Wholesale Education Logo
Costing & Pricing Icon

Introduction to Wholesale Costing & Pricing Strategies

A foundational guide to effectively calculating your costs and setting profitable, competitive prices for your wholesale business.

Understand Your Costs

What is Wholesale Cost? The Bedrock of Pricing

Often called Cost of Goods Sold (COGS), this is the total direct expense your business incurs to produce or acquire the products you sell.

Key Components of Your Wholesale Cost (COGS):

  • Manufacturing/Purchase Cost:

    The direct expense of producing items (if you manufacture) or the price paid to acquire them from your supplier.

  • Inbound Shipping & Freight:

    Costs to transport raw materials to your facility or finished goods from your supplier to your warehouse.

  • Import Duties & Taxes:

    Tariffs and taxes levied by customs if you source products internationally.

  • Direct Labor (for Manufacturers):

    Wages of employees directly involved in producing the goods.

  • Product Packaging:

    Cost of materials used for individual product packaging (boxes, labels, inserts, etc.).

Note: COGS typically excludes indirect operational overhead like rent, general utilities, or marketing salaries. These are covered by your profit margin.

The Numbers Game: Calculating Your COGS

Accurate COGS calculation is vital. The method varies slightly by business model.

For Resellers/Distributors:

A common formula is:

Beginning Inventory + Purchases – Ending Inventory = COGS

For Manufacturers:

Typically calculated as:

Direct Materials + Direct Labor + Manufacturing Overhead = COGS

Meticulous record-keeping is essential for precise COGS calculation.

Setting the Price: Common Wholesale Strategies

Once you know your COGS, you can determine your wholesale price, aiming to cover costs, overhead, and achieve profit.

Cost-Plus Pricing (Markup)

The simplest method: add a predetermined profit margin (percentage or fixed amount) to your COGS per unit.

Concept: COGS per unit + Desired Profit Margin = Wholesale Price

Example: COGS $10, 50% markup on cost -> Profit $5, Wholesale Price $15.

Value-Based Pricing

Set prices based on the perceived value your product offers to the retailer and their end customers, rather than solely on your costs.

Concept: Focuses on buyer's perceived value.

Requires strong market understanding and brand positioning.

Keystone Pricing

A common rule of thumb where the wholesale price is double the COGS. Retailers often then 'keystone' again for their retail price.

Concept: COGS per unit x 2 = Wholesale Price

Simple, but may not suit all products or cover all desired margins adequately.

Tiered Pricing / Volume Discounts

Offering lower per-unit prices for larger order quantities to incentivize bigger purchases from B2B buyers.

Concept: Price per unit decreases at set quantity thresholds.

Encourages larger orders and can improve cash flow if structured well.

For a deeper dive, see our Advanced Pricing Strategies Guide.

Options for wholesale pricing strategies

Understanding Profit Margins

Gross Profit Margin

Shows profit before operating expenses: ((Revenue - COGS) / Revenue) x 100%

Net Profit Margin

Profit after all expenses: (Net Income / Revenue) x 100%

Healthy margins are vital for reinvestment, covering costs, and long-term business viability.

Setting the Suggested Retail Price (SRP)

While you sell at wholesale, providing an SRP (or MSRP) guides your retail partners and helps maintain brand consistency in the market.

Retailers typically mark up wholesale prices significantly (e.g., 2x to 2.5x, or a 50-60% retail margin) to cover their own overhead and profit. If your wholesale price is $15, a common SRP might be $30-$37.50.

Factors influencing SRP:

  • Your brand's positioning (premium vs. budget).
  • Competitor retail pricing for similar products.
  • Market demand and perceived value by the end consumer.

Beyond Formulas: Key Pricing Considerations

Several strategic factors influence your final pricing decisions.

Market Research & Competitor Analysis

Brand Positioning & Perceived Value

Target Audience (Retailer & End Consumer)

Minimum Order Quantities (MOQs)

Shipping Costs (Outbound to Retailer)

Payment Terms Offered to Buyers

Need for Regular Price Reviews & Adjustments

Price Strategically for Wholesale Success

Effective wholesale costing and pricing is a dynamic process. By understanding your costs, choosing appropriate strategies, and regularly evaluating your approach, you can build a strong foundation for a profitable and sustainable wholesale business.

Dive Deeper into Pricing Strategies
Redesigned Footer Example