Question

Topic: Other

Basic Question About Wholesale Pricing

Posted by Anonymous on 10/7/2009 at 12:48 PM ET 50 Points
I'm wholesaling a high-end product to retailers. This is kind of new to me - an artist who has been selling in more traditional art venues like galleries or direct to the public. So I'm wondering if there is some advice about how a retailers expect to have the pricing laid out to them from a "manufacturer" or how it COULD be laid out to a marketing advantage and what the issues are.

The retail markup will be high dollarwise, but percentagewise not as much as a retailer will generally be used to. My question is how to communicate wholesale/retail pricing structure. Specifically I'm selling an item that retails for $1785. to the retailer for $1071.

I could start with the wholesale price and tell the retailer that the markup is $714 or 67% (exactly 66 2/3% - I'll fix that when I have an answer here). Or starting from wholesale and working toward the retail, I could reverse the idea by establishing the retail price and letting the retailer know their discount in dollar numbers or percentage points.

I think I have two quesitons. The question of whether to start with a retail price and go to a discount or whether to start with a wholesale price and go to a markup. And secondly whether I have a choice of whether to use dollar numbers or percentages.

If there is a convention a retailer would be used to and I would be confusing things to say it any other way, then of course I need to know that and what it is.

If I have a choice, my current thinking is that markup is a more appealing idea to a retailer than discount. And that in my case the dollar amount is more appealing than the percentage. So I'm thinking that I should just list wholesale/markup/list as simple dollar numbers. and avoid the complexity of percentages and the inevitable comparison of percentages which doesn't particularly help me. Maybe I should leave out markup and just list wholesale/retail and let them deduce markup.

Hope this is not totally confused. Looking forward to some advice.

David

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RESPONSES

  • Posted by Inbox_Interactive on 10/7/2009 at 12:55 PM Member
    There are probably many different ways that your customers will talk about it, but I think the most common and direct way will be to speak in terms of gross margin.

    You sell it to them for $1,000 and you think the retail price will be $1,800 -- that's a 44.4% gross margin.

    This tells the retailer how much he can afford to discount the price to move the item, if necessary.

    Be prepared to offer some pretty liberal payment terms to your retailers.
  • Posted by Inbox_Interactive on 10/7/2009 at 1:28 PM Accepted
    Gross margin is the profit margin -- in percentage terms -- that the retailers earns on the sale.

    It does not take into account the costs of running the business; it is ONLY the profit from the sale of the individual item.

    If the urn retails for $1,800 and the retailer's cost is $1,000, his gross profit is $800.

    On an item costing $1,800 retail, his gross profit of $800 gives him a gross profit margin of 800/1,800, or 44.4%.

    This tells the retailer that s/he can drop the retail price of the item by as much as 44.4% and still break even. This is of great concern when an item is sitting on a shelf and may need to be discounted to get it sold.

    In your case, however, since the items are not ordered from you until they are bought by the end customer, that's less of a concern to the retailer.

    However, a high-margin item like that can be offered at a "discount" to show goodwill to a customer who make a larger purchase. Or, the dollars earned on your item can help offset other items which might perhaps not carry such high gross profit margins.

    Good luck!
  • Posted on 10/7/2009 at 2:39 PM Accepted
    Were it me...

    I think I would be talking about a "45% discount off a suggested retail of $1,800.00".

    Figuratively speaking, you only have two levels here, manufacturer and retailer. Pricing this way will eliminate confusion.

    A typical supply chain (such as auto parts for example) might include:
    Manufacturer
    Distributor
    Wholesaler
    Jobber
    Mechanic
    Retail

    These would EACH have discount levels depending on the amount of the product stocked. In this environment, it is not unusual to see such as JO-15 (which would represent Jobber price minus 15%)

    Anyway... Your situation is fairly simple and I would try to keep it that way.
  • Posted on 10/9/2009 at 1:11 PM Member
    The NFDA (National Funeral Director's Association) has a fairly comprehensive electronic database of some 22,000 member funeral homes. I purchased a copy back in the 80s for around a grand. One nice thing about it is the funeral industry is fairly stable and the addresses and contact info pretty much remain the same.

    Perhaps that will be of some help...

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