Mindset Shift in Wholesaling: How to Set Your Wholesale Price
Are you a small business owner or creative entrepreneur wondering how to set wholesale prices without underselling your brand? A common misconception about wholesaling is that it means "giving away the brand too cheap." However, it's crucial to view wholesaling as a collaborative opportunity that can provide exposure, unlock growth potential, and ensure a consistent, higher purchase amount. Recognise the long-term value gained beyond immediate monetary returns, especially in expanding your wholesale market.
To put this into perspective, here's a quote from one of my clients after just three months of focusing on wholesale:
"I cannot believe I have been missing out on this side of my business all along. I just had my biggest month, where I made 50K total, and 25K of that was from my wholesale stockists! They order bulk quantities, are easy to deal with, and share my product with everyone on their customer list."
- Krystal, owner of a retail bag company
How to Set Your Wholesale Price: A Step-by-Step Guide
Understanding how to calculate wholesale pricing involves more than just doubling your costs. In this guide, we'll cover the essential aspects of establishing a competitive wholesale pricing structure and determining your Minimum Order Quantity (MOQ) for successful stockist relationships.
Step 1: Calculating Your Costs
Before setting your wholesale price, you must have a clear understanding of all expenses associated with your product. This includes:
Supplies & Materials: All the materials required to create and package your product.
Labor Costs: Production time—whether it’s you, your team, or outsourced labor.
Overhead Costs: Expenses tied to running your business, such as rent, utilities, insurance, and technology.
Marketing Costs: Expenses for influencer commissions, advertising, coaching, etc.
Profit Margin: Consider how much profit you want and add a buffer to cover unexpected costs.
Knowing these costs will help you understand your profit margins and how they fit into your overall business goals.
Step 2: Understand Market Conditions
Research your competitors to determine the average market price for similar products. Understanding your industry is essential when setting your Recommended Retail Price (RRP) and wholesale price. Australian retailers, for example, often expect a minimum of 50% off the RRP. If you offer a lower profit margin, it could impact your conversion rates with stockists. A well-informed pricing strategy is crucial for attracting the right wholesale partners.
Key Tips for Setting Your Wholesale Price
Include GST: Ensure your pricing structure accounts for GST in Australia.
Account for Shipping Costs: Always add shipping costs to your wholesale order and forward these costs to stockists unless agreed otherwise (this needs to be in your T’s & c’s).
Consignment Arrangements: If selling on consignment, consider adjusting your profit margin since the risk lies with the stockist.
Tiered Pricing Structure: Offer better rates for higher order quantities to encourage bulk orders. But keep it simple!
Step 3: Setting Your Minimum Order Quantity (MOQ)
Your MOQ or MOA (minimum or quantity or value amount) can vary significantly based on product type, stockist size, and market conditions. Setting a reasonable MOQ can help build trust with potential stockists and foster long-term relationships.
Smaller MOQs: Useful for gaining initial trust and encouraging trial orders.
Larger MOQs: Suitable for established relationships, ensuring bulk savings and efficiency.
As a general rule, keep your MOQ above $500 but below $1,000, depending on your product type and stockist's business model.Obviously this general rule may not apply if for example your product range is a low ticket item like stationary you might might make your MOQ $300.
Be mindful of setting it so low that it could lead to stockists ordering for personal use rather than for retail, but setting it too high will add a buying barrier and make the buyer hesitating before gaining trust in the brand.
Conclusion: Finding Your Wholesale Sweet Spot
Setting your wholesale price and MOQ isn’t just about covering costs; it’s about understanding market demands, nurturing relationships with stockists, and ensuring a sustainable profit margin. By balancing these factors and maintaining flexibility, you can secure repeat orders and build long-term, profitable partnerships.