How to Calculate the Wholesale and Retail Price for Clothing?
Nowadays, for people who have started a wholesale or retail clothing business, the question like “how to calculate the wholesale and retail price for clothing” has become a popular question for wholesale or retail business entrepreneurs. How to determine the wholesale price and retail price has never been easy, as there are many things to be concerned about behind the the single price. To earn money and to maximize the profit margin is the primary goal for wholesalers and retailers to achieve.
However, due to various factors, pricing can be a real challenge for wholesale business owners. For example, setting the price too high may not attract your customers, while if you set the price too low, it may not only reduce the value of the clothes you are selling but also damage the chances to obtain more profits. Therefore, finding the right pricing strategy is critical to business success.
So if you have just started a wholesale business and are not sure that the pricing is that much suitable. We will explain everything you need to know about wholesale pricing, as well as formulas and strategies you can use to find the right price.
You will find out that successful sellers spend time and energy to determine the price of wholesale clothing. Thus, you are at the stage where you need to price your wholesale or retail clothes correctly, but how is this done? Pricing is one of the most difficult things business owners face. We will share with you some common pricing strategies and some misunderstandings about pricing that you can avoid. Don’t worry, we will make it clear by reading the following contents.
Before we start to answer the question like how to calculate the wholesale price for clothing, let’s have a look at the meaning of “wholesale price”, which may help you understand the importance to set a suitable wholesale price.
Wholesalers provide buyers or retailers with clothes that they may not be able to obtain directly because they cannot purchase the clothes and they cannot order the minimum quantity required. By the way, this has been changed. FondMart can provide wholesalers without MOQ, so why not take a look at our women’s clothing wholesale and droshipping!
Wholesale is a distribution mechanism that provides suppliers with opportunities to sell their clothes to more retailers. Selling a product to a wholesaler may result in resale to hundreds of smaller retail stores, while the supplier may not have the resources to achieve this goal. In this way, the clothes can be sent to more people.
Wholesale pricing involves setting prices for clothes at the wholesale stage of sales. The wholesale price is usually charged by the manufacturing company when it wants to sell to bulk distributors or retailers. The price may also be set by the bulk distributor when completing the sale to the small retailer.
In the wholesale business, clothes are usually sold in large quantities, so the wholesale price is set at the price as low as possible so that other small wholesalers and retailers in the supply chain can enjoy profit margins. When it comes to wholesale and retail, the thing to remember is that wholesale buying companies must pay low enough prices for clothes or materials so that they can still make a profit while selling in stores or commercial channels.
There are many considerations you should keep in mind when setting wholesale prices, such as the average market price of the product, the nature of the demand, also what your competitors are doing, and many other factors. All of this makes the process of setting wholesale prices a tough task.
The wholesale price will affect the retail price. The ultimate goal of wholesale pricing is to ensure a good balance between creating a healthy business and enjoying substantial profits.
If the wholesale price is too high, the retailer will either increase the price increase to make a profit or reduce the profit margin. Therefore, to find the right wholesale price is to find an optimal point where you can buy clothes at a price that allows you to still make a profit in the future. Please keep this in mind as we move forward.
On the other hand, we have retail prices. This is the price the consumer pays from the retailer. This price is usually increased from the manufacturer to the retailer. In addition, you also need to add state taxes, federal taxes, and value-added tax to your clothes!
Just as the wholesale price is set by a wholesaler, the retail price is set by a retailer who owns a physical store or an online storefront. Compared with the wholesale price, the retail price is essentially the final price of the product. You can say that this is the final price of the product after it passes through the supply chain. It is the price that the final consumer pays for the product, usually when they buy it in a physical store or online.
There are two typical prices RRP and MSRP. Recommended retail price (RRP) or manufacturer suggested retail price (MSRP) is designed so that the prices don’t dramatically vary in different stores. The wholesalers sell their inventory to the retail store for around 50% of the RRP. But the retailer has ultimate control over the final price.
You are at the stage where you need to price your product, but how to calculate the wholesale and retail price? Pricing is one of the most difficult things business owners face. Now, we will share with you some common pricing strategies and some misunderstandings about pricing that you should avoid following.
1. Cost-based Pricing
This is a cost-based pricing strategy. Here, your goal is to absorb all the costs of manufacturing or purchasing clothes into the price. This is why it is also called cost-based or cost-plus pricing.
One of the advantages of this strategy is its simplicity. In addition, as long as the cost remains the same, it can also ensure that you get a consistent return. However, if the cost changes, you may need to adjust the wholesale price. Another disadvantage is that this strategy does not consider market conditions, such as competitors' strategies or demand patterns.
2. Keystone Pricing
Generally, Keystone pricing is the rule for retail and often the goal. It’s achieved by taking the wholesale cost per unit from your distributors and doubling it to reach the retail price. So if a dress costs $5 to buy from the manufacturer, you would then use a 100% markup percentage and sell it for $10 in your store.
Keystone pricing is an example of a cost-based pricing method. It selects a price that can generate a high enough profit margin to cover your fixed and variable business costs: your rent, electricity bills, hourly rates you pay to employees, etc. . This method is mainly based on your business costs and less on the fees charged by your retail competitors.
The benefit of the keystone pricing method is that the suggested retail price provides a nice number around which to calculate your profit margin. But this price isn’t always feasible, because it doesn’t take many factors into consideration like the cost of running retail stores in different regions.
3. Differentiated Pricing
In this method, the price is determined by the law of demand-which means that customers pay different prices depending on their situation.
For example, in highly competitive areas, prices will be higher than average. In an environment without many people, your customers do not have many choices, so the price may be higher.
We can even go one step further and differentiate based on the quantity purchased. If we have customers buying in bulk, we may increase discounts or provide incentives for future purchases. If the customer only buys a small amount, we can adjust the pricing upwards to maintain profit margins.
4. Competitive/Market-based Pricing
As the name suggests, you can set the price to be similar to that of your competitors, or you can even price your clothes lower than their prices to attract more wholesale buyers.
If you can effectively manage costs while selling at a lower price, then you have the opportunity to obtain substantial sales and substantial profits. But for smaller wholesalers or those just starting out, this strategy may be difficult to implement and maintain. This is also good for you when you anser how to sell wholesale clothing.
Before stary to set the wholesale price, you should consider the following factors clearly:
1.The cost of materials required to manufacture the product.
2.The time you spend making the product, which you need for your labor.
3.The cost of administrative expenses for each product, such as electricity, sewing machine depreciation, website costs, rent and so on.
4.The profit margin you want.
Cost price = Production cost per unit + (Total overheads + admin expenses) / (Number of units produced)).
WHOLESALE PRICE = (Labor + Materials) x 2 to 2.5
But, if your clothes are in the luxury or upscale market, you can choose x 2.5.
If you plan on selling your clothes to other retail stores, you’ll also have to take that into account. Your retailers will usually mark up your wholesale price at least 2 times.
RETAIL PRICE (MSRP) = Wholesale Price x 2 to 2.5
You take the cost price, add your profit margin, and this makes your wholesale price. The wholesale price is then multiplied by 2 or 2.5 to get the Recommended Retail Price (RRP).
We hope you have understood the question of how to calculate the wholesale or retail price for clothing. After setting the price, you can read "How to Sell Wholesale Boutique Clothing Offline: 5 Tips from FondMart" to sell your clothes.
Obviously, there are many things to do to determine the wholesale price. However, wholesalers may face many other challenges when setting wholesale prices, which is very important for you to take into consideration.
Brand identity: Pricing is the key that will affect you customers’ attitudes toward your clothing. As we always consider high price clothes with good quality. Your price determines how customers perceive your business and product value. therefore, it is difficult to find the perfect balance between the price that reflects the value of the product and the price that customers are willing to pay.
Competition: In some areas, competition among wholesalers can be fierce. This means that you either price the product at the market price or below that price. You don’t have many choices to set the price as a low price will obtain attention in this condition.
Seasonality: Certain clothes are seasonal, which means they are in periods of high demand and periods of low demand. The same pricing strategies can be stressful, especially if other factors are also affecting.
As with many things in inventory management, wholesale pricing can be as simple or complex as you wish. In this blog, we have touched on how to determine wholesale and retail pricing. You can use the strategy offered in this blog to set prices and move on, confident that you know how to price effectively.
In summary, we must always consider two things-our costs and profit margins (including the practices of our competitors) and customer satisfaction. Wholesale pricing, like all pricing, is a balance between finding a price that makes your business profitable and providing your customers with a suitable price.
When you keep these goals in mind, it becomes much easier to use simple formulas to calculate wholesale pricing. Try it yourself and see how it works.No matter which way you go, the key gains are the same. Setting the correct wholesale price is critical to the success of your business. You can practice what you have learned at FondMart! If you are also concerened aboout "how to start a business with buying wholesale" and "how to become a wholesale clothing distributor", read it to get your best answer!
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