Yesterday, this email landed in my inbox:
When it comes to wholesale, who pays the shipping costs? You or the buyer?
The short answer is simple, the buyer.
But the reality is much more nuanced. Which leads me to a misconception worth addressing. One that I’ve been perpetuating myself for the last several years.
When calculating retail price, the simplest formula out there is wholesale price times two. It’s quick, it’s easy, and for many years, it’s what I used.
But last year, I changed the markup on my own website to wholesale times 2.2. Why?
Because it was more inline with what buyers have to mark up my products in order to make a profit. I found that many of my stores were using a 2.2 markup, and some were going as high as 2.5. (I still have some stores at double, which is why I tried to split the difference.)
When first getting into wholesale, it’s easy to feel like stores take 50% of your profits and make out like bandits. But retail stores have a lot of overhead. Rent, staffing, insurance, display, marketing, and of course, the shipping costs to get all those lovely items into the store.
All those expenses quickly eat into a store’s (to be honest, pretty slim) profit margin.
And if shipping costs are high, stores will need to mark up 2.2 or higher just to offset those costs.
So by all means, continue to charge your stores for shipping. It’s the norm. But keep in mind that it’s just one more costs stores need to factor in when setting a final retail price.
Setting your MSRP (that’s manufacturers suggested retail price) at least 2.2 times above wholesale cost will make life easier for your stores, help keep pricing more consistent, and give you a bigger margin when you do sell at retail. That’s a win-win for everyone.
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Have more wholesale questions? Check out my best selling class on Creative Live, Sell Your Products to Retailers.