What is Wholesale Price? – Wholesale Price vs Retail, Formula, Calculation, FAQs

What is Wholesale Price?

The wholesale price is the price of the product charged at the wholesaler level.

This is the price retailers pay when they make bulk product purchases from wholesalers. The aim of wholesale pricing is to earn profit by selling goods that they got at a lower price.

Many wholesalers often find product pricing tiresome. A product price set too low results in loss, while high product prices result in lesser sales and reduced profit. So, setting the right wholesale prices can be crucial for any business.

Pricing is always important no matter what stage of the supply chain. The wholesale price is relatively higher than the price at which they purchase products from the manufacturers or distributors. And the same product will reach the retailers at a relatively higher price.

Example

For example, a product’s manufacturing cost is $5 and wholesalers get the product for $7. Now the wholesaler will sell the product at $10 to the retailers who will further increase the price while supplying the product to the customers.

Wholesale Price vs Retail Price

Here’s a table that neatly illustrates the difference between the two:

How to Calculate Wholesale Price?

Market Research

Market research is the first step in determining the wholesale price of a product. Try to get the product price other wholesalers are offering for similar products.

Other than this, you can also search for the retail prices of the products to determine your wholesale product prices. There are different pricing strategies your competitors may use and knowing about them can benefit you when deciding on one.

Calculate the Total Cost

Now it’s time to calculate the fixed cost to calculate the wholesale price.

Total cost takes in all sorts of expenses including rent, materials, advertising, insurance, human resources, and even coffee at the office.

Finding fixed costs is most challenging and can affect your wholesale pricing to a greater extent.

Total Cost of Goods Manufactured (TCGM) = Fixed Cost + Variable Cost

Calculate the Average Cost

Now after calculating the total cost, it’s time to calculate the average cost. For you, you need to divide the total cost of manufactured goods by the number of units made. Average Cost of Goods Manufactured (ACGM) = TCGM/ Number of Units

Find the Profit Margin

The next step is to find the profit margin which is the maximum gross from selling goods. Normally, we express this profit margin as a percentage. Wholesalers decide their profit margin on their own. Typically profit margin in wholesale business remains between 30-60%.

Calculate the Wholesale Price

Now it’s time to calculate the wholesale price using the formula.

Wholesale Price = ACGM/ (1 – Profit Margin Percentage)

Example of Wholesale Price Calculation

Let us understand this with the help of an example:

You are a wholesale dealer in home decoration items. It costs $400 to buy 50 units from the manufacturer, $300 for shipping, and $250 for other expenses such as labor.

To calculate the wholesale price, first of all, you need to calculate the total manufacturing cost.

TCGM = $400 + $300 + $250

= $950

After the total cost, let’s calculate the average cost of manufacturing. 

ACGM = $950/ 50

 = $19

Now let’s say your profit margin is 30%, then the wholesale price can be calculated by using the formula.

Wholesale Price = $19 / (1 – 0.3)

      = $27

FAQs

Q1: What are the different pricing strategies wholesalers use?

Ans: Here are the pricing strategies wholesalers are using:

• Market-based pricing: Determining your product pricing based on competitor/ market price.
• Value-based pricing: Product pricing is based on the customer’s perception of your product value.
• Demand-based pricing: Adjusting product prices according to customer demand trends.
• Absorption pricing: Also known as full costing is the pricing method that captures both variable and fixed costs of product manufacturing.

Q2: What is a dual pricing strategy?

Ans: A dual pricing strategy is mainly useful for wholesale businesses that either sell their products to retailers or directly to the customers. So, they offer two different prices for the same product. An external retail price for customers while a separate wholesale price for the retailers.

Q3: What are the limitations of wholesale pricing?

Ans: Here are a few limitations with wholesale pricing:

• If you are dealing in branded products, the pricing policy of the brand can restrict you allowing you not to offer a lower price or any discounts.
• Due to ongoing competition in the market around similar products, you need to focus on differentiating yourself from the competition such as efficient payment methods, the best user experience, etc.