How do I determine a wholesale price?
Let's say it costs me $10 for material, $10 for labour, $2 for overhead for my 'widget'. I also want to spend about $2000 a year on advertising (I know- it's not much). I'm hoping to sell 200 widgets the first year. My costs, per widget, would be $10 + $10 + $2 + $10 = $32. I was thinking of retailing them for about $65.
Some tell me retailers want to add 25% markup on wholesale, some want to charge up to 40%.
What markup should I put on my $32 cost to wholesale to retailers?
Some tell me retailers want to add 25% markup on wholesale, some want to charge up to 40%.
What markup should I put on my $32 cost to wholesale to retailers?
Asked by Lloyd Kerry,
December 2009 - Contact this person
3 Answers
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The simple answer is that you charge what people are willing to pay. There is no magic formula. One of the things I often hear entrepreneur Doug Richard say is that prices are discovered not invented.
Unfortunately you can’t simply ask the retailers or the end-customers what they would like to pay as they will likely tell you $33. That said a bit of research should give you a feel for a ball park. Pick a price that you feel conformable with and then see if the orders start flooding in. If they don’t, then change it. If you get down to $32, then you need to find a way to make it cheaper or you have a problem (no business). Over time the feedback from the retailers will inform the process. You might well take the view of ignoring what they tell you. Instead, do a secret shopper survey and see what it goes on the shelf for! -
Here's a good overview of Pricing Strategies (from NetMBA). There's some wise advice at the end of this article on Pricing Methods:
- Your price must be enough higher than costs to cover reasonable variations in sales volume.
- You have to make a living.
- Your price should almost never be lower than your costs or higher than what most consumers [consumers = whoever you sell your products to] consider "fair".
I've just skim read this downloadable book, Don't Just Roll the Dice - A usefully short guide to software pricing. Although it concentrates on the software industry, then it has a number of non-software case studies. It's written in a light hearted manner. If you find it a little simple to start with, jump to Page 65 for the summary and then work backwards through the book.
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Thanks for the input, gents. I will definitely have a look at that booK!
Lloyd
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