Craft Venture: pricing for wholesaling

Welcome to Craft Venture ““ business and marketing tips for indie online business owners. Like me! Im Brenda, owner of Phydeaux Designs on Etsy1000 Markets, and Phydelle Designs on Etsy. Last week, we talked about considering what the market will bear when you are pricing your products or services, as part of our discussion about pricing ““ perhaps the most challenging part of owning your own business. and

Hopefully, you’ve read our whole series on pricing your products and/or services, and perhaps you’ve even worked on your own pricing as a result! As you know or have learned, pricing is both very simple and incredibly complex. Cover your costs, build in a wage, make sure you have a profit margin.

But wait!

What about wholesale pricing?

Ah yes, the dual edged sword:  wholesaling. Has your heart gone pitter patter when you read an email from a potential wholesale customer, only to go floppity flop when you realize that wholesale prices are significantly lower than your own retail price? Before we dig into wholesale pricing, maybe we should back up and talk about what wholesaling is?

If I owned an online or actual real live (brick and mortar) store that sells handmade and other goods, I have to buy those goods myself in order to sell them. As a shop owner, I have a lot of my own expenses to cover, not that dissimilar from the costs we’ve previously discussed right here:  rent or lease, wages, insurance, advertising, phones, electricity. I need to purchase my store inventory at a price significantly lower than the price I’ll sell it for. That will allow me to pay for my expenses, as well as not lose money if I’m having a store sale, clearance special, etc. And … make a profit! After all, store owners also need profit margins.

This is both wonderful and perhaps less than wonderful news for you, as the maker of goods. Wholesaling allows your products, with your name, to be seen and touched by people who might never see your online shop(s). You can sell all over the world, in real live shops, building local reputations for yourself in locales you may not have known to exist. The drawback is that unless your pricing already anticipates wholesale orders, you might not be able to afford wholesaling or you might barely cover only your direct expense or even lose money with wholesale orders.

If you have absolutely zero interest in wholesale orders, this might not apply to you! But you might change your mind, depending on circumstances! What if your very favorite online Big Name Retailer contacts you?

The general “rule of thumb” is that wholesale prices are 50% of your retail prices. Yes, half of your current retail price! Can you afford that? This doesn’t mean you have to accept 50%, but it may mean your chances of a successful wholesale order will diminish in relation to percent discount you’re able to offer.

I’ve seen many recommendations about how to price, accounting for future wholesale requests. Everything from very complex spreadsheets to calculate and cover your expenses, then double for your wholesale price (from which you also have to pay a wage and have some level of profit) then double your wholesale price for your own price. I use my own pricing methodology to cover my direct and indirect expense, pay me a wage with a minimum profit margin for wholesale pricing, and variable increased pricing for my own retail (ensuring I can afford sales, etc.).

Look at your own pricing and if you want wholesale accounts, make sure you can afford the commensurate price reduction. You may think, “Oh, it would be worth it for the account, and I can’t adjust my prices.” Most handmade sellers who wholesale will tell you this:  wholesaling is hard work. Many sellers work directly with wholesale accounts, including invoicing, accounts receivable, etc. There is more communication, follow up, and a whole new level of customer service involved. Despite your very clear and simple to use order sheet and instructions, the orders you receive will often be a bit ambiguous, requiring your time to clarify. Direct retail selling is often much easier and less time-consuming!

What about you? Do your prices account for wholesale discounting? Are you ensuring a wage and profit margin, despite that price reduction? Do you have insights, tips or tricks for wholesale pricing to share?

Image credits:  1. 25 cents by beth berg; 2. Wholesale grain bag totes – 10 per order – by one woman studio