Wholesale Price Calculator


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Wholesale Price Calculator: Frequently Asked Questions

What Is Wholesale Pricing?

Manufacturers often give retailers and wholesale distributors reduced pricing for bulk orders. The price concession needs to be enough to so that the retailer and the wholesale distributor can earn a profit.

How Do You Calculate Retail Markup and Wholesale Price?

The best way to calculate wholesale price is to start with the target retail price. You should look at what the item typically sells for (including competitor prices, if you can get them) and decide if you want to offer a discount. Then work your way back down the channel, from retailer to wholesaler to manufacturer. Each participant usually has specific margin objective they need to meet. The product probably won't be very successful unless each layer of the channel is making enough margin on that item.

This is sharply different from a lot of the conventional wisdom about pricing as a multiple of your costs - rules like: sell at X times your direct cost to make an item. The problem with these rules is they don't consider competition. You will be far more successful if you look at your target audience, understand what they currently buy, and set your retail price so they have a good incentive to buy your product instead. Then set your manufacturer's price at a level so your wholesale price and retailer costs make sense to the people you are relying on to get your product to market.

How Do You Calculate Wholesale Margin?

Wholesale margin is calculated by taking the difference between the manufacturer's price and the wholesaler's price to the retailer and dividing it by the wholesaler's price. So if a wholesaler buys an item from the manufacturer at $5 and sells the item for $10, their wholesale margin is 50%.

How Do You Calculate Retail Margin?

Retail margin is calculated by taking the difference between the wholesaler's price and the retailer's price to the consumer and dividing it by the consumer price. So if a retailer buys an item from the wholesaler at $5 and sells the item for $10, their retail margin is 50%.

Why Don't You Set Prices Based on Product Cost?

Because the market doesn't care about your cost, they care about your price. Except, of course, when they can use your costs to argue for a lower price. Then they care. But that's self-serving on their part. So you shouldn't set prices based on cost. Figure out what the next best offer (retail price or wholesale price) is and see if you can match it.

There is a place for costs in this process: once you understand the market price and the potential volume you can sell at that price, you should use your costs to assess if you want to play in that space. You probably have a specific amount you want to earn per hour of your time (or your manufacturing facility's time). Calculate your manufacturing margin to evaluate if you're using your time wisely to pursue that business.

What Kind of Discounts Should I Offer?

This is an important question and worth serious study. That being said, here is a starting point. Setting the amount of your discount comes down to three major factors. First, how does your product compare against the competition, in terms of product quality and brand awareness? If you are less well known or lower quality, you will likely need to offer a price concession to get people to try your brand. Second, are you comfortable with your current share or do you want to grow? Lower prices will increase the number of people willing to switch their business to you. Finally, is there a chance that the consumer might "stock up" in response to a deal and is this to your advantage?

In terms of setting specific discount amounts, this depends on the product and the buyer. Business buyers can often be solicited with relatively small cost advantages: on the order of 5% to 10%, provided you offer these on an ongoing basis. They frequently purchase a lot of product, so the savings adds up. Consumers usually need sharper discounts (20% to 50%, Buy One, Get One Deals) and tend to live more in the moment. You can sometimes get a consumer interested in a 10% discount off a large ticket amount. Think about not just the percentage, but the total dollar savings offered in the deal. Consumers are sensitive to both items.

What is a Reasonable Retail Margin?

Retailer margins vary widely by store and product type but 25% to 35% is frequently cited as a reasonable range. Retailer may be willing to accept a lower margin on product that will sell faster, anticipating they can make more money due to higher volume and increased consumer traffic due to the deal. Retail margin expectations are also influenced by the store's strategy: do they want to make a lot of money by selling a lot of product at lower margins (Walmart) or a little product at a higher margin (boutiques). Internet and catalog retailers often want margins in the 50% range. If you have the chance, ask a few of your retailers what their margin goals are - they are often happy to share this and it well help you craft appealing offers.

What is a Reasonable Wholesale Margin?

Wholesaler margins typically range between 10% and 30% of the resale price, influenced by the cost of shipping the product to their customers and how much effort they need to invest to get a sale. Customers that typically buy in large order quantities (a truckload or half-truckload of product) will often be serviced at lower margins. Along the same lines, products for which the demand already exists will trade at low margins. A wholesaler is usually unwilling to attempt to create demand for a new product unless they are going to earn higher margins on it.

How Do You Calculate Product Cost?

Product cost should be the direct cost of any materials or components plus any labor and shipping costs. Be sure to include the cost of your own time as well, if the product is something you personally make or ship. Product cost is per unit shipped.

We didn't include waste and scrap in the calculator but your costs should be adjusted to reflect this. For example, if you usually have two parts per item sold but 10% of your parts are defective (and need to be scrapped), you should adjust the product cost to include the cost of the scrap and any labor involved in those wasted units.

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