Pinpointing the right pricing strategy is key to running a successful business. Choosing the right price for your products is about striking a balance between healthy sales volumes and profitability.
Set the price too low and you risk damaging your product perception value or losing money. Set the price too high and you risk not being competitive enough to attract buyers. For wholesale businesses, getting pricing right – especially when dealing with multiple markets – can prove to be a tricky and often complex task.
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Retail vs. wholesale pricing: What’s the difference?
The goal for both retail and wholesale pricing is to cover your costs, stay competitive, create a value perception for customers, and ultimately, make a profit. However, the strategies to get there are distinct.
The prices of goods in retail are relatively high when compared to wholesale prices. The reason for this is that retail profit margins usually need to be higher to account for expenses and operating costs like advertising and marketing, rent, staff salaries, utilities, and so on.
Traditionally, wholesale businesses’ operating costs have been lower than retailers due to less need for skilled labor, marketing efforts, upkeep of physical storefronts, etc. As such, wholesale pricing is based on the principle of selling in bulk at a lower markup. Wholesalers can still make a profit with lower prices because their expenses are lower.
If you sell retail and wholesale, knowing how to differentiate your wholesale price from your retail price is crucial because there’s a high likelihood that your wholesale buyers won’t accept your retail pricing model.
The general rule of thumb is that your wholesale price should be 50% of the retail price to ensure you can still make a healthy return on investment (ROI).
However, a good pricing strategy is highly dependent on your business – so there’s no one-size-fits-all approach.
At the end of a given period, it’s a good idea to compare your projected cost of sales with your actual COGS to ensure you’re maintaining a healthy profit margin. If you find that you’re not making the necessary margin to stay profitable, you may need to adjust your pricing strategy for some or all of your wholesale products.
