Determining the right pricing strategy is key to the success of a wholesale business. The challenge lies in finding the right balance between maintaining high sales volume and ensuring healthy profit margins. If prices are set too low, the product’s perceived value may decline and margins can be eroded. On the other hand, prices that are too high can make the business less competitive and increase the risk of losing customers.
In this article, you will learn how to calculate wholesale prices and discover practical steps to develop a more effective pricing strategy. Let’s dive in and read until the end!
Definition of Wholesale Price
Quoting Shopify, a wholesale price is a special price offered to retailers, distributors, or B2B buyers because they purchase products in large quantities.
In the supply chain, the prices offered are generally lower than retail prices because the wholesale business model relies on economies of scale—advantages gained when high-volume sales enable production costs to be covered more efficiently.
In other words, wholesalers operate on large scale rather than large margins. In contrast, retailers enjoy higher margins but require more effort and higher costs to sell products individually.
Nevertheless, MYOB emphasizes that wholesale prices must still be able to cover all costs required to produce the product—ranging from production costs and overhead expenses to the profit margin targeted by the wholesaler.
How to Determine Wholesale Prices
Setting wholesale prices is not just about offering discounts. You need to ensure that the prices remain competitive while still covering costs and generating healthy profit margins. Below are the key steps to determine the right wholesale price.
1. Start by Calculating All Cost Components
The foundation of a healthy price is a thorough understanding of all costs involved in producing the product. Calculate every cost component, including raw materials, labor, production processes, packaging, logistics, and daily operational expenses such as electricity, rent, and staff salaries. When you have a clear grasp of the total cost per unit, you can avoid the risk of setting prices below your break-even point.
2. Set Clear Profit Margins and Targets
Once you’ve understood all the cost components, you can set a reasonable profit margin. Also, define your target profit per unit or monthly profit goal. From this, you can determine the minimum price—the lowest price that remains safe without causing losses. This step ensures you don’t fall into the trap of selling too cheaply just to chase volume.
3. Conduct Market Analysis and Competitive Mapping
Wholesale prices need to be competitive, but that doesn’t mean they have to be the lowest. Study the standard wholesale prices in your niche, analyze competitors’ strategies, and understand the preferences of B2B buyers. By understanding the market landscape, you can position your prices appropriately—competitive yet profitable and aligned with the quality of your products.
4. Consider Product Value and Business Strategy
Factors such as product quality, differentiation, brand positioning, after-sales service, and minimum order quantity (MOQ) greatly influence wholesale pricing. Products with added value typically allow for higher margins. Therefore, make sure your wholesale price reflects the value you offer, rather than simply following market prices.
5. Adjust Prices According to Volume and Purchasing Patterns
In principle, the larger the volume purchased by a wholesale buyer, the more cost-efficient it becomes. This allows you to offer tiered pricing or volume discounts without compromising profitability. Besides being attractive to wholesale buyers, this strategy also encourages repeat orders and fosters long-term business relationships.
Methods for Determining Wholesale Prices
There are various strategies for setting wholesale prices, and below are some of the most commonly used techniques by businesses to strengthen their pricing strategy.
1. Keystone Pricing Method
The keystone method is a very straightforward technique based on a single principle: the retail price is twice the wholesale price. In other words, retailers apply a 100% markup on the wholesale price you set.
Formula:
Wholesale Price = Retail Price ÷ 2
Example:
If a product is sold at a retail price of Rp200,000, then the wholesale price would be:
Rp200.000 ÷ 2 = Rp100.000
Advantages:
- It’s easy to apply and doesn’t require complex calculations.
- It is suitable for products with a stable cost structure.
Disadvantages:
- It does not take into account competition, demand, or product value.
- You need to gather retail price data that buyers will use.
2. Absorption Pricing Method
The absorption method calculates the wholesale price based on all costs “absorbed” by the product—from production costs to overhead—then adds the desired profit margin.
Formula:
Wholesale Price = Total Cost per Unit + Profit Margin
Example:
For example, if the production cost per unit is Rp50,000 and the overhead cost per unit is Rp10,000, and you want a profit margin of Rp20,000, the wholesale price would be:
(50.000 + 10.000) + 20.000 = Rp80.000
Advantages:
- Ensures that all costs are covered, making profit almost certain.
- Does not require complex market data.
Disadvantages:
- Does not take into account competitor prices or perceived value.
- There is a risk of setting prices too high, causing buyers to turn to other wholesalers.
3. Markup Pricing Method
The markup method is a classic approach that sets wholesale prices based on a percentage markup of the total production cost. Unlike the keystone method (which applies a fixed 100% markup) or the absorption method (which adds a fixed nominal margin), this method calculates prices by adding a specific markup percentage according to profit targets and market conditions.
Formula:
Wholesale Price = Cost per Unit × (1 + Markup Percentage)
Example:
If the production cost of a product is Rp40,000 and you apply a 40% markup, the wholesale price would be:
Rp40.000 × (1 + 0,4) = Rp56.000
Advantages:
- It is flexible because the markup percentage can be adjusted according to the product category.
- It is more realistic for wholesale businesses that want to balance competitiveness and profit margins.
- Easy to apply and doesn’t require retail price data, making it more flexible than the keystone method.
Disadvantages:
- It still does not directly take market conditions into account.
- There is a risk of setting the markup too low or too high without conducting competitive research.
4. Differentiated Pricing Method
This method sets prices based on demand conditions and buyer behavior. Different buyers may receive different prices for the same product, depending on market conditions, season, location, or level of competition.
How It Works:
- When demand is high, prices can be increased.
- When demand decreases, prices are lowered to maintain stock movement.
- In locations with low competition, prices can be set higher.
Example:
For example, wholesale swimsuits can be sold at higher prices at the beginning of summer and lowered as the season ends. Another example is packaged drinks at airports, which are usually priced higher because buyers are generally willing to accept the cost.
Advantages:
- Maximizes ROI by leveraging real-time market conditions.
- Helps in understanding wholesale buyer behavior.
Disadvantages:
- There is a risk of being perceived as excessively raising prices (price gouging), which can harm the brand’s reputation.
- Requires consistent market monitoring.
5. Tiered Pricing Method
This method offers different prices based on purchase volume. The larger the order, the lower the price per unit. This strategy is effective for encouraging bulk orders and increasing B2B buyer loyalty.
Example of Tiered Pricing Structure:
- Purchase of 100–499 units: Rp20,000 per unit
- Purchase of 500–999 units: Rp18,000 per unit
- Purchase of over 1,000 units: Rp15,000 per unit
Advantages:
- Helps significantly increase sales volume.
- Provides flexibility for buyers with different needs.
Disadvantages:
- Requires careful margin calculations to ensure volume discounts do not erode profits.
Setting wholesale prices is not just about assigning numbers; it’s also a part of your business strategy to remain competitive. Once your pricing structure is optimized, the next step is to ensure your products are easy to find and convenient for both wholesale and retail customers to purchase.
This is where digital platforms become essential. If you want to expand your market reach while managing sales more efficiently, you can leverage Labamu E-Commerce, which allows you to build a ready-to-use website in just minutes—no coding skills required. Download the app now via Google Play or the App Store!
