Calculating retail prices is an imperfect science. With such a wide variety of opinions on how to negotiate markups, determine wholesale prices, and calculate cost prices, the options for how to best price your goods are seemingly infinite.
Luckily though, it’s possible to take some of the guesswork out of your sales strategy.
Whether you’re a brand looking to sell your wares yourself, or a retailer trying to figure out price points, once you know how to determine cost prices and wholesale prices, you’ll find that figuring out retail sales gets much easier.
Step 1: Determine Your Cost Price
The first step in figuring out retail prices for your goods is to determine your cost price. The cost price is the total amount of money it took a manufacturer to produce your end product.
There are a great deal of expenses associated with the cost price. Your cost price calculations should include the total amount of capital spent on everything from raw materials, labor, rent, utilities, salaries and more. Also, don’t forget to factor in any pre-manufacturing costs! Time spent on ideation, finding your manufacturing partner and transit are all things that should be included in your cost price.
Determining your cost price will make coming up with a wholesale price much simpler.
Step 2: Determine Your Wholesale Price
Once you’ve calculated your cost price, you can then come up with a wholesale price–that is, the price you charge retailers or buyers for your products.
Your wholesale price should be the lowest price you’re willing to accept from retailers for your goods (the retailers will then resell them at a profit to consumers). A good rule of thumb in coming up with your wholesale price is to take your cost price and then add a profit margin based on any costs you incur when selling your product plus added profit.
Once your wholesale price has been determined, you’re ready for the next step: retail pricing.
Step 3: Determine Your Retail Price
Both retailers and brands selling directly to consumers need to know how to establish retail prices. The retail price is what you plan to charge the public for your product, and usually involves a significant markup from both your cost and wholesale prices.
Keystone pricing, industry benchmarks, and industry surveys are all common ways to determine retail prices.
– Keystone pricing: Keystone pricing is a common way many retailers and brands determine their retail prices. Simply double your wholesale price (amounting to a 100% increase) and you have determined the keystone price for your retail goods.
– Industry benchmarks: Seeing what other business have chosen as their markups can be a very useful tool for determining your own retail price. The Retail Owners Institute gives you free access to the markups of dozens of retail segments–an invaluable source of information and a great reference point.
– Survey competition: Another useful approach for determining your retail prices is to survey your competition. See what prices similar products in your industry are selling for and use this knowledge as a guide. Examine trends in your industry’s market and compare your product to your competition’s in terms of quality or materials used in order to come up with your retail price.
With cost prices, wholesale prices, and retail prices all figured out, you’re one step closer to getting your product into stores–happy selling!