The success of a wholesale brand, unquestionably, depends on the quality of products supplied. It is what your customers pay for. Yet, the financial success of a wholesale business also depends on finding the best wholesale pricing strategy for its products as well as increasing wholesale sales. Eventually, it is the financial outcome that pays the bills at the end of the month. Therefore, business owners need to pay sufficient attention to wholesale pricing.
Then we’ll ask the question: “How can I calculate wholesale prices?”. Wholesale pricing is an art. From the perspective of the wholesaler or supplier, a product needs to have a high enough price tag that maximizes profits. On the other hand, your customers – retailers- want to have access to affordable products to maximize their profits.
There is not a silver bullet answer to this question. It depends on the business model you want to build. If wholesale prices are set high, a wholesaler may lose volume but increase product margins. If wholesale prices are set low, a wholesaler may gain volume but decrease product margins.
Set a retail price for your products
Being focused on wholesale doesn’t stop you from retailing your products, especially online. In the post-COVID world, the connection between makers and consumers improved tremendously. Local e-commerce combined with local deliveries can create growth opportunities for your business.
NMIn conclusion, improving the wholesale pricing can be the determining factor for your business’ future. And, it should be regarded seriously. If you want to focus on increasing your wholesale sales, you can have a look at 5 good strategies to increase wholesale sales.
Economics of wholesale pricing
One answer is clear. A business must optimize wholesale pricing for the total margins – total business margins at the end of the month. In one scenario, decreasing product prices can increase your volume much more and therefore increases your total margins. In another scenario, increasing the wholesale price may not affect your sales volume at all, because people love your product, therefore increases your total margins. A business owner needs to test these two scenarios to understand the dynamics of market toward their wholesale products.
Total wholesale margin =Sales Volume x Product Margin
Yet, this formula is nowhere enough to explain the bigger picture. You need to take into account the fixed and variable costs of your products. ie, making double the amount of products doesn’t double your costs or vice versa. So, the formula for wholesale pricing becomes
Total Margin =Sales Volume x Product Price – ( Sales Volume * Variable Costs + Fixed Costs )
Fixed costs decrease the opportunities you can discover. This is why we emphasize a pay-per-use local delivery solution for local businesses. You can be really flexible while increasing your sales and it is all variable costs!
However, this formula still doesn’t take into account one important factor: the cost of selling more. Acquiring new wholesale customers is not free. It takes time and marketing budget to earn new customers –customer acquisition cost(CAC). When it comes to including monthly customer acquisition costs, make sure to divide it into the expected lifetime of a customer. Say, it costs $1200 to acquire a customer and an average customer works with you for 12 months, then your monthly CAC per customer is $100. So, the formula becomes:
Total Margin =Sales Volume x Product Price – CAC – ( Sales Volume * Variable Costs + Fixed Costs )
Now, we have a better understanding of wholesale pricing economics.