Wholesale can be a great addition to grow your business but you must get your numbers right.
Wholesale Pricing Guide
Wholesale can be a really profitable and great way to increase your revenue stream. It's also helpful if your brand is relatively new and you're looking to build brand recognition while getting your products in front of a wider audience. It isn't always an easy process though, so before you jump in, here are some pointers to confirm wholesale is the right step for you.
1. Do you have a developed line that will appeal to a retailer?
It's important to offer some variety within your range in order to allow retailers to select products that align with the aesthetic of their store and appeal to their clientele. Having a developed line shows retailers that you’ve invested time into your collection and are serious about its future success.
2. Can you produce your products in large quantities?
You don't necessarily need to be able to produce mass quantities when you are just starting to wholesale, but it is important to have a real understanding of what your current capacity and ability to scale is. It's also important to evaluate your lead time in terms of getting products out to your stockists. While it is normal to have a longer lead time before your first order ships, retailers will expect that you'll be able to replenish best sellers rather quickly.
3. Is your brand material cohesive & professional?
It's important to make sure you have a cohesive message across all your brand materials. This means having packaging that is thoughtfully considered and executed. It will be important for a shop owner to see you not only have beautiful products but also packaging that will look great on their shelves. This is something you should be thinking about even for your direct business and can really give added value to any product.
4. Do you have an understanding of your product costs?
It's important to have a full understanding of what the true cost is to make each of your products. Make sure you figure in the cost of materials, labour, and overhead, and have some padding for future growth. Knowing where you stand on costs will allow you to appropriately price your products from the start. It's important to be making a large enough profit for wholesaling to be worth it!
5. Can you cover upfront costs?
It's common for retailers to not pay until the order is ready to ship. For bigger retailers and department stores, they may even require a 30 - 90 day credit line from the start of your relationship with them. This means you'll need to find a way to cover all the production and material costs upfront. Take time to evaluate what you realistically can fund and use this as a measure of how large your initial wholesale launch should be.
BEFORE YOU BEGIN PRICING
Make sure you account for...
Figure out the cost of any raw materials used to produce your products.
Add up all of your business expenses, including rent, equipment, credit card fees, insurance etc for the month or year, then divide by how many products you produce/purchase during that time frame to get an idea of the individual cost of overhead per item.
Establish hourly wages for you and any employees, and multiply the hourly rate by the time it takes to create or process each product. Even if you are OK with not paying yourself for the time being, if you want to grow you will need to put a cushion in for future employees.
Shipping / Import taxes
Include additional costs such as delivery to your customers and delivery of materials to you.
Getting Your Pricing Right
WHOLESALE PRICE = COST PRICE X 2 (OR MORE)
RECOMMENDED RETAIL PRICE (RRP)
RRP(UK) = WHOLESALE PRICE X 2 (OR MORE) X 1.2(VAT)
RRP(US) = WHOLESALE PRICE X 2 (OR MORE
How does your RRP compare?
After calculating your retail prices, it's important to research the market and where your competitors are coming in.
Is your RRP ending up too low compared to market rates?
Time to raise your price and increase your profit!
Is your RRP ending up too high compared to market rates?
What should you do if you've set yourself up to actually make a healthy profit, but the retail price ends up being higher than you're comfortable with? I don't recommend you drop your prices much lower. Operating on a slim margin only leads to slow growth and resentment in your business.
I do understand how you feel! Here are some ideas you can think about instead:
Is there any way to negotiate with your suppliers to get better pricing on your materials?
Sometimes you assume the answer is no before even asking the question. Explain the situation clearly, and ask how your prices could decrease as you purchase bigger quantities. This helps you to plan more efficiently for the future.
Is there a way to increase the product's perceived value without having to drastically increase the retail price?
Is there packaging that can be added that may not cost you much,
but would really increase the value?
Does your messaging on the products explain clearly your unique selling point and why the item is priced the way it is?
When all else fails, and you don't think you can keep the item at the price it needs to be:
Are there alternative products in your range where the price can be increased to make up for the slim margin on another?
have been a few items that left you with higher margins.
Do you sell enough of them to make up for other items in the range?
If none of the above suggestions help - you may not be able to wholesale the item. If you can't figure in a healthy margin for both you and your stockists, you'll only be able to sell this item direct to consumers.
I'd advise you take time to decide if wholesaling is the best thing for your business. It really is a numbers game as only selling a few items to a few stockists will not give you growth.