How to Determine Wholesale and Retail Prices in a Business

By | January 5, 2022
How to Determine Wholesale and Retail Prices in a Business

Determining the selling price of a product is one of the keys to the success and profit of a business. Entrepreneurs certainly want to get the maximum profit, but if you set a selling price that is too expensive, it will make customers turn away and look for cheaper ones.

Currently, not a few people like to shop with the wholesale system. In addition to being more efficient, the amount that can be obtained will be comparable.

Previously, this system was only used by people who had businesses such as stalls or cafes. However, with the current pandemic and increasing demand, the wholesale system has become more profitable.

However, there are still people who tend to shop individually. Apart from not having to worry about getting stale or taking up space, buying in units doesn’t cost a lot of money at one time. So, which one is more dependent on the needs and products purchased.

How to Calculate Wholesale & Retail Prices

In order not to plan wrongly and lose, then make sure to know how to determine the wholesale and retail prices of each product correctly.

If you decide to sell products with a wholesale system, then make sure the minimum amount that people have to buy. On the other hand, for those who want to sell in retail, make sure that the selling price is not detrimental.

To avoid mistakes in determining wholesale and retail selling prices, do the calculations using the following steps:

1. Calculating Production Costs

Before determining the desired margin and selling price, first calculate the costs required to get the product. Enter all the components of the costs that have been incurred starting from transportation costs, employees to other operations. Make sure all costs have been entered so as not to lose in the future.

The same concept applies to self-produced products. Enter the cost of raw materials, employees to operations to produce these products. Then determine the price or cost of production for a certain amount.

To be able to get the lowest production cost price, make sure to choose the cheapest supplier to distributor. Especially for those who want to run a wholesale business, then make sure to buy their products with the same system as well. That way, both the seller and the buyer can get the same cheap price.

Please note that the initial purchase price and transportation costs will determine the profit and selling value later. So, try to find the best supplier both in terms of quality and price.

2. Determine the Margin

If you can get the cost of production, then it’s time to determine the desired margin for each product.

In general, the margin set for retail products will be greater than for wholesale goods. For example, for retail products, the set margin can reach 40 while for wholesale systems it is only 30%.

If you look at the numbers alone, selling with a retail system is indeed more profitable. However, the time to get it is certainly longer because the goods are sold individually.

As for the wholesale system, although the margin obtained is less, the sales are faster so that the turnover of goods will follow suit.

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3. Calculating Break Even Point (BEP)

By calculating the cost of production and the desired margin, entrepreneurs can actually get the selling price for each system. However, to be even more precise, don’t forget to calculate the BEP as well.

BEP itself is the break-even point, where the income of a business is equal to its expenses. So, the business neither loses nor gains.

BEP calculation is important because it will determine when a business can get maximum profit. One of the important components that determine the BEP of a business is the selling price up to the sales target.

Next, try to calculate the BEP per unit after knowing all the business fixed costs, variables, to the selling price (which includes margin). The formula for calculating BEP per unit is to divide the fixed costs by the price per unit minus the variable ones.

4. Make a comparison with the market price

After knowing how to determine wholesale and retail prices, as well as calculating BEP, it’s time to conduct a market survey.

Make sure the selling price that has been set is not too expensive when compared to other businesses. If the selling price is more expensive, then make sure the excess. Do not let the selling price be more expensive but there is no advantage because this will only turn customers away.

So, before setting the selling price of the product, be sure to compare it with some other competitors. Don’t just go to one competitor, but to several businesses at once in order to get a comparison. Also, compare the retail and wholesale prices that have been set.

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Which Is More Profitable?

By knowing how to determine wholesale and retail prices, entrepreneurs can start selling their products to the market. However, one of the questions that is often asked is which type of business is more profitable?

Actually, wholesale and retail businesses are equally profitable if run properly.

If only seen from the profit margin per one sale, the retail system is indeed more profitable. However, keep in mind that in order to get maximum profit, business owners must be able to sell all of their products at retail.

On the other hand, if you use a wholesale system, the profits you get are not as big as retail. However, the turnover of goods and money is also faster because the amount sold is greater at one time. So, it can be more profitable than the retail system.

For capital, retail businesses do not require large capital because the number of products is not as much as wholesale businesses. So that the place needed to run the business does not need to be large. On the other hand, for wholesale businesses, the modes and places needed are certainly greater.

So, for the question above, both types of business are equally profitable. However, for those who have large capital and want a faster return on investment, the wholesale system is indeed promising.

Meanwhile, for those who have little capital but have the potential to get more profits, try the retail system.

However, there is nothing wrong with implementing a retail and wholesale system in one place.

To be able to get the maximum profit, make sure to set the right and profitable selling price. That way, the seller can get the maximum profit. If you really want to install more expensive, then make sure there are advantages compared to other places.

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There are many costs that determine retail and wholesale selling prices. Before calculating the selling price, make sure to calculate the cost of production correctly. Additionally, specify the desired margin value.

In order not to make a mistake and lose money in the future, know in advance how to determine the correct wholesale and retail prices. Don’t forget to also do a price survey with those on the market. That way, business owners can find out whether the selling price is too expensive or not.

Hopefully the above information can be useful for all of you.