Wholesale, B2B Ecommerce, Pricing

The Price is Right - Wholesale Edition

BY Vera Lim 20 Jan, "16

Last week, we talked about setting your Minimum Order Quantity (MOQ), and why establishing the right MOQ can give your wholesale business a boost. But setting up your MOQ is only half of your journey to wholesale pricing success - the other half lies in getting the price just right.

When you hear of “wholesale pricing”, what comes to mind? Do you think of massive discounts on cheap items (definitely not what you’re selling)? Or do you think of outlet stores that carry mounds of overstock being sold at clearance everything-must-go prices?

It’s true that wholesale prices are significantly cheaper than retail prices, so that’s where your MOQ kicks in. It’s there so you’ll enjoy higher sales volume to make up for lower wholesale prices. Let’s say you’re selling hand dyed scarves. A customer on your Shopify store will buy a piece (or two if you’re lucky) for $50 each. But a retailer may place an order of 20 to satisfy their own customers, and even if your wholesale price is $25 each, you’ll still see a surge in your profitsFishing for retailersWhen you’re fishing for the right retailer, you need to get your prices right.

So what goes into getting the price right when it comes to wholesale? If the price is too high, retailers won’t bite. If it’s too low, you’ll find yourself bearing the strain of a high volume of sales while bearing an ever-increasing debt.

One size fits all - 50% off retail price

When trying to figure out the right wholesale price, you’ve probably poked around tons of wholesale forums in an attempt to find the magic number… which usually comes to about 50% off retail. Etsy Wholesale’s policy is for sellers to set their prices at 50% off their retail prices, taking into account the expectation of end retailers to make around 100% from the wholesaler.

In an ideal situation, that 50% should be enough to cover your overhead and material costs while still letting you turn 100% profit on your investment. Simply put, that means you should only be spending 25% on your overhead and material costs.

Overhead costs are also known as the ongoing expenses that come with operating a business. These can include anything from renting and maintaining storage facilities, to insurance and salaries.

Material costs are how much you’re spending to purchase your inventory - these can be raw materials or finished products. If you’re selling jewelry, raw materials would include things like clasps, stones, and metal that you’d have to turn into finished products that are ready for sale.

When setting your price, you’ve got to take all these costs into account. But at the same time, you need to make sure you’re not pricing yourself out of the market. Look for businesses in similar industries and aim to match their pricing, while making sure you’ve left yourself with some profits on the side to make it all worth it.

If you find your costs too high, it’s probably time to look into cost-cutting methods. In the case of apparel wholesalers Festival Clothing, they chose to operate from home, building a warehouse on their property to reduce their overhead costs. While it may not be possible to build a warehouse on your property, you can look to keeping your inventory as lean as possible by cutting unnecessary costs as much as possible.

Also, if you’re importing from overseas, there’s additional costs attached to doing so that you’ll have to factor in. Sure, you may be able to get your products for a cheaper cost price, but you’ll be subject to currency fluctuations that can potentially reduce your profitability - not to forget customs duties and other import-related costs.

But as mentioned last week, there may be times when you drop your MOQ terms… especially when you’re trying to start a new relationship with a retailer who has never stocked your product before. They may want to order a small amount in order to test  the market demand for your products before entering into a wholesale agreement with you - which may leave you operating at a loss after adding in the costs of shipping and packing.

In cases like that, how do you still price your business for profit?

Differentiated wholesale prices

Differentiated wholesale prices mean that the wholesale pricing changes with the number of products ordered. Doing so means you get to reward bulk buyers, while maintaining a fair profit margin for yourself when it comes to smaller buyers.

For example, you may decide on the following:

  • 1 - 5 items: 10% off retail price
  • 6 - 19 items: 25% off retail price
  • 20 - 49 items: 40% off retail price
  • 50+ items: 50% off retail price
Differentiated pricing

By reducing the discount for smaller orders, you’ll be able to make up for the time and money spent on packing and shipping these, while covering your overhead and material costs.

Better yet, you’ll reduce the chances of buyers purchasing your products for personal use - as pointed out in an earlier blogpost on finding the right retailer for your wholesale product. And even if they do, your discount isn’t significant enough for your profits to take a serious beating.

How can I have two completely different wholesale price lists?

That’s one great thing about having a private B2B eCommerce portal. You won’t be bound by anyone’s rules but your own when it comes to setting your prices - in fact, you’ll be able to set different prices for individual customers, allowing you to reward long term bulk buyers for their business.

With this, you’ll be able to customize stores for individual customers, giving each a unique store URL so you can adjust your pricing and minimum order quantities to suit different customers.

Do what works for you

It’s up to you to find the wholesale pricing method that works for your business. Going with the one size fits all 50% off retail price method may work well with more expensive products, while differentiated pricing may work better with products that have smaller profit margins.

Ultimately, if you are also selling on retail channels, there’s only one golden rule to remember: Don’t undercut your stockists.  

Now that we’ve got wholesale pricing out of the way, it’s time to look into connecting with the right people. And that’s what we’ll be going into next week when we talk about finding the right tradeshow to attend and how to make the most of your experience there!

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See also:

McIver's guide to maximizing profit in a wholesale business

Wholesaling on your own terms: Private vs public B2B marketplaces

6 myths about going wholesale

     

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