The 4 Factors I Use to Determine Wholesale Pricing
When I have a new product idea that I want to launch to the wholesale market, one of the first things I do to see if the idea is even feasible is research product pricing. Below are the factors I consider when I want to introduce a new Ramona & Ruth product to the market.
- Product Costs: Ok, I know, this is obvious! But you need to be sure that you consider every little cost that is involved, no matter how small. This includes:
- Product Materials
- Packaging
- Labor
- Shipping costs of the above
- Commission Rates if working with reps or Faire
- Market Pricing: Next I do some research to gauge the market's acceptable price range. For example, I just introduced tea towels to my wholesale collection. In my research phase, I made sure to check out the pricing of similar tea towel offerings from others in the industry.
- Assess Perceived Value: Evaluate the perceived value of your products from the perspective of your retailers. Consider factors such as product quality, craftsmanship, brand reputation, and customer service. A higher perceived value allows you to justify a higher price point, positioning your products as premium offerings.
- Determine Your Desired Profit Margin: There is no universal rule for determining your profit margins, so you need to decide what profit margin makes it worth it for your business. As a guideline, I always aim for a 50% profit margin. So for example, with my greeting cards, the cost of the digital printing, paper, foil stamping, clear packaging sleeve, envelope, packaging labor and rep commission comes to a total of $1.23. I sell each card for $3.00 wholesale which gives me a profit margin of 59%.
To establish a good starting point for pricing, use a simple calculation:
Product Costs x 2 = Wholesale Price
Keep in mind that as your product gains popularity and you need larger quantities to meet demand, you'll receive price breaks on bulk orders of both the product and packaging materials. Initially, I like to base pricing on lower quantity purchases. Then it's like icing on the cake for your profit margins when sales volume rises and larger material orders become doable.
To calculate the pricing for my products, I created a special tool called the Product Pricing Pal. This pricing tool includes a calculator that takes into account material costs, desired profit margin, labor, and other variables to generate a wholesale price for your products. It saves me so much time, minimizes errors, and provides a place to store all of my pricing information so it's easily accessible and all in one tidy place.
Remember, pricing is an ongoing process, and it's essential to monitor market trends, reassess pricing periodically - I like to do this quarterly - and make adjustments as needed to ensure the long-term success of your wholesale business.
Be sure to check out my Product Pricing Pal to simplify your pricing process and serve as a convenient home for all of your pricing information!
