Calculating your sale prices, both wholesale and retail is quite possible the most important part of your business. It is one that’s not fixed either, you need to be constantly on the pulse to stay competitive and grow your company.
Lets start with the basics.
How do I work out my wholesale and retail prices?
Retailers will usually mark up your wholesale price by at least 2 times. An example of this is here: Say your brand makes custom handbags: they cost $2 to make them, and you pay yourself $15 for the half hour it takes for you to make them, then your wholesale price would be $34, and your retail price $68.
However, in the real world of selling products, cost prices tend to be to the penny and often in different currencies. If you are selling to different countries you will also need to calculate prices per country. It can quickly become quite overwhelming figuring out exchange rates etc. Like anything though, stay organized and know your costs and generate your mark ups and margins from there.
A simple formula for marking up wholesale to retail pricing is 50% however you’ll want to price your products lower or higher depending on your specific situation.
Here are some things to think about when determining your mark ups and margins.
Know your market
You need to find out what your customers will pay, and what your competitors charge. Then decide where to position yourself within that. Just matching competitors is dangerous, you need to be sure all your costs are covered – both indirect and direct are covered.
Chose the best pricing technique
Creating your mark up percentage to costs will vary between products, brands and market place. You need to decide what approach is most suitable for your products and brand before you make a calculation.
Think about the following before you decide:
1. Are you creating a new sector?
2. Who are your target audience?
3. What do they currently use or might they compare your offering with?
4. What advantages/benefits do you offer?
5. Do consumers value those advantages and see them as worth changing for?
6. Where will they be able to purchase the product or service?
7. Who are the competitors?
8. What price do they charge?
9. What differences do you offer in comparison with the competition?
10. Is the market growing or is it a well-established static market?
11. Is purchase likely to be repeat or a one off?
12. Are there consumables attached to the product?
13. What risk are consumers taking in choosing your product or service? (Should they be offered guarantees or reassurances?)
Here are some pricing options businesses use:
1. Penetration - setting a low price to increase sales and market share;
2. Milking - setting an initial high price and then slowly lowering the price to make the product available to a wider market, thus milking profits from the market layer by layer;
3. Premium - setting price high to reflect the exclusiveness of the product;
4. Competition - setting a price in comparison with competitors;
5. Product line - pricing different products within the same product range at different price points;
6. Bundle - offering a group of products at a reduced price;
7. Psychological - considering the psychology of price and the positioning of price within the market place: for example, charging 99p instead of £1 or £199 instead of £200;
8. Optional - offering optional extras along with the product to maximize revenue (used commonly within the car industry).
Work out your costs
You need to know all your direct costs, including money spent developing your products. Then include variable costs (packaging etc). Work out what percentage of your fixed costs (rent, wages, rates etc) the product needs to cover. Add these costs together and divide by the volume to produce a unit. That will give you your breakeven figure. This will help you generate your margin or mark up to your breakeven point.
Stay on your toes
Like I said at the beginning prices can seldom be fixed for long. Your costs, customers and competitors can change so you will have to shift prices to keep up with the market. You will also need to calculate different prices for different territories, markets or sales you make online too. So, talk to your customers, and keep up with the pulse of the market.