How to Set Wholesale Prices for Brands New to Wholesale
The wholesale industry is an untapped goldmine for fashion brands doing well in the retail sector, but many are put off by the seemingly daunting prospect of setting up the right wholesale price for their products. The wholesaler's ultimate goal is to move product at an optimal margin, which brings the most money to the bottom line. It sounds so simple, but there is also much more to know. For example, how can you possibly know what to sell your items for if you've never done it before? There are so many different business models, that you may think it impossible to figure out wholesale prices for your brand. We've put together this guide for complete beginners, to explain the basic price structure and how to optimize your pricing.
Calculate the Wholesale Price from the Retail Price
There are a number of ways to go about setting a wholesale price, but if you already sell your product on a D2C basis you'll already have your retail prices set up which you know work for you. Hopefully your retail prices are in line with your competition (not too low, not too high) and give you a healthy margin for your business. Obviously, when selling wholesale your margins won't be so high, but you will be selling in higher volumes and with a minimal return rate (usually professional fashion buyers will only return faulty items as size and fit won't be an issue, whereas when selling direct to customers most fashion brands need to factor in around a 40% return rate). Bearing all of this in mind, the easiest way to work out your wholesale price from your retail price is to simply divide your RRP by between 2 and 3. High street price clothing brands tend to divide by 3, while brands with higher upfront costs (for example shoe or sustainable fashion brands) will have a higher wholesale price - around 50% of the RRP. So to give an example - if your usual retail price is £100, then your wholesale price will be between £33-50, depending on your product type.
It may seem a huge discount, but bear in mind that the retailers purchasing your products will often need to pay for shipping and import duties (for international buyers), plus they will have their own overheads - the cost of their store rental, marketing, etc., which must all be factored into the cost of the product to them - and they still need to make their own profit! If there is less than a 50% margin between the wholesale and retail price, retailers are unlikely to take the risk and you may have trouble selling in bulk. But it's vitally important that your wholesale price also delivers a fair profit margin to you, so let's look at what should be included in that cost.
The Wholesale Price Calculation
The basic formula for calculating your wholesale price is:
Cost of Goods Manufactured + Profit Margin
This is known as the Absorption Pricing method and is the most commonly used in the fashion industry. Bear in mind that the COGM (Cost of Goods Manufactured) should not just be the basic cost of the item itself, but also include a portion of the overheads incurred when importing the product and running your business. For example - let's imaging you produce a knitted shift dress using your suppliers in Asia and order in 1000 of these per month. The cost from your supplier is £5 per dress, but shipping is £300 and import duties are £400. So the total cost of each dress to your door is £5 + (£300+400 /1000 pieces) = £5.70. Your monthly business expenses including rent, utilities, payroll and marketing come to around £3300, so this brings the final COGM of your product as £5.70 + (£3300 / 1000 pieces) = £9.
Now you know the total cost of each product to you, in order to calculate your wholesale price it's just a case of adding on your profit margin - most commonly brands simply multiply the product cost by two, bringing the wholesale cost to £18 (and your profit margin to £9). We can then use our RRP calculation and multiply the cost by around 2.5 to 3, bringing a retail price of £45 to £54, and finalise the price by comparing our product with the competition to make sure we're competitive - not too high to price the product out of the market, not too low to make potential customers question the quality.
Help! My RRP is too low to sell wholesale!
For brands that start out selling direct to customer, it's not unusual for them to have never considered the wholesale price when setting their retail prices. This can easily lead to cases where the retail price is simply too low to offer a significant enough discount to allow potential retailers a reasonable margin. If this is your case don't worry - you're not alone. There are a few things you can do to get around this:
Re-analyse the competition
When was the last time you analysed your competition's pricing strategies? It's vital to continue with your research even as you become more established as a brand as the market can change from one day to the next and you need to make sure you're competing on a level footing. Research similar products from brands targeting a similar segment of the market to you. You may find that since you originally set your retail prices your competitors' prices have gone up, in which case:
Increase your retail price
Of course, that's easier said than done - you don't want to simply do a price hike across the board - that's no way to keep your customers happy! You may want to start by selling off the current stock you have at your original price - when you introduce new products for the next season you can readjust the price to make them more in line with the market. If that's not an option for you then communication is key - explain where costs have increased and highlight the quality of your product, particularly if you concentrate on ethical or sustainable sourcing methods - set your brand apart from other brands.
Find ways to reduce costs
If your RRP price is fit for your market but you still can't make enough margin to offer a reasonable wholesale price, it may be that your costs are too high. It may be time to research other suppliers or couriers who can offer you a better rate. Shop around and make sure that you're getting the best deal. Take a look at your other overheads - is there anything you could cut back on? Re-evaluate your prices from the very beginning and look at how you can restructure costs to make sure your brand is competitive - both in retail AND wholesale.
Start Selling Wholesale
Hopefully this blog has demystified some of the doubts you had around wholesale pricing and you're now ready to access a whole new world of potential customers by selling wholesale! At TradeGala we work hard to help brands of all sizes take their first steps into the wholesale industry and with no upfront costs or monthly fees, there's no risk to you. If you are interested in becoming a wholesale seller with TradeGala register for free today and we'll be in touch to discuss what will work best for you. We are always excited to hear about new brands who are interested in getting started with us! Maybe your brand could be the next big thing..?