Several factors must be considered when establishing your wholesale and retail pricing. You have to price up (make sure you are covering your costs) and price down (what will your target audience bear). There’s no one right answer or easy solution. It takes a lot of research and often trial and error. Minimizing those errors through planning and organic growth are good strategies for long-term success.
- Think through your long-term distribution plan. If you are only planning to sell online via your own website and never, never through a distributor or retailer, that’s one thing. It’s highly unlikely that this is the case though. You will likely be selling through a distributor and/or a retailer, and everyone wants their cut, which means you have to factor in margins of approx. 30% for the distributor and 50-60% for the retailer. Additionally, consider your various distribution channels, both nationally and internationally, as they will have different margin requirements, set up costs (i.e. license/registration, insurance, EDI), MOQs, shipping/handling costs, etc.
- Cover your costs and factor in a realistic profit margin. In # 1 above, you have priced down. Now price up. Budget for COGS, and all your below the line costs (i.e. insurance, marketing, payroll, storage/handling). How much do you need to sell your product for and make a profit?
- Project sales movement over time. The greater your volume, the greater your economies of scale. Set your wholesale/retail where you can land the sale – while keeping in mind that as you scale up your volume you will help to drive your unit cost down.
- Define your ideal customer/target audience – this includes distributors, retailers, and the end consumer. What are they willing to pay for your product? Pricing too high or too low can greatly impact your sales movement, and the perception of your product. And changing pricing over time is no easy feat.
- Research your competition. What are your competitors charging? How do your products compare? Walk store shelves. Go online. How do their features/benefits compare to your product? Is yours more or less premium? Factor these answers into your decision making.