Many retailers struggle to price for profit, especially when they’re moving from pure retail to wholesale. Sometimes, a retail price that offers  a comfortable profit becomes too low for wholesale pricing due to the additional costs involved.

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After all, the most common way to calculate your wholesale price is by simply dividing your retail price by half. Ideally, your costs should only take up 25% of your retail price, but keeping costs low can be tricky. Your total costs are made up of overhead costs, which are ongoing operational expenses, along with material costs that include raw materials and the finished products that make up your inventory.

If your wholesale price leaves you with narrow progfit margins and you’re looking for an alternative to the 50% one-size-fits-all approach, you might want to try implementing the absorption pricing method to calculate your Reccomended Retail Price (RRP) and your wholesale price.

Absorption pricing

Absorption pricing works great when you’re trying to figure out your wholesale price, as it ensures you earn a certain profit margin on every piece.

absorption wholesale pricing
There are five stages to calculating your wholesale price through absorption pricing:

  1. Production costs from your materials and labor.
  2. Overhead expenses are the ongoing costs that come with operating a business like maintaining storage facilities, insurance, and salaries.
  3. Profit margin
  4. Calculate your wholesale price by adding up stages 1 +2 + 3
  5. To get your RRP (Recommended Retail Price), multiply your wholesale price by 2 or 2.5 to get your retail price.

Of course calculating prices manually using this formula for hundreds of products can be tedious and time consuming. Inventory management tools like TradeGecko's Wholesale Price Calculator can automate most of this process, saving you many hours of calculations. Moreover, you can export your prices once your done and add it to your inventory managment system


Now that you've calculated the best retail and wholesale prices for your products, how do you change your prices without losing or upsetting customers? 

  1. Refresh your inventory

    Selling off our existing stock and starting afresh might sound a little extreme, but it works if you regularly release new collections for your brand. This way, once you finish selling off your existing inventory, you’ll can release new collections with higher prices, while clearing out your inventory.

    Also, by announcing that you’ll be raising prices for subsequent collections, you should also enjoy a surge in sales as customers are motivated to place more purchase orders due to the pending price increase. 
  2. Honesty and transparency

    Don’t let your customers think that you are increasing prices for a better profit margin. Instead, offer a breakdown of your costs and how these costs have increased over the years. Ultimately, you need to raise your prices in order to continue offering quality products to your customers, so just tell them the truth.

Pricing can be a challenge for many commerce businesses and while there is no easy fix, there are tools you can use to automate the intital process. In the long term, adapting your prices to reflect changing market demands and costs requires for and indepth analaysis of your products are performing. Solutions like TradeGecko that help to manage inventory as well as sales and purchase orders, that include robust reporting capabilities can help you keep your prices and profit margins at an optimal level. 

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