1The ultimate pricing guide for wholesale distributors

An eBook brought to you by

The ultimate pricing guide for wholesale

distributors

$99

2The ultimate pricing guide for wholesale distributors

Section 1: Introduction to wholesale pricing .......................................................................

1.1Retailvs.wholesalepricing:What’sthedifference? ................................................

Section 2: How to calculate your wholesale price ...............................................................

Section 3: Reviewing your pricing strategy ..........................................................................

Section 4: How to calculate retail markup ...........................................................................

4.1Differencebetweenmarkupandmargin ..............................................................

Section 5: Advanced wholesale pricing .................................................................................

1

2

3

6

7

9

10

Table of contents

1The ultimate pricing guide for wholesale distributors

Introduction to wholesale pricing

Pinpointingtherightpricingstrategyforyourwholesalebusinessiskeytorunningasuccessfulbusiness.

Choosingtherightpriceforyourproductsisaboutstrikingabalancebetweenhealthysalesvolumesandprofitability.Setthepricetoolowandyouriskdamagingyourproductperceptionvalueorlosingmoney.Setthepricetoohighandyourisknotbeingcompetitiveenoughtoattractbuyers.

Forwholesalebusinesses,gettingpricingright–especiallywhendealingwithmultiplemarkets–canprovetobeatrickyandoftencomplextask.

InthiseBook,we’lltakeyouthrough:

• Themethodologyforcalculatingwholesaleprices• Howtoreviewyourpricingstrategy• Howtocalculatemarkup• HowtouseTradeGeckoforwholesalepricemanagement

Armedwiththisknowledge,you’llhaveasolidfoundationfromwhichtoimplementasmartwholesalepricingstrategyforyourbusiness.

2The ultimate pricing guide for wholesale distributors

Retail vs. wholesale pricing:What’s the difference?

Thegoalforbothretailandwholesalepricingistocoveryourcosts,staycompetitive,createavalueperceptionforcustomers,andultimately,makeaprofit.However,thestrategiestogettherearedistinct.

Thepricesofgoodsinretailarerelativelyhighwhencomparedtowholesaleprices.Thereasonforthisisthatretailprofitmarginsusuallyneedtobehighertoaccountforexpensesandoperatingcostslikeadvertisingandmarketing,rent,staffsalaries,utilities,and so on.

Traditionally,wholesalebusinesses’operatingcostshavebeenlowerthanretailersduetolessneedforskilledlabor,marketingefforts,upkeepofphysicalstorefronts,etc.Assuch,wholesalepricingisbasedontheprincipleofsellinginbulkatalowermarkup.Wholesalerscanstillmakeaprofitwithlowerpricesbecausetheirexpensesarelower.

Ifyousellretailandwholesale,knowinghowtodifferentiateyourwholesalepricefromyourretailpriceiscrucialbecausethere’sahighlikelihoodthatyourwholesalebuyerswon’tacceptyourretailpricingmodel.

Thegeneralruleofthumbisthatyourwholesalepriceshouldbe50%oftheretailpricetoensureyoucanstillmakeahealthyreturnoninvestment(ROI).However,agoodpricingstrategyishighlydependentonyourbusiness–sothere’snoone-size-fits-allapproach.

3The ultimate pricing guide for wholesale distributors

How to calculate your wholesale price

ThefirststeptocalculatingappropriatepricesforyourwholesaleproductsistocalculateyourCostofGoodsSold(COGS)andoverheadcosts.

Your COGS represents how much you spend to acquire the products that you’ll resell.This includes costs such as:

• Acquisitionofproductsfromyourvendors/suppliers

• Freight & handling cost

Overhead costs, also called indirect costs, exist regardless of the volume of products sold. They include fixed or variable expenses, such as:

• Officerent• Rentforwarehousespace• Utilitybills• Insurance• Equipmentandsoftwareusedtorunyour

business,suchascomputersandinventorymanagementsoftware

If you are a manufacturer or entrepreneur making your own products, your COGS also includes all the costs such as:

• Rawmaterials(e.g.fabrics,threads,zipper,buttonsforadress)

• Labor(e.g.employees’salariesmultipliedbytimespenttoproduceitems)

• Equipment(e.g.amortizationormachinerentaldirectlyrelatedtomanufacturingproducts)

Cost of Goods Sold Overhead costs

Thislistisnotexhaustive,soit’simportanttoconsidertheexpensesyourspecificbusinessincurs.Forexample,youmightalsowanttoconsiderthecostofinventory shrinkageduetotheftordamage.

4The ultimate pricing guide for wholesale distributors

How to calculate your wholesale price (con’t)

Total cost calculation

Example:

Georgie’s wholesale business has overhead costs of $2,500 a month.

Georgie will sell 400 jackets at a cost to the business of $35 during a six-month period.

Jackets COGS = $35 x 400 = $14,000.

Hence, Georgie’s total cost for a six-month period = ($2,500 x 6 months) + $14,000 =

$29,000.

5The ultimate pricing guide for wholesale distributors

Onceyou’vecalculatedyourtotalcosts,it’stimetocalculateyourpricing.

Therearefourstagestocalculatingyourwholesalepricethroughabsorptionpricing:

• Calculatetotalcost• Profitmargin• Calculateyourwholesalepricebyaddingupstages1and2

Inotherwords,yourwholesalepriceforeachproductisthesumofthecostplusyourdesiredprofitmargin.

Ofcourse,calculatingpricesmanuallyusingthisformulaforhundredsofproductscanbetediousandtime-consuming.OurWholesalePriceCalculatorcanautomatethisprocess,savingyoumanyhoursofcalculations.

How to calculate your wholesale price (con’t)

Production cost per unit+

(Total overheads + admin expenses)

Number of units produced

1. cost price =

2. wholesale price = cost + profit margin

3. Recommended retail price (rrp) = wholesale price x 2-2.5

Absorption pricing method

Absorptionpricingworksgreatwhenyou’retryingtofigureoutyourwholesaleprice,asitensuresyouearnacertainprofitmarginoneveryproduct.Here’showitworks.

6The ultimate pricing guide for wholesale distributors

Reviewing your pricing strategy

Attheendofagivenperiod,it’sagoodideatocompareyourprojectedcostofsaleswithyouractualCOGStoensureyou’remaintainingahealthyprofitmargin.

Ifyoufindthatyou’renotmakingthenecessarymargintostayprofitable,youmayneedtoadjustyourpricingstrategyforsomeorallofyourwholesaleproducts.

TradeGeckoIntelligencesalesreportsprovideyouwithawealthofknowledgeonkeyaspectsofyoursalesandprofitabilityovertime.Intermsofwholesalepricing,it’sespeciallyusefulfortrackingyouractualCOGS,aswellasyouractualprofitscomparedtoyourprojectedprofits.

Here’swhattheTradeGeckoIntelligenceHubdashboardlookslike:

Onthedashboard,youcanseeTotalOrderValue,TotalProfitandProductsSold.Usingthedrop-downmenu,youcanalsobreakdowndatabyvariantssuchasCustomer,ProductBrand,Channel,etc.Thismeansyoucangetgranularinidentifyingtheproductsortypesofordersthatarepositivelyornegativelyimpactingyourbottomline.

7The ultimate pricing guide for wholesale distributors

How to calculate retail markup

Whenitcomestopricingbetweenretailersandwholesalers,markupistheamountthatisaddedtothecostofaproducttodetermineitsresaleprice.

Thecommonmarkupratiothatisoftenusedisa100%markup,alsoknownasthe‘keystonemarkup’,whichis:

Beforesettingaretailmarkup,evaluateyourcompetitorsonlineandtakealookatprofessionalnetworkswithinyourindustryonforumsorLinkedIntogaugewhat’sappropriateforyourproductsandbusiness.

However,pricingcorrectlyisoftenfarmorecomplexthanthisandcomesdowntounderstandingthecompetitivelandscape,yourindustrystandards,andwhatyourcustomersarewillingtopay.

Forexample,herearesomemarkupbenchmarksintopindustries:

• Fashion:rangesfrom120%to160%(orfrom2.2to2.6)• Cosmetics:rangesfrom60%to80%(orfrom1.6to1.8)• Gifts:100%markup

8The ultimate pricing guide for wholesale distributors

How to calculate retail markup (con’t)

Onceyou’vedoneyourresearch,useyourwholesalepriceandindustryretailmarkuppercentagetocalculateyourretailprice:

Example:

Georgie sells her jackets wholesale at $49 each (a markup of 40% on her $35 cost price).

She decides to sell her jackets at a retail markup of approximately 130%.

Hence, her retail price = $49 + ($49 x 130%) = $112.70.

She sets the RRP at $114.95, meaning she or other retailers can sell every jacket at a markup

of $65.95 (~135%).

9The ultimate pricing guide for wholesale distributors

It’simportanttodifferentiatebetweenthetwowhensettingprices,becauseusingthesetermsinterchangeablycanleadtopricesettingthatissubstantiallytoohighorlow,resultinginlostsalesorlostprofits.

Difference between markup and margin

Markup

Markupistheamountbywhichthecostofaproductisincreasedinordertoderivethesellingprice.Forexample,amarkupof$30froma$70costwouldyielda$100price.Or,statedasapercentage,themarkuppercentageis42.9%(calculatedasthemarkupamountdividedbytheproductcost).

Margin

Margin(alsoknownasgrossmargin)issalesminusthecostofgoodssold.Forexample,ifaproductsellsfor$100andcosts$70tomanufacture,itsmarginis$30.Or,statedasapercentage,themarginpercentageis30%(calculatedasthemargindividedbysales).

10The ultimate pricing guide for wholesale distributors

Forwholesalebusinesseswithextensiveproductlines,TradeGecko’sPrice ListManagementfeaturemakesimportingandupdatingpricelistseasy,fast and painless.

Advanced wholesale pricing

Forwholesalebusinesseswithextensiveproductlines,TradeGecko’sPrice ListManagementfeaturemakesimportingandupdatingpricelistseasy,fast and painless.

Themoreproductsyouhave,themorecomplexyourpricingstrategywillbe–makingitdifficulttokeeppricelistsuptodatethroughmanualmethodssuchasspreadsheets.

WithTradeGeckoPriceListManagementfeature,youcan:

• Eliminatetheneedtousespreadsheets• Manageallaspectsofmultiplepricelistsonasinglepagewithoutleavingtheapp• Gainvisibilityintotherelationshipsbetweendifferentpricesonmultiplepricelists

fromasinglepage• Assigncustompriceliststospecificcustomers• AccesscustompricelistsviaTradeGeckoMobile

AnyupdatesyoumaketoyourpriceswillalsobereflectedinyourB2BeCommercestore,includinguniquepricelistsforspecificcustomers.Thisgoeshandinhandwithcreatingacustomizedandseamlessexperienceforwholesalecustomers–helpingyoutogrowyourbusiness.

Bysettingtherightpriceforyourproducts,buildingstrongandauthenticrelationshipswithyourcustomers,andleveragingthedigitaltoolsalreadyavailableinthemarket,youwillhavelaidthefoundationforasuccessfulwholesalebusinessventure.

11The ultimate pricing guide for wholesale distributors

Powerful inventory and ordermanagement software to take

control of your business!

START A FREE TRIAL TODAY!

About TradeGecko | tradegecko.com

Foundedin2012,TradeGeckoisacloud-basedinventorymanagementsoftware-as-a-service(SaaS)providerofferinganaffordable,versatileandpowerfulplatformtoautomateandreduceworkflowinefficiencies,throughintegratingfrontendeCommerceandPOSsoftwarewithbackendaccountingandshippingsoftware.Targetingsmall-mediumbusinesses(SMBs),TradeGeckoallowsSMBstomanagetheirinventorymoreefficiently,processordersquicklyandchangethepricingoftheirproductsdynamically.