Wholesale pricing: how to set a wholesale price, with a calculator

A wholesale price is the price a business pays you for goods it will resell or use in its own work. Set it from your landed cost and the margin you need: wholesale price = landed cost ÷ (1 − margin). A bearing that lands at $11.60 with a 30% margin target has a wholesale price of $16.57. Then check it against what your customer can sell it for.

Most guides on wholesale pricing are written for small brands selling to shops. A distributor has a harder version of the problem: thousands of items, several types of customer, and a supplier price that is only part of the cost.

The wholesale price formula

The margin method gives you the margin you asked for. If you think in markup instead, the cost-plus formula multiplies the cost by one plus the markup. Both work; mixing them up is the problem. A 30% markup gives a 23% margin, not 30%. The margin vs markup guide has a conversion table.

Use landed cost, not the supplier price. The supplier invoice leaves out freight, duty and handling, which on imported goods can add 20% or more. See landed cost for a worked example.

Check it from the other end

Your price is also your customer's cost. A reseller needs room to add their own margin and still meet the retail price their customers expect. So work the number backwards from the retail price too.

A bearing kit has a suggested retail price of $29.95, and the stores that carry it work on a 40% margin. The highest wholesale price they can accept is $29.95 × 0.60 = $17.97.

Your floor is $16.57, their ceiling is $17.97. Anything between the two works for both sides, and the $1.40 gap is your room for a volume discount or a better price for a key account. If the floor is above the ceiling, the product does not work at that retail price, and no amount of discounting will fix it.

Discounts off list: how distributors express wholesale

In industrial and trade distribution the wholesale price is often written as a discount off a list price, or as a multiplier. "List less 40%" and "multiplier 0.60" mean the same price. Chained discounts are common too: "40/10" means 40% off, then 10% off what is left.

A chained 40/10 is 46% off, not 50%. Buyers who work with chained discounts know this. New reps often do not. Before agreeing a new multiplier, turn it into a price and check it against landed cost. A 50/10/5 discount on the bearing's $18.56 list price is $7.93, well below its $11.60 landed cost.

Keystone and other quick rules

Keystone pricing is the retail habit of doubling the wholesale price to get the shelf price, which gives the retailer a 50% margin. It is a useful check from the other end: if your wholesale price is more than half of the usual retail price, your reseller customers will struggle to carry the item.

Distributors have their own shortcuts, and each one has a blind spot:

• "Cost times 1.4" is a 28.6% margin, fine for fast movers and too thin for slow ones that tie up stock for months.
• "Match the manufacturer's suggested trade price" ignores your freight and duty, which the manufacturer does not pay.
• "Same discount for every contractor" works until one contractor buys ten times more than the rest.

Use the rules to get close, then check each price against landed cost and margin, as in the calculator below.

Different wholesale prices for different buyers

Few distributors have one wholesale price. Contractors, OEMs, resellers and other distributors all buy differently, so each gets a price level, and large orders get a quantity break on top. The cost-plus guide shows a bearing priced at four levels, from $18.56 list to $13.69 for other distributors.

Keep the levels few and the rules written down. Every level is a list that has to be maintained when costs change, and every exception a rep invents becomes a price someone will ask for again.

Common wholesale pricing mistakes

• Pricing from the supplier invoice, so freight and duty come out of your margin.
• Free freight on small orders. $22 of freight on a $180 order takes 12% of the revenue.
• Discounts nobody converts into a price, so a chained discount lands below cost on a low-margin item.
• A list set once a year while landed cost moves with every shipment.

Raising wholesale prices without losing customers

Costs go up every year, so wholesale prices have to follow. The distributors who raise prices with the least friction do three things. They give notice, usually 30 days, in writing. They explain the cause in one sentence a buyer can repeat to their own boss: a supplier increase, a freight change, a currency move. And they raise prices more often by smaller amounts, instead of once every few years by a figure that sends the customer shopping.

Raise by item or category, not across the board. A 4% increase on items whose landed cost went up 6% is easy to defend. The same 4% on items whose cost did not move is the one a customer will challenge, and they will be right.

Where a fixed wholesale price stops working

A wholesale price list works when costs are stable and customers are alike. In most distribution businesses neither is true. Landed cost moves with every shipment and exchange rate, and two contractors at the same price level can be worth very different prices: one orders full pallets on 30 day terms, the other orders single units and pays in 90.

Price management software keeps the list, the price levels and the quantity breaks in one place, recalculates them when landed cost changes, and holds a margin floor so no discount or multiplier can push a line below it.