When the price is right, you know that customers are more eager to buy your products. It takes understanding multiple aspects of pricing; the cost of goods or services is one part, but if you price at this price, you are more or less breaking even. There is no room for profits as a result. For a wholesale business, pricing is even more sensitive. You need to account for both the retailers that will resell the goods and your own profit margins.
That is why today, we will be discussing how to calculate wholesale prices for your wholesale business. We will go over just how important the right wholesale pricing is for your business and how you can effectively calculate your wholesale prices for profit. Discover how you can unlock the hidden benefits of a wholesale business by calculating wholesale prices in quick, easy steps.
What is Wholesale Price?
Wholesale prices is the price that retailers pay to buy products in bulk from wholesalers. Of course, this is not the price that retailers charge for their customers. Before these products are sold to the end customers, they are significantly marked up for the retail business’s profits.
The same goes for wholesalers. They also buy from distributors or manufacturers at significantly lower prices to then sell at a higher price to retailers. That is why wholesale prices are significantly lower than retail prices. This is how pricing strategies are implemented so that all businesses in the supply chain can profit.
Why is Wholesale Price Important?
Getting the wholesale price right is very important for one major reason: maintaining equilibrium in the supply chain. In simpler terms, the wholesale price has to be right or else the supply chain will run at a loss.
Manufacturers are the first stage of the supply chain. They have to make money for their business to survive. Manufacturers are buying the raw materials, paying for equipment to manufacture the goods, and also paying their workers who are making the final product. If their prices are too low, they will no longer be able to make a profit and run their business. However, these prices are dependent largely on the wholesalers.
Wholesalers are the middleman so their prices are the most important in the supply chain. So when wholesalers are buying from these manufacturers, they need to negotiate a fair price so wholesalers can price the products accordingly for the next phase of the supply chain: the retailers. Too high, then retailers will not buy the product which in turn means a loss of business for the manufacturer. Too low, then the wholesale business is running at a loss. Wholesalers have to maintain a delicate balance here which is why wholesale prices are so important.
An Example Of Wholesale Price
Take toy cars for example. The cost to make each toy car (including materials, labor, and overhead) is $4. The manufacturers want to sell the product at $5. The wholesalers agree to this price, but when they want to sell to retailers, they want to have a 10% profit margin.
So, it would look something like this:
- Cost to Make the Toy Car (COGS): $5
- Desired Profit Margin: 10% of $5 = $0.50
- Wholesale Price: $5 (COGS) + $0.50 (Profit) = $5.50
As a wholesaler looking to make a 10% profit per toy car, you need to then sell it at $5.50 to the retailers. Note that this is a very simplified version and we will look at exactly how to calculate wholesale price in the following sections.
Step-by-Step Guide: How to Calculate Wholesale Price
Calculating your wholesale price is easy, but first, you need the total cost. So here’s a simple step-by-step guide to help you determine the right wholesale price:
- Calculate the Cost of Goods Sold (COGS)
- Determine Your Desired Profit Margin
- Add Additional Costs
- Calculate the Wholesale Price
Step 1: Calculate the Cost of Goods Sold (COGS)
The first step in calculating the wholesale price is to determine the Cost of Goods Sold (COGS). COGS includes all the direct costs involved in producing your product. The COGS is made up of the materials needed to make the product, the labor or work needed to produce the product, and the extra costs like electric bills and rent called the overhead costs. Finally, there is also the profit margin for the manufacturer. All these combined make up the COGS.
So let’s go back to the toy car example we used previously. We said that the COGS for that was $5. So now, let’s have a price breakdown for this.
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- Materials: $2/toy car (rubber, plastic, motor, etc.)
- Labor: $1/toy car
- Overhead: $1/toy car
- Manufacturer Profit Margin: $1/toy car
Total COGS/Toy Car: $5
I want you to note, that you don’t need a detailed COGS breakdown like this. Having a selling price from the manufacturer is good enough for most businesses. But having a cost breakdown like this helps you visualize where the markup is and negotiate a better deal from the manufacturer or know where you can add value as a wholesale business.
Step 2: Determine Your Desired Profit Margin
Once you have the COGS determined, now is the time to determine your wholesale business’s profit margin. We will stick to the toy car example for continuity.
A common range for profit margins in wholesale is between 20% and 50% so let’s just assume you want the highest at 50%. Therefore, your profit margin would be like this:
- COGS/Toy Car: $5
- Desired Profit Margin: 50% of $5 = $2.50
For every toy car sold, you would want to make a profit of $2.50
Step 3: Add Additional Costs
Remember, the COGS is effectively the manufacturers’ costs. You need to add in your own additional cost. For example, the shipping and handling of the product, the storage and warehouse costs for inventory management, and general administrative costs.
For simplicity, let’s just assume that the additional costs per toy car rounds about at an additional $2 per toy car.
Step 4: Calculate the Wholesale Price
Now, combine the COGS, desired profit margin, and additional costs to determine your final wholesale price.
Wholesale Price Calculation:
- COGS: $5
- Desired Profit: $2.50
- Additional Costs: $2
Wholesale Price/Candle: $5 (COGS) + $2.50 (Profit) + $2 (Additional Costs) = $9.50/toy car
So ultimately, your wholesale price will be around $9.50 per car. Let’s say you bought 1000 toy cars from the manufacturer. This puts your spending cost at around $5000 (we will leave out any discount negotiations to make the calculation example much simpler).
To maintain a 50% profit margin, you need to sell the 1000 toy cars for $9500
Now let’s use this example with another product. This time, you want to wholesale sanitary products like soap. So, the overall calculation will be:
- Calculate COGS:
- Materials: $1.50/soap
- Labor: $1.00/soap
- Overhead: $0.50/soap
- Total COGS: $1.50 + $1.00 + $0.50 = $3.00/soap
- Determine Desired Profit Margin: This time, you want to maintain a 40% profit margin/per soap
- Desired Profit Margin: 40% of $3.00 = $1.20
- Add Additional Costs:
- Additional Costs: $0.80 per bar
- Calculate Wholesale Price:
- Wholesale Price per Bar: $3.00 (COGS/soap) + $1.20 (Profit) + $0.80 (Additional Costs) = $5.00/soap
So, your wholesale price for each bar of soap would be $5.00.
With these steps, you can calculate wholesale prices with ease!
10 Tips for Setting Your Wholesale Price
Knowing how to calculate your wholesale prices does not mean that will be your final wholesale price. There are a lot more nuances for wholesale pricing. So here are 10 tips that you can follow to help set the right wholesale price for your products:
Tip#1 Know Your Costs
You need to know exactly how much it costs to make your product, including materials, labor, and overhead expenses. It’s important not to overlook any costs, including things like shipping and storage. As I mentioned before, if you know the COGS, you can help negotiate a better deal. A better deal means more profit for you, and you can set a more competitive wholesale price for your product over others. It gives you a competitive advantage.
Tip#2 Research the Market
After all the calculations, you find the right price for your product. You also know this is a fair price for both you and your customers. But you notice that competitors are wholesaling their products at significantly lower prices. This undercuts your business and your retail customers would prefer shopping at lower prices offered by your competitors.
That is why it is important to not only look at your own products and its pricing but the pricing strategy across the industry. With this, you can better determine a wholesale price that will remain competitive and help you retain your customers.
Tip#3 Consider Your Profit Margin
You need to earn a profit to help run your business and hopefully commit to expanding it in the future. Without it, you will be stuck in the same place with no growth. But if your profit margins are too high, then your wholesale prices would be too high, resulting in retailers not wanting to pay those prices.
So before you set your profit margins, consider what is a necessary profit margin for your business’s growth. A profit margin that is right for both your business’s growth and a price that your customers are willing to pay is what you need to aim for. Get the balance just right and you have a thriving wholesale business with satisfied customers.
Tip#4 Build Relationships with Suppliers
Another way that you can help set your wholesale price for more profits is by building stronger relationships with your manufacturers and suppliers. Building strong vendor relationships with suppliers means you have a better shot at negotiating better and more affordable prices for materials and services. Look for reliable suppliers who offer quality products at competitive prices. This will allow you to decrease costs and improve your profit margins.
Tip#5 Offer Volume Discounts
Remember, a wholesale business has to cater to both sides of the supply chain. That means keeping a good relationship with retailers is just as important as doing the same with suppliers. One way to do this is by offering volume discounts for those retailers that buy in large quantities.
Volume discounts can help encourage these customers to buy more of your products. They get more products at a lower price. However, do make sure to maintain a proper profit margin so you are not being undercut on volume discounts. Therefore, consider offering special promotions or discounts for larger orders during holiday periods when sales skyrocket.
To help maintain your profit margins during volume discounts, you can create order minimums to ensure you are meeting your profit margins. Calculate the minimum order quantity needed to offer discounts without sacrificing your profit margins, and you have a business that has satisfied both ends of the supply chain easily.
Tip#6 Review and Adjust Regularly
The market is very volatile and competitive. The prices you have set today might not be competitive tomorrow. During festive seasons, you might notice your competitors drop their prices. So how do you counter such a pricing phenomenon? By reviewing and adjusting your prices regularly.
You don’t need to be reactive to the market either, you can be proactive. By that, I mean you can anticipate changes in the market and set your pricing strategies accordingly. Monitor market trends and changes in costs to ensure your prices remain competitive and profitable. Be flexible and willing to adapt your pricing strategy to stay ahead of the competition and maximize your profits.
Tip#7 Provide Excellent Value
Wholesalers can add value and make money along with the products they are selling. This can be in the form of helping market products for your customers or providing dropshipping. Offering such value helps to bring in more customers. It also acts as a different revenue source for your business, alongside the wholesaling business. Not to mention you can help differentiate from the competition and become a more lucrative business partner to retailers through your value-added services.
Tip#8 Communicate Clearly with Retailers
You can anticipate problems in the supply chain. But sometimes it is a deer-in-headlights situation; you know there is an incoming problem but there is nothing that you can do about it. During times like supply chain disruptions, you need to communicate clearly with retailers. You need to let them know that their shipments are going to be delayed. This helps foster a better relationship with them. Communicating also helps get rid of uncertainties in the business. So be sure to have clear communication with your retailers.
Tip#9 Factor in Seasonal Demand
Ask yourself, how many people will buy a parka (a heavy winter coat) in the middle of summer? Or conversely, how many people are buying those parkas in winter as opposed to an air conditioning unit? That is what seasonal demand is all about. Seasonal demand changes around the start of the season, which is right around the time prices are going to change for products.
As a result, you need to make sure your prices are equipped to handle seasonal fluctuations and adjust your prices according to what will be most in demand for the season. You can also plan and anticipate changes in demand to optimize your wholesale prices. For products that are not in season, you could opt to sell those products to help clear your inventory for the in-demand products.
Tip#10 Seek Feedback from Retailers
Business with your retailers is going great. They have no complaints and everything is running smoothly. However, you notice that there are no changes; there is no increase in sales or need for additional services. Yet, you want to increase your services or sell more products to your existing customers. How do you achieve this? You ask for feedback from your retailers.
Customer feedback is key to B2B pricing strategies. They can tell you everything is going well, but through a constructive feedback system, you can identify places where you can help optimize their sales strategy. This helps your business add more value for your customers and helps either increase services offered or sales of products. You gain valuable insight into their business and then proceed to personalize services to ensure that your customers are getting the most out of all the wholesaling services that you have to offer.
From Wholesale Price To Purchase: How A Bulk Order App Can Help You Increase Sales On Shopify
No matter how competitively priced your wholesale products are, it is not enough to guarantee sales. In the e-commerce space, it is even more difficult as you are crowded out by thousands looking to offer the same product as you. So how do you stand out from the rest?
On Shopify, you can customize how you want to sell thanks to the third-party app integration on your store from the Shopify app store. Combine an attractive product display with easy-to-use features for wholesale shopping, and you have the perfect recipe to increase your sales.
That is exactly the flexibility this bulk order with order limits allows your Shopify store to do! Here is an example of a store using this app to increase sales on Shopify:
MultiVariants Bulk Order App With Product Bundle Order Limits And Customized Variant Display On Shopify
You can see the store owner here set three variants for the product: pack count, color, and design. With this, the store owner can create a customized product bundle. The first two variants of pack count and color have a drop-down selector where you can choose which variant option you want to select (as shown on the left). When the customer is satisfied with the variants they want, then they can select the quantity they want for the specific design variants of their choice.
An app like this helps create unique bundles like this which is great for upselling strategies. You can set your wholesale prices for the bundles and customers get to choose what they want to include in their personalized bundle.
Also, you will notice at the bottom there is a message saying “Good to go”. This is the app’s minimum order quantity message, letting the customers know they have satisfied the MOQ restriction for the product and can proceed to checkout. MOQs are important for wholesale pricing strategies as it align your profit margins with wholesale prices.
The app also keeps track of all the customers’ quantity choices across the different variants and shows the total prices and number of quantities as well. This plus the customized variant display where customers can choose all the quantities in one product page simplifies the shopping experience for wholesale buyers, making it more likely they will shop again at your store.
With one bulk order with features such as this, your wholesale store can also increase sales!
Bottom Line
As a wholesale business, you need to know how to calculate wholesale prices. It is fundamental to your pricing strategy and gaining profits. When you understand wholesale prices, you can implement them in unique ways to attract the right wholesale buyers for your business. Hopefully, this guide has helped you understand how to calculate and execute wholesale pricing strategies for your business.
