Tips To Calculate Your Wholesale Prices

Setting the right wholesale pricing is a critical aspect of running a successful business. 

Unlike direct-to-consumer pricing that generally is built on the premise of selling a few pieces of product, wholesale pricing involves unique complexities for much larger orders. 

And, while we’ve written about setting up your wholesale pricing in much broader terms, we wanted to share wholesale pricing tips based on best practices from successful brands on our platform. 

1. Calculate Your True Cost of Goods Sold

Understanding your cost of goods sold should be the foundation of your wholesale pricing. This includes all the direct costs associated with producing your product. 

However, many brands overlook additional expenses that should be factored into this calculation.

These additional expenses include: 

• Production Costs: Materials, labor, and manufacturing expenses.
• Packaging and Shipping: Costs of packing materials and shipping products to retailers.
• Marketing Expenses: Cooperative marketing efforts with retailers to promote your products.
• Customer Acquisition Cost: Expenses incurred to attract and secure new buyers, such as discounts for first-time orders or special terms.

Customer acquisition cost is often neglected but plays a significant role in your overall expenses. Acquiring new wholesale buyers may involve offering introductory discounts, extended payment terms, or other incentives that impact your profitability. Be sure to include these costs in your true costs of goods sold to get an accurate picture of your expenses.

2. Determine Your Desired Profit Margin

Once you've calculated your true costs of goods sold, the next step is to establish your target profit margin. In the wholesale industry, you want to aim for a profit margin between 30% to 50%.

Generally a profit margin between 30% to 40% is common for most wholesale products. Meanwhile, profit margins of 50% or more are generally reserved for high-end or luxury goods. 

Remember that wholesale orders are usually larger, often involving significant quantities shipped at once. This scale can help you achieve healthy profit margins even when offering competitive pricing to retailers.

3. Account for Retailer Promotions and Returns

Retailer promotions and unsold inventory can impact your bottom line. If retailers struggle to sell your products, they may request returns, refunds, or discounts, especially at the end of a selling season.

So, familiarize yourself with each retailer's discount and return policies to anticipate potential costs and work with them on marketing strategies to boost sales and reduce the likelihood of returns.

Consider agreements that outline how unsold inventory is handled to protect your profit margins.

By proactively managing these aspects, you can minimize unexpected costs and maintain a healthier financial position.

4. Consider Payment Terms and Their Impact on Cash Flow

Payment terms are a significant factor in wholesale transactions and can greatly affect your cash flow. Retailers often request terms like Net 30 or Net 60, meaning they have 30 or 60 days to pay their invoices. 

Sometimes, they may even seek additional discounts for early payment like a 2% discount if they pay within 10 days. However, if you offer discounts for early payment, you’re reducing your overall profit on each order.

And, remember that extended payment terms can slow down your incoming cash, and will affect your ability to reinvest in inventory or operations. And, longer terms can increase the risk of a late payment or default on a payment. 

Tips for Managing Payment Terms:

• Assess Each Retailer Individually: Consider the creditworthiness and reliability of each retailer before agreeing to terms.
• Negotiate Favorable Terms: Aim for terms that support your cash flow needs, such as shorter payment periods or partial upfront payments.
• Offer Incentives Wisely: If you offer early payment discounts, make sure they’re not dwindling your profit margins by too much. 

By thoroughly calculating your cost of goods sold, setting realistic profit margins, accounting for retailer promotions, and carefully considering payment terms, you can establish pricing that supports your business goals.

Remember, wholesale pricing isn't just about covering costs—it's about positioning your brand for long-term success in the marketplace. 

Stay informed, be adaptable, and continuously evaluate your pricing strategy to ensure it meets the evolving needs of your business and your retail partners.

And if you want to see how RepSpark, and our integrations with your ERP, can give you an eagle eye on your financials, reach out to our team, we’d love to show you every way we can help.