Markup: it’s how both retailers and wholesalers make money, only they run on two different pricing strategies.
Wholesalers sell items from manufacturers at a higher price to retailers. And retailers then sell those items to the general public at even higher prices. Wholesalers help stores and ecommerce sites stay stocked, and retailers get goods out into the world.
Here, learn everything you need to know about wholesale vs. retail pricing and how to stay competitive as a wholesaler.
What is a wholesale pricing strategy?
The wholesale distribution pricing strategy involves setting prices that cover the business’s total costs and leave healthy margins. Wholesalers buy in bulk from manufacturers who give volume discounts. Wholesalers then sell those products in bulk to retailers at a cheaper rate than the retail price but at a higher rate than they bought them from the manufacturer.
Wholesalers commonly use the following strategies to drive profit margins: cost-plus pricing, value-based pricing, and tiered or dynamic pricing.
- In cost-plus pricing, wholesalers add a markup percentage to goods.
- In value-based pricing, the cost is based on the final perceived value of the item.
- In dynamic or tiered pricing, wholesalers set the price based on the size of the order, offering more competitive rates on large quantities.
Key factors that influence wholesale pricing
The following key factors play into every wholesale pricing decision. Consider all of them to determine your total costs correctly and set the right prices.
- Cost of goods sold: Wholesalers or distributors need to find competitive pricing on items directly from manufacturers so that they have room to mark them up before selling.
- Labor and overhead costs: Wholesalers must consider employee wages and other overhead (like warehouse space rental) in their total operational costs.
- Market demand and competitor pricing: Prices should be in line with those of other wholesale businesses. Rates that are too high won’t be attractive to buyers, and they can easily get the same products at lower prices from the competition.
- Product quality and positioning: Products should be high-quality and meet the needs of the customer base—trending items that retailers want to resell to audiences that genuinely wish to buy them.
- Minimum order quantities (MOQs): Wholesalers must set minimum order quantities, as they can’t make ends meet by selling small orders that won’t ultimately make enough income to cover business costs.
- Shipping, packaging, and fulfillment: The wholesale pricing formula should cover the business’s labor and materials costs associated with shipping, packing, and fulfillment.
How to calculate wholesale prices
Optimize your wholesale prices to earn the best profit margins possible by considering the following key points in your pricing model.
- Know your true product cost: Consider the direct and indirect expenses that influence your purchase price, like shipping and labor.
- Check competitor benchmarks: Stay in the range of competitor price points, so that your pricing isn’t too low to prevent you from making a profit or too high for retailers to affordably purchase from you.
- Protect your margins: Ensure that your pricing for bulk orders is high enough for you to cover business expenses and stay profitable.
- Consider bulk buyer expectations: Bulk buyers want high-quality products that respond to market trends and that they can reasonably mark up to reach their desired profit margins.
- Review your pricing regularly: Frequently review your pricing, ensuring that it responds to market fluctuations and is still in the range of the competition—all while remaining affordable for retailers.
- Keep retail pricing in mind: Understand the actual market selling price for items, so that you can offer them to retailers at lower rates they can mark up.
How to stay competitive without cutting margins
Wholesalers don’t need to underprice to attract buyers. Here’s how to stay competitive and earn great profits while staying affordable.
- Improving product quality: You can charge more for high-quality items, so focus on selling them instead of low-quality, not valuable goods.
- Offering better shipping terms: Extend attractive shipping rates to buyers as a value-add.
- Adding bundled deals: Group similar products that retail stores tend to purchase together at preferential rates, encouraging them to make bigger buys.
- Providing fast communication and support: Great customer service is a plus for retailers. Forge long-term relationships that, over time, drive high sales volume.
- Maintaining reliable inventory: Always have enough inventory on hand to cover bulk purchases and never let wholesale customers down. Not having the inventory to fulfil an order can cost you a client.
How WholesaleCentral supports smart wholesale pricing
Wholesalers make consistent margins with a fixed cost of goods sold (COG) that makes pricing structures easier to maintain. And they can connect with interested resellers by teaming up with WholesaleCentral.
WholesaleCentral is a B2B platform connecting wholesalers and resellers. It hosts the contacts of thousands of vetted suppliers and dropshippers. Drive better business by putting new products and your all-time bestsellers in front of eager retailers.
FAQs
How often should I review or update my wholesale pricing?
Review your wholesale pricing at consistent intervals, like once a quarter.
What factors should I consider before setting wholesale prices?
Offer high-quality products that represent high customer value, while considering your overhead and item costs, ensuring you can cover business expenses with your sales.
What are volume breaks, and how do they work?
Volume breaks are discounts that wholesalers offer retailers on larger orders.
What are common mistakes when setting wholesale prices?
Common wholesaler pricing mistakes include underpricing, overpricing, not considering total costs (like overhead and labor costs), and ignoring real-time market conditions.
What is the wholesale vs. retail price formula?
The basic wholesale formula is Wholesale Price = Retail Price / 2. And the most straightforward retail pricing method is Retail Price = Wholesale Price × (1 + Markup). While these are helpful guides, many other factors play into actually setting the price of a product, like operational costs.