Wholesale Price Vs Retail Price: How To Calculate it

Pricing is crucial if you want to run a successful business. As a retail or wholesale eCommerce business, you must set your pricing delicately because it will determine your profit and business growth. 

But don’t worry. I got you covered here!

In today’s article, I’ll explain the difference between wholesale price vs. retail price and how to set the wholesale price. After reading this tutorial, you will be able to select the pricing in a way that will help you and your customers. 

So without further ado, let’s jump into the tutorial. 

What is Wholesale Price?

Wholesale Price is the price charged to retailers or distributors for buying your product in bulk. The sale of items in bulk for resale is referred to as purchasing at wholesale.

What is Retail Price?

The final price at which a product is sold to consumers is the retail price. That implies that those customers purchase the goods to use instead of reselling them.

Wholesale Price Vs. Retail Price

The retail price is the final price that’s displayed on the label, and the end consumer pays that.

Whereas wholesale pricing refers to the price paid by a wholesaler, who then sells it to retail stores. Typically the wholesale price is 2 to 3X your cost price. But it depends on your industry.

Similar to a wholesaler setting the wholesale price, a retailer that runs a physical store or an online storefront sets the retail price. Wholesalers may occasionally suggest a retail price.

They commonly refer to it as the recommended retail price (RRP) or manufacturer-suggested retail price (MSRP). The store, however, has complete control over the final pricing.

Retail prices often have a higher mark-up and profit margin than wholesale prices because they need to include additional selling fees in the final pricing. They often add up to 66% markup to the wholesale price.

Wholesale pricing also varies depending on the quantity purchased. This is called volume-based pricing. We see many of our customers implement this type of pricing where wholesalers get a larger discount based on the purchase volume. 

Now that we know the significant difference between the wholesale and retail price let’s dive in and see how to calculate the wholesale price from the retail price. 

How to Calculate the Wholesale Price?

To calculate wholesale pricing, please follow the following steps. 

1. Research the Market

The first step to calculating your wholesale price is researching the market and finding your competitor’s pricing model and the end user’s sentiment.

This will give you a rough idea about what pricing strategy you should use to set the price to be successful in your business. Your efforts in choosing your price will be more focused if you select a pricing strategy early. 

For instance, you should strive for pricing that is roughly two to three times your typical cost if you want to apply a value-based strategy. 0.2 to 2 times the average cost is often the goal of other strategies.

Following are the wholesale pricing strategies you can use. 

1. Market-Based Pricing

As the name implies, this method uses market/competitors’ pricing models as a standard.

You can set your prices at the same level as your competition or lower your rates to attract more wholesale buyers. This method is most effective in businesses with similar products.

2. Value-Based Pricing

Value-based pricing determines what customers are ready to pay for your goods. 

In this case, the objective is to maintain prices as high as possible. If your research shows that people consider your products as a luxury, you may want to charge a premium price for them.

According to the report, people are willing to spend extra for things they believe are worth the price. The disadvantage of having high prices is that your products may have a narrower market.

3. Absorption Pricing

This is a pricing approach based on cost. In this case, you need to include all the costs of manufacturing or acquiring the goods in the price. You calculate the costs and then add a markup on top of that.

This is why it’s often referred to as cost-based or cost-plus pricing. The simplicity of this method is one of its benefits. It also ensures that you will receive consistent returns as long as the costs remain constant.

However, if prices change, you may need to alter the wholesale price. Another problem is that this method does not consider market variables such as competitive strategy or demand trends.

4. Demand-Based Pricing

A demand-based pricing strategy is incredibly flexible, so your pricing will alter depending on the situation.

When competition is low, you may choose to set a price greater than the market average. If you want to sell more things in a short period, you might set pricing lower than the market average.

Using this versatile technique, you can constantly adjust things to suit your needs. However, you should only do this if you are willing to be flexible and adaptable enough to adapt fast.

5. Bundle Pricing

Bundle pricing means selling two or more things at a single price. This pricing technique may have been seen in product promotions or grocery stores. You might slightly lower the pricing of both products, giving the buyer the impression that they are getting more products at a reasonable combined price.

You don’t have to stick with just one of these strategies, even if many of them will work in many situations. Before selecting a course of action, you can test a few techniques to see which fits you best.

2. Calculate the Total Cost of Manufactured Goods

After researching the market and determining the pricing strategy, we now need to calculate the entire cost of your goods manufactured (TCGM). 

All input costs, including labor, overhead, materials, and capital, are added together to determine TCGM. This is how the formula appears:

Materials + Labor + Overhead + (Any Other Costs That May Apply) = TCGM

3. Calculate the Average Cost of Manufactured Goods

To calculate the average cost of goods manufactured (AOGM), divide the total cost of goods manufactured (TCGM) by the number of units made or generated. It will give you the price of a single unit. The equation is:

TCGM / number of units = ACGM

4. Find Out Your Profit Margin

Now you need to find out the profit margin. The profit margin is the maximum gross profit you can make from each product sale. 

The profit margin is typically expressed as a percentage. The profit margin percentage is something you can calculate on your own. Typically, wholesalers strive for profit margins of between 30 and 60 percent.

5. Calculate the Wholesale Price

I have taken the example of absorption pricing strategy, so to calculate the wholesale price, use the following formula:

ACGM / (1- profit margin percentage) = Wholesale Price

You don’t need to dive so much into maths and calculations. For example, if you are using the market-based pricing strategy, then you can simply put the price similar to your competitors or a bit low. 

Similarly, for value-based pricing, you’ll need to research the user trend and identity what they are willing to pay for your product, and you can simply go with that price or keep it a bit low. 

Example to Calculate the Wholesale Price

Here is a brief illustration of how the formula works. 

A bulk distributor of decorative paperweights, ABC Limited, seeks to set a competitive price for its goods. Purchasing 50 paperweights from the supplier will cost $5,000, plus $600 for shipping and another $600 for overhead and labor. 

It desires to adopt a value-based pricing approach.

Calculating the TCGM

We must first determine the TCGM before we can calculate its wholesale pricing. To calculate TCGM, I used the formula mentioned above.

Materials + Labor + Overhead + (Any Other Costs That May Apply) = TCGM

$5,000 + $600 + $600 = $6,200

Calculating the ACGM

Now I calculated the average cost of goods manufactured (ACGM). To calculate it, I used the formula mentioned above.

TCGM / number of units = ACGM

$6,200 / 50 = $124

Determining the Profit Margin

We must now figure out the profit margin percentage. For instance, ABC intends to achieve a profit margin percentage of 30%.

Calculating the Wholesale Price

ACGM / (1- profit margin percentage) = Wholesale Price

$124 / (1 – 0.3) = $177

Challenges When Calculating the Wholesale Prices

Undoubtedly, much thought and consideration go into calculating wholesale pricing. Due to this, many business owners consider this to be among the most challenging aspects of selling. 

However, there are a lot of other difficulties that wholesalers could run against while determining their wholesale price.

1. Brand Positioning and Identity

It might be challenging to strike the ideal balance between a price that accurately reflects the worth of your goods and a price that customers will be prepared to pay.

2. Seasonality

Some products have a seasonal aspect, which means there are times when demand is high and other times when demand is low. Updating your pricing strategy might be challenging if other factors influence the seasons.

3. Competition

Competition between wholesalers can be vital in some businesses. This implies that you must either set your product’s price at the going rate in the market or lower it. However, this could start a price war, driving costs even lower.

How to Sell to Wholesale and Retail Customers in WooCommerce?

WooCommerce is an excellent platform for creating your online store and selling to wholesale and retail customers. To help you create a store that sells to both types of customers, Woosuite has created the WooCommerce Wholesale Suite plugin.

This wholesale suite will help you show user-specific pricing, discounts, shipping options, and more. 

To make it more simple for you, I have created a guide on How to Create a B2B and B2C WooCommerce Store that will help you further. 

Wrapping Up

That’s it for today’s article. 

Now you know the wholesale price vs. retail price difference, how to calculate the wholesale price, and some common challenges. I hope you have also learned how to create a WooCommerce store that sells to both wholesale and retail customers.

I hope this article was helpful to you, and if you got any questions, you can ask them in the comments section. I would love to answer all your questions. 
Ready to get started? Download the WooComemrce Wholesale Suite plugin now!

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Brian
Brian

Welcome to the Woosuite blog, where we discuss all things WooCommerce. I hope we can help you achieve something today...