How to Calculate Wholesale Price

The wholesale rate you charge will depend on the type of company you are. If you’re a middle man between manufacturers and suppliers, your prices should be different than if you’re selling your own products.

There is no single, correct way to determine pricing for your products. Pricing should be flexible and change as your company expands.

Here are a few ways to determine your wholesale pricing.

Research Wholesale Suppliers

If you’ve been in the wholesale industry for a while, it might be time to reassess your supplier relationships. If you’re just getting started, it’s even more important to choose suppliers whose prices reflect their value. 

By taking the time to find quality wholesalers, you can locate inexpensive items that match your expectations. Don’t settle just because you want to save a few dollars.

As you evaluate different suppliers, it’s important to consider more than just price. You’ll also want to think about customer service, shipping times and bulk discounts. A company that offers great prices but poor customer service, for example, isn’t likely to be a good long-term partner for your business.

If during your market research, something doesn’t seem right, then it’s probably not. You should also ask about their fill rates.

If a supplier has a high fill rate, this is indicative of a reliable and trustworthy business partner. It’s always better to take your time when starting a new partnership to ensure everything is in order, rather than rushing into something and regretting it later.

Control Your Costs and Labor

In order to calculate your parts costs and your labor costs, you must include your costs of good sold (or COGs). This is also known as your “prime costs”.

The majority of your expenses will be your prime cost.

Once you’ve calculated your labor, overhead, and fixed costs, think about how much room you have for variables like fees and profits. If there’s little room for these variables, you may need to adjust your pricing.

Don’t shy away from changing your approach if it leads to more sales.

Maintain Low Overhead

When calculating the cost of an ad campaign, it’s important to consider all of the costs associated with it. For example, if your ads cost $2,000, and your products are priced at $100, you probably won’t make much money.

Overhead costs are tricky because they can vary, but start with your fixed, regular ones.

Minimum Advertised Price

In wholesaling a highly competitive industry, it’s important to use strategies like minimum advertising prices to strengthen relationships and prevent loss.

Retailers, not wholesalers, set the price of products. However, a wholesaler can ask that their product not be sold below a specific price.

Have you ever been to a website where you add an item to your cart only to see that item’s price tag change? This is an example of Minimum Advertised Price (MAP). A manufacturer or retailer might use a pricing policy like minimum advertised price for any number of different reasons.

Wholesalers benefit from having a solid pricing structure because it ensures a constant supply of products from the manufacturer to the retail level. This benefits both the manufacturer and the wholesaler.

By setting a floor on the prices that stores can advertise, it ensures that consumers aren’t constantly bombarded with deals.

Products that are discounted too steeply may not be perceived as valuable by customers, which may lead to them not shopping for those products at all.

This can help you build a more recognizable brand and convince your retail partners to carry products that will please their clientele.

Look at Your Budget

If you don’t have a clear strategy for setting your prices, it can feel a lot like you’re walking in a foggy forest. You’ll eventually get to where you need to go, but it could take you a lot longer to get there than it should.

The best way to combat this anxiety is by maintaining a strict budget and sticking to it. Your budgeting document should at the very least include:

Creating and following a budget is a great way to manage finances. Your monthly or yearly income should be divided into categories such as your rent or mortgage, utilities, food, transportation, and savings. You should also set aside some money for emergencies.

After subtracting your costs from your sales, divide the monthly sales by the average units sold. This is your average price per unit.

Budgeting is a great way to identify unexpected or hidden expenses and cut down on unnecessary spending. 

Determine Final Pricing

It can be difficult to determine a final price for your goods, especially if you’re trying to match prices of competitors. It’s tempting to simply sell your items at the same price, but this can be a risky decision.

Your competitor’s product may be of lower quality than your own, perhaps because they are selling at a lower price.

As a brand, it’s important to remember who your consumers are. They have certain expectations when it comes to your product, and it’s important that you meet those needs. It’s also important that you keep those consumers in mind when you’re creating products.

When you’re pricing your products, keep in mind that how you view them will have an effect on how other people will too. If you’re confident in the worth of your product, then so will your customers and partners.

There is no perfect market price for your product or service. However, you can do your best to make good decisions when it comes to your prices.

Wholesale Pricing Strategies

There are two common pricing strategies:

A. Absorption Pricing

In Absorption Pricing, all the costs are ‘absorbed’ into the final product’s cost. There are 3 steps involved in calculating the final wholesale price through this process:

Step 1: Calculate the Total Cost Price

As mentioned earlier:

Total Cost Price = Variable Cost of the Product + (( Overhead Expenses + Administrative costs) /Number of Units )

The total cost price = variable cost of the product + (( overhead expenses + administrative costs) number of units )

Step 2: Calculate the Profit Margin

To calculate your profit margin, divide your net profit by your revenue.

Net Profit = Revenue – Cost

Step 3: Calculate the Wholesale Price by adding up step 1 & step 2, i.e.

Wholesale Price = Total Cost Price + Profit Margin

The wholesale price is the total cost price plus your profit margin.

Variable costs are those costs that fluctuate with changes in demand. As demand for a product increases or decreases, so too will the variable costs associated with producing that product.

Let’s use an example of this:

Overhead expenses= $30,000 Administrative costs= $20,000 Variable cost per unit= $20 The company produces 10,000 units, then according to absorption pricing; Cost price = $20+ (($30,000 + $20,000) ÷ 10,000) = $25

The overhead costs for this project are $30,000.

The administrative cost is $20,000.

$20 per 1,000 units

The company would set a price of $10 per unit. The company would price its product at $10 per unit in order to achieve absorption.

Wholesale Price = $20 + (($30,000 + $20,000) ÷ 10,000) = $25

The overhead costs $30,000.

The administrative cost is $20,000.

$20 per 1,000 units

10,000 units are then produced, then according to the company’s calculations, 10,000 x $10 = $100,000.

Wholesale Price = $20 + (($30,000 + $20,000) ÷ 10,000) = $25

Pros of Absorption Pricing

One of the main advantages of using this product pricing method is that it’s a simple way to calculate the wholesale price. The formula is easy to understand and doesn’t require any complex understanding or difficult calculations. As long as the inputs given in the formulas are accurate enough, marginal profit is assured for the company.

Pros and Cons of Absorption Pricing

One of the drawbacks of using this type of product pricing model is that it does not consider the prices that your competitors are charging. This can be an issue in highly competitive markets where companies are regularly undercutting each other on price and where consumers expect to get the best deal possible.

In addition, if the company’s prices are set too high, it may lose customers to its competitors, and if it sets the rates too low, it may damage its brand.

This can also be used to set your recommended retail price.

The wholesale price is multiplied by two to determine the recommended retail price.

B. Differentiated Pricing

Pricing in differentiated markets follows the same law of demand that auctions do.

The price of the same product or service changes depending on who’s buying it.

Companies can use differentiated prices to increase profit. This can be done by raising the price in locations with minimal competition, and by lowering the price of a product which will result in rapid sales.

Offering differentiated prices can be great for increasing margins on smaller orders of items. However, shipping costs can cut into these, so providing discounts for bulk orders can be a good way to compensate for this loss.

So, in order to deal with this issue, we will be implementing two solutions. First, customers purchasing in larger quantities will receive discounts or coupons for doing so.

While working with smaller clients, you maintain a reasonable profit.

No company can hope to succeed without the full satisfaction of their customers. This even applies to wholesalers, who must ensure that customers remain happy.

Wholesalers need to set a price that provides value for customers’ money while also ensuring the business makes a marginal profit. The market scenario is an important factor in this decision-making process.

Conclusion

Differentiated pricing is a wholesale pricing strategy that takes into account all of your costs as well as your desired margin in order to come up with a final price that will ensure you’re making money on each and every transaction. If you’re not using differentiated pricing in your wholesale business yet, now is the time to start!