In case of Retail marketing profit margin should be kept low as people won't buy high priced product generally.instead they will go for 'value for money' products.so don't put a high profit margin in case of retail.
In case of wholesale you can go for a bit higher profit margin as peoples generally buy in bulk from wholesaler.so a bit higher profit margin won't affect the buyer to change his decision.
From India , Bangalore
I am not in agreement with you. In wholesale normally the materials move in bulk a minimal margin in profit will fetch large crowd and the sales volume will bring good earnings out of it. Normally the person trading only will approach the wholesaler. Hence higher end profit rate will obviously give second thinking in the minds of the retailer to approach the distributor of the state directly. So the ultimate loser will be the wholesaler due to higher profit margin.
But in retail, the volume is less, hence to generate more revenue the retailer has to fix the profit little bit higher side.
From India , Hyderabad
rajenpillayOver the last decade or so we have seen the disappearance of most wholesalers in our country, simply because people would rather visit a shopping mall and have the variety it offers than to visit a wholesaler that offers a limited range. The only thriving wholesaler has a very diverse range of product, advertisers nationally on every medium available and is very price driven but their strategy with suppliers is to move volume and extend their rebate structure when volume targets are met.
I hope this give you some insight,
Normally the wholesaler is the dealer or area/district/state/country distributor and others we may consider them as retailer. Nowadays no one is visiting for a single item to purchase in bulk to a specific shop. Almost all are visiting to some big departmental shop and further more they are purchasing the material over phone and the retailers are supplying the material to the residence of the customers.
From India , Hyderabad
It all depends on the type of product you are selling & the number of days of your cash generation cycle i.e. how many days does it take to convert you raw material / purchases again into cash i.e. sales. Like in case of manufacturing industry it starts from date of purchase of raw material and ends at receipt of money of invoiced amount. Another factor is capital employed. Based on these factors margins of items are fixed. There are standard norms of cash cycle for each industry.
From India, New Delhi
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From India, Gurgaon
smart_rajeevDev and Rajen are wrong. With regards to the margins, you need to look at the retailer and wholesaler from the manufacturer point of view.
If the retailer margin is less, he will never stock our product. A retailer margin can vary from a 4% for a high volume fmcg product to almost 25% to a pharma product.
The wholesale guy is basically responsible for spreading the product in the market. He works on volumes and hence is on much lower margins compared to a retailer. He works in margins ranging from 0.5% to 1% to 3% for super distributors responsible for rural markets
From India, Madras
debora-sumopayrollThere are a number of mathematical formulas used in determining a product’s price, margin, markup, markdown, profitability, and sales history. While there are dozens of formulas to comb through, there are only a few you need to know when pricing products for direct-to-consumer sales and wholesale.
Step 1: Research Your Market
Before you set a price for any retail product, determine which segment of the market you’re trying to capture and where you fit in. For example, are you a discount brand, a contemporary brand, or a designer brand?
If a lower price point is your competitive advantage, keep that in mind while doing your research. If your target customers are more budget-conscious or looking for a high-quality, high-end product, these are also factors to keep in mind when conducting market research.
Step 2: Calculate Your Cost of Goods Manufactured
Cost of goods manufactured (COGM) is the total cost of making or purchasing a product, including materials, labor, and any additional costs necessary to get the goods into inventory and ready to sell, such as shipping and handling.
A product’s COGM can be determined with the following calculation:
Total Material Cost + Total Labor Cost + Additional Costs and Overhead = Cost of Goods Manufactured
Step 3: Set Your Wholesale Price
A good place to start when setting your wholesale price is to multiply your cost of goods by two. This will ensure your wholesale profit margin is at least 50%.
Step 4: Set Your Suggested Retail Price (SRP)
A suggested retail price (SRP) is the price a brand or manufacturer recommends retailers set for their product. It's important to make sure retailers follow your SRP so they’re not undercutting you or your other retail partners.
Retail price is calculated with the following formula:
Wholesale Price / (1 - Markup Percentage) = Retail Price
Here’s an example based on a wholesale price of $30 and a 60% markup percentage:
1. Convert the markup percent into a decimal: 60% = .60
2. Subtract it from 1 (to get the inverse): 1 - .60 = .40
3. Divide the wholesale price by .40
4. The answer is your retail price
$30 (Wholesale Price) / (1 - .60) = $75 (Retail Price)
5. Set Two Price Points
As demonstrated, if you wholesale your products to retail partners and sell direct-to-consumer through your website or pop-up shop, it's smart to create a dual pricing strategy to ensure you’ll still profit, regardless of whether you’re selling your products at wholesale or retail.
That means you’d create an external retail price for your products listed on your website that your direct customers see and a separate wholesale price you share with wholesale or potential wholesale accounts in the form of a line sheet.
Wrapping Up Product Pricing For Wholesale and Retail
Now that you have a better understanding of the formulas used to calculate product pricing, it's time to get started. You can create a spreadsheet that lists your products by style number and name and includes columns for the cost of goods, wholesale price, wholesale margin, retail price, and retail margin.
Use these formulas above to create a costing chart that you can plug numbers into each time you need to define pricing for a new product.