How to Price Retail from Wholesale

Running a successful retail store requires understanding pricing mechanisms.

If you are a wholesaler selling directly to retail stores, you need to be aware of their requirements so you can price your product competitively. Retailers will not agree to stock a product unless they can obtain a minimum gross margin when they sell it. The acceptable gross margin varies by industry, by product type and by retailer. A small specialty retailer in a high-end mall generally needs a higher gross margin to cover operating costs than a high-volume mass-market store. It's important to know the difference between markup and gross margin.

Instructions

1. Calculate the wholesale price per item. Include all costs of purchase, including delivery charges. Divide the total invoice amount by the number of individual items to compute the wholesale cost per item.

2. Double the wholesale cost per item to calculate the keystone, or basic, markup. For example, if the wholesale cost is $25, double it to compute an initial retail price of $50. The retailer's gross profit is ($50 - $25) = $25.

3. Divide the gross profit by the cost price and multiply by 100 to calculate the markup percentage, for example: $25/$25x100 = 100 percent. This is the minimum markup that most retailers will accept.

4. Divide the gross profit by the retailer's selling price and multiply by 100 to calculate the gross margin, for example: $25/$50x100 = 50 percent.

References

• Entrepreneur.com: Invention Profit Margins and Markups
• Ohio State University: Pricing, CDFS-1326-95
• Computor Companion: How to Set Your Retail Pricing to Meet Your Financial Goals

Resources

• Washington State University College of Agriculture: Price Profit
• SolveYourProblem.com: How Do I Set Retail and Wholesale Prices?