Let’s talk specifically about pricing for wholesale and why it is SO important to get these numbers right if you want to land wholesale accounts with retailers.
How do you currently work out your prices?
Are you currently working on something like this;
Materials + Labour = Wholesale price
Wholesale price x 2 = Retail price
Or maybe it is more like
Materials + labour + a little extra = retail price and I have no clue how I can ever afford to wholesale.
If that is the case in your business it is time for a new equation!
One aspect that leaves a lot of people short changing themselves when working out the numbers is people don’t realise:
PROFIT and LABOUR are NOT the same thing.
When working out your product costs you need to pay yourself for your time. I sincerely hope you do that already. But this is not your profit – this is simply part of the cost of production.
The other thing that so often get’s left out – particularly in product-based businesses, is your OVERHEADS! When you are costing out your prices you need to consider not just the materials it takes to make that product, but all the other expenses in your business – such as web hosting, electricity bill etc.
If you’re not sure how to work out your overhead costs and divide them across your products – check out my FREE online training that walks you through the math.
Now that you have your overheads sorted you can do the math.
LABOUR + MATERIALS + OVERHEADS = PRODUCTION COSTS
PRODUCTION COSTS + PROFIT = WHOLESALE RATE
Now that you are making money on your wholesale prices you are ready to seek out wholesale orders! But what does your RETAIL price need to be?
WHOLESALE RATE x 2.2 = RETAIL RATE
This is my recommendation but at a MINIMUM it really needs to be x 2 at the very least! It seems like a lot and can feel so frustrating that you do all the work and the store makes more money than you. But I promise you retail stores have a LOT of overheads costs. They need to be able to mark up your wholesale rate by at least 100% in order to cover their costs and remain viable. If you can’t buy that – then focus on retail sales and don’t worry about wholesale orders.
Wholesale can be great for your business but it is important to make sure you are not undercutting yourself at any stage. If you are underpricing, then you are going to feel resentful about wholesale and frustrated by your business as a whole. Yes, retail sales mean more money in your pocket, but they involve you in more work (packing individual parcels, postage for each item etc). Wholesale accounts can open up business in markets you would not be able to reach on your own and remember they are then doing all the after-production work much as marketing, packaging, customer care etc.
BUT YOU NEED TO PRICE SO THAT YOU ARE PROFITABLE AT THE WHOLESALE PRICE POINT!
If you aren’t charging at least double your wholesale rate for retail sales most stores won’t even look at stocking your products. They don’t want to have to compete with you, they know they won’t move your stock if their customers can buy the items cheaper from you. If wholesale is something you want to build into your business model you NEED to price yourself accordingly.
When you shift your mindset and re-do the math to include PROFIT at the wholesale level, these accounts can be exciting and open up new avenues for your business.
If doing these numbers made you hyperventilate then just sit with it for a few days. BREATHE! And take note of how much you should be charging for your products. If it’s a long way from where you are and you aren’t ready to change them drastically, maybe just increase them slightly and set yourself a goal of upping the ante over the next 12 months.
It’s all about small steps and inspired actions in the right direction.