How to Set Wholesale Prices

If a business wants to be successful, then it's crucial to understand how to set wholesale prices. There are a lot of costs involved in starting and running a business, and without proper understanding of how to set wholesale prices, a business could actually be losing money in the long run, instead of turning a profit. To set wholesale prices, which are often the prices given to retailers reselling the product in their stores, production and labor costs must be calculated and the profit margin determined.

Instructions

1. Determine the production cost of the product. Production costs include the price of equipment, tools, supplies used and fuel. You can also include packaging and advertising as production costs. Any other costs that went into the creation of the products, excluding labor, but including costs such as licenses, fees or insurance, should be added. Add up the total production cost, and then divide by the number of products produced to get the cost per product.

2. Determine the cost of labor. Labor costs include the time used to create the product, employee wages and Social Security taxes. If the business has no employees, determine your hourly wage and multiply it by the number of hours spent working. Divide the total labor cost by the number of products to get the labor cost per product.

3. Add together the cost of labor with the fixed and material costs. This number is the minimum you can charge on wholesale goods to break even.

4. Determine the profit margin. Since the goal of business is to create a product, businesses typically charge more than the break-even cost of wholesale goods. How much cost should be added onto the break-even cost depends on a number of factors, including the local market, other competitors and the amount of profit desired. A typical formula for determining the profit margin on wholesale goods is to double the break-even cost.

Tips & Warnings

• Retail costs are usually double the wholesale costs. If you have a retail price but want to set a wholesale price, you can divide the retail price in half to get a rough estimate of what the wholesale price should be. Make sure you have accounted for production and labor costs, however, so you aren't losing money with wholesale prices using this method.

References

• Ohio State University Fact Sheet: Pricing
• Etsy: How do you set up Wholesale Prices?