How to calculate Bulk Price of Your Products in Wholesale E-commerce
Wholesale pricing is the most delicate exercise that every wholesaler has to go through. Many variables are at play, often confusing the wholesaler while calculating a product’s wholesale price. The success of a business depends on the prices set by wholesalers and major retailers.
Pricing products too high or too low will not lead to promising results. You must ensure you don’t sell too much or too little stock in any product. Optimizing your prices can also lead to customer satisfaction and will, in return, help boost your business. These tips are to set your pricing strategy. This blog will demystify the entire process of calculating wholesale pricing.
What is wholesale pricing?
Wholesale pricing is the price that a manufacturer or distributor sets for products sold in bulk. It is less than the retail price charged to consumers. It is to encourage businesses to buy items in large amounts. Wholesale pricing depends on three factors and can vary according to them.
- Product
- Quantity of the product purchased,
- Terms of the sale.
Wholesale pricing aims to create a healthy balance between making a profit and ensuring that businesses can still make money from products or services.
while setting a wholesale price, consider
- cost of production
- the market value of the goods or services
- desired profit margin
Keeping retail prices lower allows businesses to buy in bulk and markup the price while selling to customers.
Wholesale pricing allows businesses to save money on large purchases, which shifted to consumers in the form of lower prices. This increases demand for the product or service and encourages loyalty among customers.
Wholesale Price VS Retail Price
Wholesale prices are the prices that manufacturers or suppliers charge for their products. Retail prices are the prices that retailers charge for the same products. The difference between the wholesale price and the retailed price is called margin.
It is the amount that the retailer charges over the wholesale price. The margin is the retailer’s profit and is used to cover the retailer’s costs, such as rent, employees’ wages, and other overhead expenses.
The margin can vary depending on the product and the retailer. For example, a retailer might charge more (50%) margin on a product with a low wholesale price. But, they might set a low (10%) margin on a product with a high wholesale price. This all depends on the retailer’s business strategy.
The margin is significant to consider when shopping for products. It will have an impact on the final price of the product. So, comparing prices and margins is vital before making a purchase.
How to Calculate Wholesale Product Pricing
After the difference between retail and wholesale pricing is clear, it’s time to learn how to determine your products’ price tags. The first step is conducting market research within your area, known as ‘pricing market research.
Pricing research is the act of analyzing an industry to determine an appropriate price point. In the context of pricing products at a wholesale cost means considering what prices competitors are charging and how much customers are allegedly willing to pay for your goods based on their current mood or other unpredictable factors. You’d need this information to identify which pricing tier fits your products best, which will act as a blueprint when giving specific prices.
After covering these factors, you can start thinking about the strategies you will use to determine your wholesale price. Below are explanations of different pricing strategies that wholesalers use.
Strategies for Calculating Wholesale Price
The most common strategies for calculating wholesale prices are absorption pricing, differentiated pricing, value-based pricing, competitive/market-based pricing, and bundle pricing.
- Absorption pricing checks the cost of all the resources that go into making and selling a product. This includes materials, labor, overhead, and other expenses. The business then adds a desired profit margin to this cost to arrive at the wholesale price.
- Differentiated pricing is a strategy where prices vary for different products or services. This depends on quality, features, or customer segment factors. Businesses using this strategy must assess the market to ensure their competitive prices.
- Value-based pricing is where businesses set prices based on the perceived value of their products or services. This depends on factors such as the quality of the product, the brand, or the customer service.
- Competitive/market-based pricing is where businesses set their prices based on the competition’s charges. This can be risky, as companies can end up overcharging or undercharging.
- Bundle pricing is a strategy where businesses offer discounts for buying many products or services. This can be an effective way to increase sales and attract new customers.
The Wholesale Price Calculation Formula
After you determine your wholesale price or the price, you intend to sell your products. It’s essential to understand how the wholesale figure was reached. Your costs of goods sold (COGS) and the amount netted in profit will affect how much money you make and how much profit margin is gained by each unit sold. To determine the wholesale price, you must first figure out two important things. Number 1 is your average cost of goods manufactured or produced. The cost includes both direct and indirect costs during production. Indirect costs include depreciation, salespeople’s salaries, machinery, and factory overhead related to making your product and selling it. Once you’ve determined that, figure out your preferred profit margin by deciding whether it’s fair or generous given your competition and supply-demand.
Here’s the general formula
the average cost of goods produced + profit ledge = wholesale price
If you are starting your wholesale business on Jiffystock or Alibaba, you can use this formula to calculate your cost and selling price. Anything other than that depends on the demand and supply of the product. Global shortage, increased demand, or reduced supply can all affect prices and you should always be ready to quickly adopt these prices.