How to Calculate Your Wholesale Pricing Effectively
When it comes to ecommerce, beating your competitors’ prices is crucial if you want to attract customers. Whilst there are many ways to do this, one of the simpler methods is to introduce a wholesale option for your business. Buying in bulk is a common occurrence amongst retailers, so it’s worth targeting these kinds of customers by creating a wholesale program..
However, keeping your business afloat takes more than strategic pricing. Without predictable revenue, it’s hard to maintain your business operations, which is why many ecommerce platforms now have subscription models in place. You can use tools like Upscribe to manage these subscriptions and improve your customer experience.
Now let’s get back to wholesale pricing. Read on to find out more.
What is Wholesale Price?
Wholesale pricing is applied to products that are bought in bulk. Retailers or business owners often purchase large amounts of products in one sitting to get a better deal on them. Their goal is to sell them directly to consumers at a higher price to boost their revenue.
Wholesale pricing is how much you charge for these products bought in bulk. The price for purchasing them in bulk should be lower than purchasing each item individually. For example, if a single product costs $10 to buy, purchasing 10 of them at once should cost less than $100.
You should use these sales to build a profitable ecommerce business, so take into account how much it costs to obtain the products when deciding your wholesale pricing. If the cost of goods was $5, charge a higher price when selling it (e.g., $10) to establish a strong profit margin.
Examples of Wholesale Pricing
Jaquar Group Price List
Here, the bulk price is lower than the retail price by $10.00, with the bulk pricing only applying to orders containing 15 or more units.
Rancho Vignola Price List
In this example, the retail price of the first product is $9.75 per lb. For their bulk pricing, they’ve lowered the price to $8.25 per lb ($1.50 difference) and increased the size of the bag from 5 pounds to 25 pounds.
Wholesale Pricing vs. Retail Pricing
Wholesale pricing centers around selling products in bulk to businesses, while retail pricing is used when selling products directly to consumers. Businesses buy wholesale products with the intent to resell, but consumers purchase products for personal use. Wholesale prices are often lower than retail ones to allow businesses to profit when reselling items.
Why is Wholesale Pricing Important?
It Helps You Sell More Products
Wholesale pricing allows you to sell large amounts of products at a discounted price, which appeals to businesses looking to make a profit within retail. As long as you’re efficient with your inventory planning, you can accommodate multiple large orders.
Reduce Your Store’s Total Operating Costs
Streamline your business workflows to reduce your total operating costs. This way, you can earn more of a profit when setting your wholesale prices. Or, you can reduce your prices whilst retaining your profit margin to capture more reorders.
Builds Value for the Customer
Wholesale pricing can help you choose the right prices for your products. In order to give your customers value for money, you must offer prices that allow them to reach their target profit margins.
How to Calculate Your Wholesale Pricing Effectively
Step 1: Research Your Market
Before deciding on any prices, you must thoroughly research the wholesale market potential for your brand. This can be achieved by looking at your competitors and seeing how they price their products. In order to stand out in your market segment, you offer lower prices or higher-quality products.
How customers view your brand can also affect your pricing strategy. For example, if you already have a good brand image, businesses are more likely to trust your products. You’re also likely to attract retailers if you sell in large enough quantities. Consider carefully how many units should be in one bulk order before wholesale pricing can be applied.
Different types of product should be sold in different quantities. For example, if a product is quite small and lightweight, you can sell it in much larger quantities than a heavyweight product. Research into other wholesalers who sell similar products to you to see how large their bulk orders are.
There are multiple ways to gain a competitive advantage over your competitors but make sure to always retain a profit margin. You should never lower prices to the point where you’re losing more than you’re gaining.
If you want to look at market reports on the wholesale industry, this website has a range of them.
Research Retailers Carefully
Aside from researching similar wholesale businesses, you should also take care when working with retailers.
While most retailers sell wholesale items at a higher price, there’s nothing stopping them from selling at a lower price. This can end up devaluing your products and negatively impact your sales, so it’s worth researching into a retailer before deciding to sell to them. Go on their website to see how they price their products to get a sense of their pricing strategy. You can also require that they sell your products at a certain price which will help maintain your brand image.
Additionally, you can research into different retailers and learn what they look for in a wholesale business:
- What are their desired profit margins?
- What kind of products do they sell?
- Which wholesalers do they currently buy from?
- How many products do they purchase at once?
Step 2: Calculate the Cost of Goods Manufactured
When deciding how to price your wholesale products, you must consider the cost of goods manufactured (COGM). This calculates how much you paid to produce or procure your products and get them ready for sale, which includes things like shipping and labor costs.
You can calculate COGM using the following formula:
Total Material Cost + Total Labor Cost + Additional Costs and Overhead = Cost of Goods Manufactured
You’re essentially calculating your total manufacturing costs, which includes cost of materials, labor, and overhead costs (e.g., rent, utilities, etc.). Here’s an example of the formula being used:
$80,000 + $100,000 + $40,000 = $220,000
You should aim to sell your products at a higher price than your COGM to guarantee yourself a profit. However, this can be hard to achieve if your COGM is quite high. Look into streamlining your business operations to lower your COGM. For example, make only certain products available through wholesale (some products will be cheaper to obtain than others).
Step 3: Calculate Your Profit Margin
Now it’s time to decide on a profit margin. This refers to how much revenue you make from sales after deducting business costs. Wholesalers usually aim for a 30% to 50% profit margin. If you already have a history of sales, calculate your current profit margin to see if it needs improving.
There are different types of profit margins, but for this example, let’s focus on calculating your gross profit margin (GPM):
GMP = ((Net Sales — COGS) ÷ Net Sales) x 100
COGS (cost of goods sold) = Inventory + Purchases − Ending Inventory
Net Sales = Gross sales – (Returns + Allowances + Discounts + Sales Taxes)
Step 4: Calculate Customer Acquisition Costs
Customer acquisition helps you determine how much it costs for you to gain a new customer. This takes into account things like advertising and marketer salaries. These costs also make up a part of your business operations, so it’s important to take them into account when wholesale pricing.
Calculate customer acquisition costs (CAC) using this formula:
Customer Acquisition Cost = Cost of Sales and Marketing divided by the Number of New Customers Acquired
Step 5: Set Your Wholesale Price
Finally, it’s time to set your wholesale price. Since most wholesalers aim for 30% to 50% profit margins, try doubling your cost of goods as a starting point. This guarantees you a 50% profit margin. For example, if it costs $20 dollars to procure an item, sell it for $40. Just keep in mind the retail price when deciding your wholesale prices.
Consider Retailer Profit Margins
When retailers buy from wholesalers, they’re also looking to achieve a certain profit margin. This means your price can’t be too high. For example, let’s say you price an item at $50, and a retailer has a 50% target profit margin.
After purchasing your product, they’ll need to sell it for at least $100 if they want to reach their desired margin. Some products, however, won’t sell at such high prices. To avoid pricing your items incorrectly, consider a product’s retail value and retailer profit margins when setting your wholesale prices.
You can use the following formula to calculate the retail margin percentage:
Retail Price – Cost / Retail Price = Retail Margin %
Once you’ve established your wholesale pricing and started making sales, you need to provide retailers with an easy way to reorder products. The easier it is, the more likely they’ll buy from you again. With the help of Upscribe’s reorder button, retailers can seamlessly repurchase any product of their choice.
Different Wholesale Pricing Methods to use
Absorption pricing (aka full costing) is where you include variable costs and fixed costs into the price of a product. This takes into account the cost of labor, materials, and overhead costs such as rent and insurance. Absorption pricing allows you to ensure a profit margin since you’re making back your production costs.
You can calculate your wholesale price (using the absorption pricing method) with this formula:
Wholesale Price = Cost Price + Profit Margin
Cost Price = COGS + Overhead Costs
Differentiated pricing involves setting different prices for the same item according to changing demands, the type of buyer, and the time of purchase. This pricing method aims to optimize your return on investment (ROI). For example, when product demands are high, you can increase your prices to boost your revenue.
Some products sell better during certain seasons, such as swimsuits during the summer, so customers are more likely to pay a higher price for them. After demands drop, you should decrease your prices again.
Differentiated pricing can also be applied when you have old inventory you want to get rid of. Sell these products at a lower price as part of a flash sale (for a limited time).
When selling products in bulk, you can use wholesale pricing to attract customers. A lot goes into your wholesale pricing strategy, but the main goal is to meet your target profit margin. Just remember to consider your customers’ desired profit margins as well as your own when pricing your products.
Whilst wholesale products can help boost your income, it doesn’t guarantee you any predictable revenue. That’s why many ecommerce businesses choose to adopt a subscription model using tools like Upscribe. Here at Upscribe, we provide you with out-of-the-box features to help grow your subscription business. Schedule a demo today to get a closer look at our powerful tools.