How to Calculate Wholesale Price
There are several variables you must consider when calculating a wholesale price for your product. Basic calculations start with figuring your product's break-even point. The challenge from there is determining a reasonable profit margin that also allows you to remain competitive in the marketplace. The following instructions will give you a starting point for calculating your best wholesale price.
- Difficulty:
- Moderately Challenging
Instructions
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Instructions
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1
Using the following formula, determine your per unit manufacturing cost:
(Cost of raw materials + transportation)/ total units produced = per unit manufacturing cost
Transportation costs include all expenses associated with transporting your product to the place it will be stored such as shipping, custom taxes and surcharges and delivery expenses.
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Determine your true hourly labor expense:
Hourly wage + (yearly employment tax + yearly benefits/Total hours worked per year) = True Hourly Labor Expense
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Calculate other operating expenses:
Yearly Marketing Expenses + Yearly Operation Expense = Cost of doing business
Yearly marketing expenses include expenses for creating marketing materials like catalogs and websites and expenses related to advertising. Yearly operating expenses include items such as rent or mortgage for office/warehousing space, office equipment, utilities, taxes, insurance and licensing fees. Your business may have other fees as well. You will recoup this expense by adding a percentage of it to each unit of product you sell.
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4
Calculate your break-even per unit cost with the following formula:
Per unit manufacturing cost + true hourly wage + percentage of overall operating cost = break-even per unit cost
This figure represents the lowest price you can charge for a product and remain in business. This price does NOT include a profit, but you will use it as the baseline for determining your wholesale price.
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5
Calculate your wholesale price with this simple formula:
Break-even per unit cost x Desired Profit Margin = Wholesale Price
The rule of thumb is to double your break-even per unit cost to determine your wholesale price. However, you need to consider both your competitors' average wholesale prices and the average price retail price for products similar to yours. These two factors can be a limiting factor in setting your wholesale price. For example, you may produce "Thank You" cards for a break-even price of $2.50 per unit. Following the general rule, your wholesale price would be $5.00. However, retailers may sell "Thank You" cards for $6.00, and your competitors may sell their "Thank You" cards for a wholesale price of $3.00. This would constrain you from selling your cards for $5.00 per unit.
As you calculate your wholesale price, always remember retailers seek to purchase the highest quality goods at the lowest possible price in order to maximize their profit. Your wholesale pricing must be based on your costs plus a reasonable profit as determined by your market's price cap.
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