Unveiling the Art of Wholesale Pricing: Setting the Right Price for Your Goods

Setting a price for goods at the wholesale stage of selling is involved in wholesale pricing. Typically, this pricing is charged by a manufacturing company when it wants to sell in bulk to distributors or retailers. Wholesale pricing can also be set by a bulk distributor when they are finalizing a sale to smaller retailers.

The wholesale price is generally set at the lowest rate possible at the wholesale stage to enable other stakeholders in the supply chain to make a margin of profit. Wholesale manufacturers can get benefits from a huge amount even with a very low-price rate which ensures that the retail price is not unreasonably high. A good balance between creating a healthy business, and enjoying a decent profit can be ensured by wholesale pricing.

Many factors need to be considered when setting a wholesale price as you should not only be able to make the costs of producing and storing the goods, but also enjoy a good profit from the sale of the goods. The average market price for the product, what your competitors are doing, the nature of demand, and many other factors should also be considered while setting the wholesale pricing.

The process of setting wholesale prices is a delicate task because of all of these factors.

Retail price is essentially the final price of the product when compared to the wholesale price. Retail price is the price that is paid by the end user for the product when they buy it online or in-store.

The retail price is generally set by a retailer who owns a physical store, or an online storefront. But, sometimes it may be may be recommended by wholesalers. Usually, it is called the recommended retail price (RRP) or manufacturer suggested retail price (MSRP). However, the ultimate control over the final price is on the retailer.

Typically, retail prices have a higher profit margin and mark-up as compared to wholesale prices, because  additional costs of selling will need to be included in the final price. Advertising, rent, salaries, cost of showrooms, etc. are included in these costs. A strategy called keystone pricing is generally used to add a 100% mark-up to the wholesale price add a 100% mark-up to the wholesale price.

Wholesale prices may also vary with the quantity bought. A slight discount for larger orders may be offered by bulk distributors. But retail prices are usually constant and it does not vary with the quantity of goods bought. However, a discount may be offered by a retailer to encourage sales, especially when sales are not moving as fast as expected.

You need to first do a pricing market research in which you have to thoroughly research your market by knowing the information related to your customers, and how they have interacted with your products, or similar products, in the past?, about your competitors and the current pricing trends in the market? This knowledge will give you valuable insight which will help setting a price.

The strategies you want to apply in setting your wholesale price need to be identified after this approach.

The most common pricing strategies that wholesalers use to set their wholesale price is explained below:

Although, different approaches are adopted by different businesses for setting wholesale pricing, a mix of indication of their market research and the goals of the business for how they want to sell determines the strategy. Some of the wholesale pricing strategies that you can utilize include:

Absorption pricing, also called cost-based or cost-plus pricing is a cost-based pricing strategy, where you aim to absorb all of the costs of manufacturing or procuring the goods into the price. The costs will be determined first and then a mark-up will be added on top. Its simplicity is one of the advantages of this strategy. You can enjoy consistent returns, as long as the costs remain constant by applying this strategy. But, you may have to adjust the wholesale price if costs change. Also, market conditions, such as competitor strategy or demand patterns, are not taken into account this strategy.

Differentiated pricing is a demand-based pricing strategy which is very flexible, as you can change your pricing according to the situation. You can set a price higher than average market figures where competition is low. A price lower than the market average can be set if you want to sell more products within a short period of time.

You can also reward your customers who buy more quantities with reduced pricing. You can always change things to suit your circumstances by using this flexible strategy. But, Differentiated pricing should only be used if you can stay agile and flexible enough to change quickly.

Value-based pricing is little bit similar to differentiated pricing. But, what people are willing to pay for your product will be focused on this strategy. The only goal is to keep prices high in this case. You may set a premium price if your research indicates that your products are viewed as a luxury by your customers.

Although, people are willing to pay more for products they think are worth the price according to the research, there may be a smaller market for your products because of high price.

Competitor pricing is used as a benchmark in this strategy. Prices of your product can be set at a similar rate as your competitors or below theirs in order to attract more wholesale buyers. This strategy is ideal for industries with very similar products, such as electronics.

You may have a chance of making huge sales and good profits if you are able to manage your costs effectively, while selling at a lower price. But this strategy is not suitable to implement and sustain for smaller wholesalers or for those who are just starting out. However, this can be managed by implementing a minimum order quantity (MOQ).

Bundle pricing is a common pricing strategy seen on product promos or in grocery stores. Selling two or more products at a single price is involved in this strategy. The prices of both products are slightly reduced in this case, so that the customer believes they are getting more products at a reasonable bundled price.

Although, this strategy is proven to be effective, you must be careful with bundle pricing. You may end up taking a loss if the bundle does not generate sufficient sales volume. However, your retail buyers may find it helpful as they want to purchase a minimum order quantity.

Although, these strategies are applied in different circumstances, you don't necessarily have to adopt and stick with only one. You can try more than one strategies to find your best fit before deciding which option to go with. 

You should now start thinking about calculating the wholesale price after the strategy to apply is determined. You need to figure out the average cost of manufacturing or procuring your products, and your preferred profit margin to determine your wholesale price. You then add these two figures which will be your wholesale price. Therefore the wholesale price would be the addition of average cost of goods manufactured and profit margin.

Every single cost involved in making the products available is the average cost of manufacturing or procurement. The cost of materials, overhead, administrative expenses, labor, shipping, and any other cost you incurred are all included in this. 

The percentage of profit you intend to enjoy on each product is your profit margin. Determining what retailers would likely charge for your product, and then deciding on a figure that is somewhere in between is mostly involved in profit margin.

You should have done your market research before calculating your wholesale price. Then, you should determine what strategy you want to implement based on the market research.

It will help direct your efforts in determining what your price should be by deciding on a pricing strategy early. For example, you should think for a price around 2 to 3 times your average cost if you want to implement a value-based strategy where as you should aim for between 0.2 to 2 times the average cost for other strategies.

Now, you can proceed to figure out the factors that help determine your wholesale price. The steps to take include:

You should also calculate your mark-up and profit margin percentages after figuring out your wholesale price which will help you understand the percentage difference between your costs and profits.

Profit margin percentage is calculated by subtracting your ACGM from the wholesale price and then dividing this by the wholesale price. The result will be multiplied by 100 to get the percentage figure.

The percentage gain you enjoy on the cost of each product is calculated in the mark-up percentage. Your wholesale price is subtracted from the ACGM, and then divide this by the ACGM to calculate this. The result will be multiplied by 100 to get the percentage figure.

A minimum order quantity (MOQ) is required, especially when you want to increase the value or quantity of your orders. Your average order value (AOV) need to be determined by dividing the overall number of units sold by your total orders received. Then see if the AOV is sufficient enough for you to not only sustain in the market but also enjoy a healthy profit which means all of your costs, and your profit margin must be able to cover by the AOV.

You may need to set an MOQ if all of your costs, and your profit margin is not covered by the AOV. There is no single formula to calculate the ideal minimum quantity as the MOQ varies depending on the nature of your products, your needs, your retail buyers, and many more factors. However, how much demand you regularly get, the cost of storing the products, and your break-even point can be calculated which will help you determine what your MOQ should be.

Determining, calculating, and deciding on a wholesale price is considered as one of the most difficult parts of selling. There are also many other challenges that may be faced by wholesalers when setting their wholesale price. These include:

The key to how your customers view your business and the value of your products is right pricing of the product. But, setting the perfect balance between a price that buyers will be willing to pay and that reflects the value of your products can be challenging.

Competition between wholesalers can be very high in certain industries which means you must either stick to the market rate of  your goods, or go below this rate. But this might forcing prices even lower and might spark a price war.

Certain products are seasonal in nature, which means they have high demand periods followed by low demand periods. Keeping your pricing strategy up to date can be challenging for such products, especially if other factors also affect the seasons.

Setting discounts can be a challenging task which must be used strategically. The customers may not be tempted to buy when you provide shallow discounts. But, you may loose all your profits if provide too-steep discounts.