Wednesday, 1 March 2017

Be An Expert - Pricing - Wholesale

Last week we looked at why you need to add labour AND profit into your pricing formula. This week we're going to look at why wholesale needs to approx 50% off the retail price. (Here's a link to the pricing formula if you missed it before:

Even if you don't want to sell wholesale at the moment - maybe you are just setting up an Etsy shop as a hobby - you should still use it in your formula, and double it for the retail price. You might think of your shop as a hobby now, but what if it really takes off and someone wants to stock it in their shop? What if you realise you could quit the day-job and run your shop as a business full time? If you haven't worked out the pricing right then you'll be stuck if a shop wants to buy your items for 50% off, but you will lose money selling them that cheaply because you didn't price it right. So start as you mean to go on and think about this pricing from the start.
Why do shops want approx 50% off the retail price? They have costs to pay too! One big one is tax. Shops are likely to be registered for VAT and they will have to pay the government 20% of your item which they've sold. To work out what a shop will receive after they've paid the tax, divide your retail price by 1.2. For example a necklace with a retail price of £12 divided by 1.2 = £10. If the shop has paid you a wholesale price of £6 for that necklace, they now have £4 left to help pay the rent for the premises, the bills for the shop like electricity and gas, the wages for their staff, shop fittings, advertising costs for their shop (which help bring customers in to buy your items), and of course make some profit to help their business grow too. It doesn't sound like much now does it?!
Of course you could try offering a sliding scale of wholesale prices depending on how much is ordered. You could offer less discount to an online shop which may have less premises costs (but remember they may have storage costs still), and you should certainly offer less discount if it's a bulk-buy customer rather than a retail customer (someone who is buying in bulk eg. 100 items, but to use themselves rather than sell on to someone else) - here you could offer 20% - 30% off the retail price.
If your retail prices don't currently reflect this formula, then don't panic. Creep your prices up bit-by-bit and accept you will earn less labour & profit for yourself if you suddenly get a wholesale order. Or close your shop for a while and re-launch with new prices, but also think about a social media campaign and maybe a discount code for the first month after you've re-opened, so past customers don't get scared away!

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