If you’ve got a great collection of products and a successful direct-to-consumer eCommerce store, you may be wondering – what next?
For many businesses, selling their products wholesale is the next logical step. Selling in bulk can help you shift large volumes of products while keeping your operational costs relatively low.
With the right wholesale pricing strategy, wholesale orders can become a reliable source of revenue.
However, setting wholesale prices is a careful balancing act. Set them too high, and retailers won’t be able to make a profit, but set them too low, and it may not be worth your while.
In this article, we’ll explore different pricing strategies and provide a step-by-step guide to setting an attractive yet profitable wholesale price.
What is wholesale pricing?
Most businesses offer retailers a special discounted wholesale price if they buy their products in bulk to resell.
Offering a discounted price for bulk B2B orders benefits both you and the retailer.
A lower price helps to attract retailers as it enables them to generate a better profit margin when they resell your products.
It also helps you to shift high volumes of products and potentially earn reliable revenue from doing so – provided you’ve got your wholesale pricing right!
Selling wholesale vs direct-to-consumer (DTC)
There are pros and cons to both selling wholesale (B2B) and selling direct-to-consumer (DTC), which is why so many businesses opt for a hybrid model that allows them to enjoy the best of both worlds.
You can see the pros and cons of each sales model at a glance in the table below:
Profit margins are usually lower when selling wholesale, but that’s the trade-off for high-volume orders. Selling 500 units to one retailer can be more profitable than selling 500 units to 500 different customers, even at a lower profit margin, because it costs less in marketing, packaging, shipping, and order fulfilment.
How to calculate your wholesale price (a step-by-step guide)
Breaking into the wholesale market can help you to move high volumes of products and create a more reliable revenue stream.
But only if you set the right wholesale prices.
We’ve created this simple step-by-step guide to help you set healthy wholesale prices for your products.
Step 1: Research your market
Before you can set any prices, you need to do some market research to determine a realistic price range.
Important areas to research at this point include:
- Where your brand sits in the market (budget, premium, or luxury?)
- What competitors are charging for similar products
- Retailer margin expectations
- Seasonal demand patterns
This will give you some idea of how much retailers are willing to pay and where your products sit within today’s market.
Step 2: Calculate your production cost per unit
Next, you need to work out how much it costs you to manufacture one unit of your product.
There are three primary manufacturing expenses to include in this calculation.
- Materials: Raw materials and packaging.
- Labour: Do you pay any employees to help with manufacturing your product?
- Manufacturing overheads: Production-related expenses only, like factory rent and equipment maintenance.
Add all your manufacturing costs up, and then use the formula below to calculate your production cost per unit.
Production cost per unit = Total manufacturing costs ÷ Number of units produced.
Calculating the cost per unit accurately will help you to make sure that your wholesale price definitely covers all your production costs (while also leaving room for profit).
Step 3: Account for operating costs
We see it time and time again. Businesses focus on manufacturing expenses and forget all about their other operating costs.
If you don’t factor other operating costs into your calculations, they will eat into your profits.
Additional operating costs not directly associated with manufacturing costs include:
- Office rent and utilities
- Software subscriptions
- Shipping and handling
- Merchant processing fees
- Marketing and ads
These costs still need to be recovered through your sales revenue, so you need to take them into account when setting a target profit margin.
Step 4: Set your target profit margin
Now that you have a clearer picture of your costs, you need to decide how much profit you want to make on each unit.
A realistic target profit margin depends on factors like your production and operating costs, competitors’ prices, brand positioning, and expected sales volumes.
Aim for a gross profit margin that leaves you with enough money to cover your wider operating expenses and still make a healthy net profit.
Step 5: Apply a wholesale pricing formula
The method and formula you use to work out wholesale pricing may vary depending on the pricing strategy you decide to use (more on this next!)
However, if you’re looking for a standard formula, then this is it:
Wholesale price = Production cost per unit ÷ (1 – Target gross profit margin)
For example, if it costs you £32 to manufacture one unit and your target profit margin is 30%, then your calculation would look like this:
£32 ÷ (1 – 0.30) = £32 ÷ 0.70 = £45.71
So your wholesale price would be £45.71 per unit.
Step 6: Calculate your break-even point
Armed with your wholesale price, you can now work out the minimum number of units you need to sell each month to break even and cover all your costs.
You can use this figure as your baseline. If you sell more units, you’ve made a profit, but anything below that and you’re making a loss.
Use the following formula to work out your break-even point:
Break-even point (units) = Fixed costs ÷ (wholesale price per unit – variable cost per unit)
Your fixed costs are the costs that stay the same, no matter how many products you manufacture or sell. For example, factory rent and software subscriptions.
Your variable costs are the costs that increase or decrease depending on how many products you produce or sell. For example, material costs and shipping and handling costs.
Make sure you’re only factoring each expense into your calculation once.
Step 7: Check your wholesale price against your recommended retail price (RRP)
For your products to be attractive to retailers, the price needs to be low enough for them to add their own markup and still make a worthwhile profit.
If your wholesale price is too high, you’ll need to revisit your figures and either reduce your profit margin or look for ways to cut your costs.
Wholesale pricing strategies
While the formula in the guide above is a great starting point for calculating wholesale prices, it’s by no means the only way to approach pricing.
There are lots of different pricing strategies to consider. The right one for your business depends on factors like your products, target market, and business goals.
Here are some of the most common wholesale pricing strategies:
Cost-plus pricing
Cost-plus pricing is one of the simplest and most popular strategies. It’s a good choice for businesses with predictable production costs.
It works by adding a percentage markup to production costs; the formula looks like this:
Wholesale price = Production cost per unit + (Production cost per unit x Markup percentage)
Competitor-based pricing
Competitor-based pricing is ideal for businesses operating in very competitive markets. It involves researching what competitors are charging for similar products and then using these prices as a benchmark. Undercutting competitors could give you the competitive edge; matching their prices will help you stay competitive; or if you’re offering something extra or different, you may choose to charge more.
Value-based pricing
Value-based pricing works particularly well for businesses selling premium or luxury products. This strategy prices products based on their perceived value rather than production costs alone. Factors to consider when determining a product’s value could include its exclusivity, demand, quality, and craftsmanship. There is no standard formula for calculating value-based pricing, but market research and customer feedback often play a part.
Reverse keystone pricing
Keystone pricing is a straightforward method used by retailers to double a product’s wholesale cost to calculate its retail selling price. Businesses can use this method in reverse, working backwards from the target retail price to calculate a suitable wholesale price using this formula:
Wholesale price = Target retail price (excluding VAT) ÷ 2
However, it’s worth noting that this strategy assumes a 50% retailer gross margin on products, which isn’t suitable for all product types and retailers.
Volume-based pricing
Volume-based pricing entices retailers to buy more units to receive lower prices, using this formula:
Discounted wholesale price = Standard wholesale price x (1 – Volume discount percentage)
This strategy can help you move large volumes of stock, but will reduce your profit per unit.
Partner with Create8 to start selling wholesale on Shopify
Shopify makes it easy for businesses of all sizes to start selling wholesale alongside their direct-to-consumer store, with everything managed from one central platform.
Ready to learn how? Contact Create8 for tailored advice and practical support in getting set up. We can recommend the most efficient way for you to start selling wholesale, based on your Shopify plan and business goals. From building an online wholesale catalogue to setting up volume discounts and minimum order quantities, our Shopify developers are here to help.
Contact us today by calling 0161 820 9686 or emailing hello@create8.co.uk.
Wholesale pricing FAQs
What is the formula for calculating wholesale price?
There are various formulas to choose from. However, the standard formula looks like this: Wholesale price = Production cost per unit ÷ (1 – Target gross profit margin)
What is a good wholesale profit margin?
What constitutes a good wholesale margin varies from one industry and product to the next. Some product categories achieve higher profit margins on average than others.
How often should wholesale prices be reviewed?
It’s smart to review your wholesale prices quarterly. It can also be beneficial to review them if your production costs increase, a key competitor reprices, or your gross profit margin begins to decline.
How does VAT affect wholesale pricing in the UK?
UK wholesale prices are generally quoted excluding VAT. VAT-registered wholesalers must then add VAT at the applicable rate when selling taxable goods to UK buyers. Different rules apply for international buyers.
What’s the difference between RRP and MSRP?
RRP (Recommended Retail Price) and MSRP (Manufacturer’s Suggested Retail Price) essentially mean the same thing. They refer to the price the manufacturer or supplier recommends retailers charge customers. RRP is most commonly used in the UK, while MSRP is predominantly used in America.
