Retailers expect to mark your products up by 100% in order to arrive at the final retail price- the price at which they’ll sell the product online or in-store. For example: if they’re selling an item in their store for $50, then they expect to have paid no more than $25 for it.
The process of doubling the wholesale price to arrive at the retail price is called KEYSTONING.
Theoretically, a retailer could charge any price they want for your product. If they paid $30, but think they can get $70- rejoice in that! The more money they make off your products, the more loyal they’ll be to your brand and the more often they’ll return with reorders. It’s their job to know what their market will bear. It’s your job to price your products so that you enjoy a robust profit margin at the wholesale level.
One of the biggest pricing mistakes I see among creative entrepreneurs is setting their retail price first and then halving it for wholesale. We need to be flipping that equation on its head to price for wholesale FIRST and then pricing for retail. Many of the entrepreneurs who tag me in to help develop their wholesale strategy find themselves rather far up a creek because they don’t have the margins necessary to wholesale. They’ve unknowingly established a retail pricing structure that simply doesn’t allow them to play in the wholesale marketplace.
Whip out your crystal ball: Is there even a remote possibility that you might one day wholesale your products? If so, you’ll save yourself a tremendous deal of anxiety and poise your company for growth if you develop a pricing strategy now that leaves your options open.
Want to knock a buyer’s socks off? Provide a 55% margin, rather than a 50% margin, on your products. For example, if you price an item at $10 wholesale, then retail it on your website and recommend a suggested retail price of $22, rather than $20. This strategy instantly gives you a leg up on other brands who are operating in the same space.
No matter what: never offer your own products for less than double your wholesale price. Doing so will put you in direct competition with your retailers and that’s a losing proposition for you both! If you wholesale at $10 and retail at $22, then that also enables you to run an occasional 10% off promo without putting yourself into hand-to-hand combat with your wholesale partners.