With hundreds of wholesale businesses in any market, competition is tough, and many companies are running into problems with cost and pricing. However, by selecting the product pricing formula, wholesalers should still be able to meet demand and make a profit.
The challenge of setting an appropriate price
With how competitive today’s market is, you need to establish the value of your product in the minds of your clients so they think they have received a good deal and you make a healthy profit.
If you set your prices too high, sales will undoubtedly suffer. On the other hand, set them too low, and your profit margins will look rather bleak. From losing deals to cheaper competitors, failing to optimize buyer contracts, and not knowing market pricing trends, figuring out the right wholesale price can be challenging.
How to know when the price is right
Rather than just reducing your prices to score a sale, there are better ways to calculate the wholesale price for your business.
We’re going to look at three wholesale pricing strategies that most B2B companies can adopt:
1. Competitive pricing
Research what your competitors charge for similar products. If your range of wholesale products is unique, you can still use similar competitors within the industry as a guide to pricing. When it comes to figuring out the right price, you can charge the same or a similar price that is just a little above or under your competitors’ selling fee.
Price competitiveness is common in the commodity market where wholesale pricing is already firmly established and has been in existence for some time. Even when you’re using your competitor’s prices as a guide, you still have to ensure your prices can cover the production cost and overhead costs so that you’ll make a suitable profit.
2. Cost-plus pricing
Many wholesalers use this cost-based method to ensure a profit when deciding on a wholesale markup formula. You need to figure out and add together all your direct material costs, labor costs and overhead costs for a product, before adding on a markup percentage to determine the price of the product. It’s essential that you’re accurate with your costs, or you’ll risk eating into your profits.
The cost-plus pricing strategy works for online wholesalers or when the value of a product isn’t clear to your customers. Before settling on a price, you’ll still need to consider what the product is worth to the buyer to ensure long-term success. It’s also important to note that your cost-plus prices may be more than competing products, so don’t forget to check out your competitors’ price lists and factor these in as well.
3. Demand-oriented pricing
Otherwise known as customer-based pricing, demand-oriented pricing is a method that calculates the desired volume of sales. You then change the price when it is higher in demand and lower it when sales are weak. When using demand-oriented pricing to set your prices, you need to consider markups and costs to ensure you don’t harm your profit margins.
This particular wholesale pricing strategy is often used to set prices for goods that are sold at different prices to different customers. Basically, you decide on an acceptable price by gauging the customer’s responsiveness to purchase the product from your company and whether they come back for more.