“How to price your products” is a question I get asked all the time, particularly when it comes to wholesale. Actually, I get asked this question in regards to retail a lot too.
For those of you productpreneurs who are designing and manufacturing your own product invention, pricing can be a particularly troublesome beast!
So let me start by asking YOU a quick question – and feel free to comment below with your answer.
How are you currently working out your wholesale prices? Cost of materials x 2?
Is that profitable, or are you struggling with cash-flow issues?
Here’s how to price your products for profitable wholesale (plus grab my free wholesale price list template)
When it comes to designing and manufacturing your own products, pricing can be really tricky to work out.
You have to consider your production costs, shipping, customs and overheads. And balance this against market expectations and how much your customers will be willing to pay.
But despite all this, wholesale can still be an incredibly fast and profitable way to scale and grow your business.
How most people start out
I’d be rich if I had a dollar for every time someone told me, “I want to keep my prices low and affordable for my customers. I don’t want to charge too much”.
Their fear is that if they price too high, then no-one will buy.
The mistake productpreneurs make when they start out is to price their products for retail first. They keep their prices low, but because the margin looks good they think they’re making a really good profit.
Their pricing formula goes something like this: Cost of materials x 2 = RRP
What happens next
Then, because their products are a bit different or innovative and they’re very reasonably priced compared to the competition, they become popular really quickly.
Retailers notice this newfound popularity and start approaching these productpreneurs with requests to wholesale.
So the next question is, ‘what’s your wholesale prices?’
And the productpreneur is stumped. They jump in a Facebook group or forum and crowd source opinions, to be told, “wholesale is 50% off RRP”.
Now, bear in mind they’re only just making a bit of money with their pricing formula, which leaves absolutely no room for wholesale. They may as well give their products away!
The problem with too-low prices
Let me ask you another question – and feel free to comment below with your answer to this one too.
Do you pay yourself a wage from your business?
Another comment I hear a lot is that the business can’t afford to pay the owner yet. Which is fine, if you’re using sweat-and-elbow-grease to invest in your business’ growth.
But it’s not fine if you’re not paying yourself in order to keep your prices low!
Now, I get it that you don’t want to rip off your customers. This is a fairly typical female sensitivity – we find it hard to ask for a decent price!
But if we want to run a profitable and sustainable business and actually make enough money to pay ourselves as well, then “keeping prices low and affordable” just doesn’t cut the mustard!
Even if your wholesale sales are only part of your turnover (ie you also sell direct to customers at full retail price on your website), your wholesale sales still need to be profitable.
Your prices need to account for much more than cost of materials. You also need to factor in labour costs, insurance, marketing costs and other overheads.
Rather than looking at your cost of materials next to your retail price and think you’re asking too much, I want to challenge you to incorporate all those other overheads as well. Then you’ll start to see that you’re not asking too much after all!
The correct wholesale pricing formula
If any of the above sounds like a familiar scenario to you, then it’s high time for a new pricing formula!
The better (profitable!) way to price:
Materials + overheads = production costs
Production costs x 2 = wholesale price. << This adds the profit into the mix!
Wholesale x (at least) 2 = RRP.
Now, obviously you also need to make sure that your prices also fit within what you can reasonably expect customers to pay.
Within your range, you may have some products that have a smaller margin and some with a larger margin. But overall, you want to achieve this sort of balance.
Grab your free wholesale price list template
Grab the wholesale price list and order form template I created for my own business. You can edit it in Excel or Google Sheets to make it your own!
Updated 4th Dec 2019