Getting clear on your wholesale pricing, margins, costs and the numbers in your business is one of the most valuable things you can do as a product based business owner.
So much clarity and confidence comes from getting your wholesale pricing right.
Few things give you more confidence than knowing you're making money on each and every sale, that your business is set up for the future, and you're charging what you're worth, and what is fair.
If one of your goals for the year is to start to wholesale, chances are you’ll have to review your retail prices to determine what your wholesale prices will be. This post is here to help you get started.
Why getting your wholesale pricing right is SO important
Profit
Without making a profit, you have a very expensive and all-consuming Hobby
Trust
With the right pricing, your products build trust with your customers and indicate that your products are made for them
Sales
The right price leads to sales - AKA what you’ve business is here to do!
You money mindset and setting your wholesale prices for success
Pricing your products for profit is one of the trickiest things to get right - not because the maths difficult, but because of your own money mindset!
Often pricing feels hard because your own feelings around money, your products, the worth of your time and skill all get in the way.
So, one tip I’ll give you before we dive into the practical stuff is to take the emotion out of your pricing!
When you’re reviewing your wholesale pricing, make sure you stay objective. Don't put your relationship with money over making a profit, and therefore jeopardise your business.
It's all about the value you are delivering with your products, not the cost price, or the time it takes to create your products. Your products are SO much more than that.
So, should you use a pricing formula to help you stop your money mindset getting in the way, here are my thoughts…
Stop using formulas to set your prices!
Pricing formulas, such as cost price x 2 to get your wholesale price, and then x2 to get your retail price - says NOTHING about your brand, your quality, your ethos or where you brand sits in the marketplace.
For example - a gold ring from Tiffany might retail at £1,500, but the actual value of the raw material, the gold could be £100, and the cost of making it could be £50.
If they were to use the above formula on their pricing, (£100 + £50) x2 = £300 x2 = £600 RRP. If they were to put that ring on sale for £600, it would be damaging to their brand which is all about luxury, quality and extravagance.
The same applies to your brand!
Getting your pricing right means a win, win, win - for you, the retailer and your customer
Here’s the thing, retailers aren’t greedy. They have to make their prices work for their business too!
This is something that comes up repeatedly in conversations I have. Brand owners feeling hard done by because retailers are asking for high margins. On the flip-side, I speak with retailers that are feeling frustrating that they can’t stock smaller brands because they don’t price their products right.
When an independent retail buyer says they can’t work with your margins because they are too small - it’s not driven by greed but necessity.
Everyone works with tight margins. The margin of 50 to 60% (2.4-2.5 markup) is not greedy - it's essential to most retailers. Think of the retailers costs - tax, business rates, rent, staffing, shopfittings, insurance, corporation tax, utilities, and all of the other costs brands incur - marketing and website hosting etc.
Brands and retailers need each other to thrive. And, it’s in most retailer’s interest to find reliable long-term suppliers (that’s you!) that continuously invest in developing new designs and products.
To become a long-term supplier for your retail partners, you NEED to get your pricing right.
If you can't offer the margins that retailers need right now, it’s time to do a pricing review.
How to review your pricing for wholesale
Step 1: Start by doing some market research
Start with your ideal customer - who are they, what other products are your audience buying, where do they shop? What price point might they need to see your product at, to feel like it’s for them, and reflects the quality it is?
This first step isn’t highly scientific, but it’s all about understanding where your product sits in the marketplace.
Step 2: Numbers
Gather all of your costs in one place. Yes, you don’t want to price your products based on the cost price (more on that in a min), BUT it is really important that you’re 100% confident you’re covering your costs, and adding on the profit you want to make.
Step 3: Set your retail prices - WITHOUT using a pricing formula
It's time to get the spreadsheet out. When you are clear on who you are selling to and where you want to sit in the marketplace you can set your retail prices.
Make sure you account for VAT if you plan to go over the threshold and register so your RRP’s are future proof.
And remember, spreadsheets are your friend just like any tool you use in your business.
Step 4: Set your wholesale prices based on your retail prices
Based on the retail price, you can now set your wholesale prices for retailers. And double check you’re making as profit on both your retail price AND wholesale prices.
Step 5: Update your website, wholesale catalogue and all your sales platforms
You’ve set your prices, now it’s time to roll it all out, start with your own prices across your website and anywhere else you’re selling directly to the customer.
Then you’ll need to update your wholesale catalogue.
Remember to include these essentials when updating your wholesale pricing details
Use the right definitions
Here are a few essentials you’ll need to include in your wholesale catalogue.
RRP - Recommended Retail Price
Margin - what the retailer gets to keep (sometimes after paying VAT to HMRC)
Discount - the percentage the retailer gets off the RRP
Mark Up - how many times you have to multiply the cost price to get the RRP
Consider your retail buyer's expectations
Generally, retailers expect to see anywhere between a 2.2 to 2.5 mark up. Of course there are exceptions to that rule and certain categories will come at a much lower margin and certain categories will come at a much higher margin. When you deal with larger retails the mark up tends to be on the higher side.
The two most common mark ups are are:
2.4 = 50% discount on the RRP
2.5 = 60% discount on RRP
Remember to take VAT into account
Even if you’re not registered to pay VAT, your retailers likely will be. So when you’re setting your prices, don’t forget that retailers will need to pay 20% of the sales price to HMRC.
And you’re all set with updated pricing! If you’d like to more support and guidance as you get set up for wholesale, checkout my course below - my roadmap to starting to wholesale in 4 easy steps.
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