How do I set a wholesale price for my product?
December 30, 2009 7:42 PM   Subscribe

How do I price my product for wholesale? I currently have a product that I've been selling myself online, but have recently began getting wholesale inquiries from brick and mortar stores. Is there a formula for determining the price to extend to stores?

In case my mfg. doesn't want me broadcasting their prices, let's say my product currently costs me approximately $2/piece to manufacture. I get price breaks from the factory at 1000 pcs. 1000 pcs. brings my price down to $1.50, 2000pcs. to $1, 3000pcs and up is .95

I currently sell the product directly for $3.50 The initial price was $5 and sales were slow. At the current price, sales have picked up considerably.

The product is in the stationery/paper goods category.

Should i set a wholesale price that I'm ok with, and let retailers set their own price? Considering that retailers probably won't be ordering in the thousands, how do I set my own volume discount offer?

I'm also wondering if It makes sense to always order from the factory at the lowest possible cost, even if it means taking on more stock?

I've also had some interest from companies wanting to purchase in bulk as a promotional item. Should I charge them the same wholesale price?

Lastly, are there any other pitfalls or frequently overlooked things that I should be wary of? Right now I'm just excited that my product is garnering interest, but I also want to avoid getting in over my head or taken advantage of. Anyone who's been in this position and has specific advice, I'm all ears.
posted by billyfleetwood to Work & Money (5 answers total) 5 users marked this as a favorite
Note: I'm not an expert, this is just from my personal experience.

I initially wholesale price at the split between cost and my retail price. So if your price is $1.50 and your selling for $3.50, take the difference ($2.00) divide by 2 ($1.00) and add that to your price, making wholesale $2.50.

Of course handling, packaging, shipping and what kind of volume you're looking at (among other things) change where you go from there.

Should you order ahead of demand? It really depends on how much cash you have on hand, how much you'll be screwed if they end up taking a year+ to move, and how time sensitive everything is. (Can your resellers wait for a slow boat from China to deliver their next order?). In general, first I'd order not much more than the resellers order. Either up to the next price break or to restock my own supply. When resellers start restocking then I'll look at my books and reevaluate. If everyone starts selling out quickly then I'd probably increase my order to the next price break.

Be aware that other retailers will cut into your individual sales volume. If you set your price too low they'll obliterate it. This is why some people get price guarantees worked into the sales contract. At least in the US this is generally legal.
posted by Ookseer at 8:13 PM on December 30, 2009

FWIW-- Some quick searching turns up a couple of results indicating that typical retail markup in the stationery sector is 40%. Ookseer's advice of using $2.50 as a starting place works well with this percentage, if you expect the retailer to continue being able to sell the product at the current price of $3.50. Lots of other factors to consider, but a good percentage to know.
posted by mireille at 8:23 PM on December 30, 2009

As a wholesaler you have the opportunity to increase your volume and cut unit costs. Also, you reduce handling costs because you can sell cartons rather than individual packets. The first consideration when offering discounts should be to maximise your own convenience. I don't know how these things are packaged, but if they come in cartons then offer a discount for carton quantities. In fact, cartons should have their own price - say $2.50 each and $225 for a carton of 100 packets. That way your customers are more likely to order cartons (which are easy to store and deliver) than individual packets. And they'll order more at a time, which means that you spend less time taking orders and collecting money. It is considerations like these which must be the basis for any discounts you offer. Any discounts that aren't based on your own savings are just giving away money.
posted by Joe in Australia at 9:09 PM on December 30, 2009

Having worked in a field that sold stationary goods wholesale, we averaged around 30% markup on goods. You should assume that your retailer is going to mark up another at least 50%, more likely closer to 70% if is considered an "accessory". Small items like this tend to have higher markup because they tend to go deeper on sale at the end of their cycle. If the item really doesn't sell for much more than $3.50, something will have to give if you want to get more than 30% and they want to get close to 70%.

It really comes down to cost of doing business. You calculate your wholesale on what it would cost to maintain your profit. So, if you are making X dollars in cold hard cash a month, you want to sell enough volume at discount to maintain that or more. You pass on savings to your wholesale customers based on them taking on enough volume for you to cut cost through manufacturing, shipping, packaging, etc as has been noted above.
posted by qwip at 2:49 AM on December 31, 2009

The mathematics is something that can be worked out on paper (or excel). The potential for future business is not. I would contact the Small Business Association office in your area and ask if they can refer you to a mentor who works in a related field. They might be able to help you avoid unforeseen traps that were lessons learned for them and identify opportunities you may not be seeing.
posted by IndigoSkye at 8:03 AM on January 1, 2010

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