Mention the words ‘wholesale price’ to the average man or woman on the street and they instantly imagine a figure substantially lower than whatever the product retails at.
‘The wholesale price for Viktor & Rolf Flowerbomb perfume? Oh yeah – that must be about $30.00 right? Seeing it sells in the stores for $105ish.’
If this sounds like a wild assumption to you, then you’d be right. However, an incredible number of people new to selling online make exactly these types of assumptions all the time. Based on what??
For starters, a quick browse around the internet reveals dozens of sites giving out somewhat slapdash information like ‘the wholesale price is half the retail price’.
Well, okay, but does the writer have any authority or experience to make a blanket statement like this? Often the answer is no. You have to ask yourself what their motivations might be for perpetuating this information.
Another factor in the myth-making is eBay. eBay is commonly looked upon as the standard for online retail prices. ‘The average selling price on eBay is the retail price for whatever I want to sell’ is what many people figure.
False! What you pay on eBay for most consumer products is usually a lot less than what you’ll pay in a store. This is because eBay is actually a wholesale marketplace: When you buy something on eBay you are generally paying something closer to (if not the same as, or even below!) the wholesale price. If you are comparing the wholesale price from a supplier with the selling price on eBay, then don’t be too surprised if there isn’t much difference between them.
So who or what determines the wholesale price anyway? Is it just a random figure made up by the wholesaler?
No. The wholesale price is based on commodity prices, labor costs and other manufacturing costs, plus any packaging. For some products, the manufacturing costs are going to be very high and for others they are quite low. Some products have expensive labor costs (after all, you can’t get just anyone to make a designer handbag – craft is involved), while others are very low.
But just because the manufacturing costs a certain amount doesn’t mean the retailer can whack on an amount they’d like to put in their back pocket and sell the item at that. Sometimes the market won’t tolerate a large mark-up, in which case the margins between the wholesale and the retail price are going to be small.
Naturally consumers want the cheapest price possible so competition plays a large role in determining the margin between the wholesale price and the retail price. There is constant pressure on retailers to reduce their mark-up in order to attract the most customers. Companies like Wal-Mart have played a massive part in reducing the margins between wholesale and retail price over the last 10 years. Their enormous buying power means they can negotiate the lowest wholesale prices, and the sheer volume of items they sell each day means they don't need much of a markup to profit.
When all these factors are combined, the reality these days is that the wholesale price on most products is typically 5% to 35% below the retail price – NOT 50% plus. That’s not to say it’s impossible to have a 75% markup – or even a 150% markup. In some niche markets this is possible, but it’s the exception, not the rule.
If you are clever, you’ll look at how you can increase your markup by adding value: You’ll sell in a few different marketplaces, increase desirability of your merchandise with a unique proposition and avoid selling ultra competitive items sold by dozens of other sellers (online and off) who have greater buying power.
Look forward to hearing your comments!