowing what retailers expect and how to price your products for wholesale can be really difficult at the start. Many smaller brands feel like they can't 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 wholesale 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.
It can be tempting to assume that a pricing calculator, or wholesale pricing formula is the answer to find the right price for your products - but that's NOT the approach I recommend, as there's so much more to your product than calculating the cost price, doubling it and adding a bit on for profit.
There are no one-size-fits-all when it comes to pricing your products. But in this post, I'm going to give you some sure-fire pointers on pricing your products for wholesale success.
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, if 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 have 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.
After you have reviewed your RRP and made sure it’s right for your business it’s time to get super clear on all your costs. If you hand make your products or you design them in-house you need to add your time into the labour cost.
There are a number of different ways you can do this, the simplest way is to take your overheads out of the equation, for now, this is the overall cost of running your business and it should be allocated against all your sales not exclusively against your wholesale.
Make sure you include the following into your cost price and your margin calculations:
All the costs of your materials, including your product packaging – if you outsource the manufacturing then just factor in your cost price.
If you outsource your manufacturing, you need to remember to add any shipping costs and duties and the same for any supplies and materials you buy-in.
Packing and dispatch cost – it’s up to you if you want to take this into account at this stage, if you outsource your fulfilment you may include this now. Alternatively, I like to allocate this against your whole order value so I often don’t add this at this stage unless I am doing a price calculation for a large retailer that may have extra requirements.
Shipping – it’s likely you will charge the retailer this up to a certain order value and then swallow this cost up so again, I often don’t include this at this stage.
Your time – this is your labour cost, you will need to decide what your hourly rate is for producing/designing your product and divide this into how long it will take you to make something. If you outsource the design make sure you add this too.
Remember if you’re wholesaling you can often batch make things so it’s good to review this every now and then. Equally, if you start to buy in your products or supplies in larger quantities you may get a better cost price from your suppliers so make sure you allocate time every now and then to review your prices.
When you have your cost price you need to compare it to your retail price and your wholesale price. To determine your wholesale price you need to know what retailers expect so this is what we will look at next.
What retailers expect
In the UK most retailers expect a mark-up between 2.2-2.7 with the average being 2.4-2.5. This means that if your retail price is £10 a retailer would expect to pay between £4 and £4.16 for that product. You would get this by dividing your RRP/2.4 or 2.5 depending on what mark-up you are keen on offering.
There are a few different ways of saying this, the most common is to talk about your mark-up or wholesale factor which is what I mentioned above.
The other way is to talk about discount for wholesale or margin, a 2.4 mark-up = a 50% discount/margin on the ex VAT RRP for a retailer and 2.5 = a 60% discount/margin on the RRP incl VAT. This can get confusing which is why it’s very common to stick to speaking about your mark-up/wholesale factor.
You might be thinking, I’m not VAT registered, or my product is not subject to VAT so why do I need to consider this? It’s a great question and if you’re selling to the US or outside of Europe you don’t need to consider the VAT and I will talk about this a little bit later but for UK sales you do need to factor this in.
It’s very likely that your retailers will be VAT registered and therefore they will have to charge their customers VAT and pay this to HMRC so the money they get from a sale will be less than you (as a non-VAT registered company) would get if you sold to the same customer.
You get the ex-vat retail price by dividing your RRP in 1.2, so for example, on a £10 sale, the retailer will get to keep £8.33, take away your cost price of say £4.16 above and you have the retailers margin, in this case, £4.16 = 50% or a mark-up of 2.4.
Now that you’ve seen what retailers expect you might feel, how can I make this worth it for me? Is it actually worth my time?
Of course, only you can answer this but remember that wholesale doesn’t replace your retail sales but you’re creating an additional revenue stream, another way for customers to discover you and your brand and unless you want to create a wholesale only brand you will still be retailing your products direct to the consumer so even if you are giving up some of your margins you won’t be making less profit as this is on top of your current sales.
Wholesaling can be a great way to reach a wider customer base and take advantage of your stockist's already established customer who already knows, like and trust them. This can help you build your brand quicker than if you had to do it all on your own and also build a business that is not as reliant on having great Christmas sales.
I just wanted to touch on this very quickly, when selling to the US you don’t have to take into account the VAT as you won’t be charging it. Of course, you may prefer to have one pricing strategy for all territories you sell to but you could offer US stockists less which gives you a little bit more wiggle room for exchange rate fluctuations.
US retailers do generally expect a 2-2.5 mark-up, if a product retails at $20 (always round up when you do your conversions) they would expect to pay $10. Sometimes less but it’s a good starting point for the US so you may want to create a separate US price list in dollars. Just make sure you review the actual exchange rate regularly.
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