Having the right wholesale price can mean the difference between success and failure for any business. By calculating your wholesale price and comparing it to industry standards and competitors prices you can get an idea of where your business stands in the market place. It’s not a difficult calculation and it will enable you to maximise profits.
- Skill level:
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Things you need
- Set of accounts
Calculate your direct cost per unit; take the direct materials cost plus the direct labour cost to manufacture the product then add any overhead costs that are required to complete the manufacture of your product. Direct costs as the name infers are costs that are directly related to manufacturing your product. Labour can sometimes be classed as an indirect cost, the decision on whether to include labour as a direct cost is up to the individual business.
Calculate the operating costs; operating costs are the costs involved in running the business, all administration, marketing and office expenses, plus all rents and utilities. Unlike direct costs that vary with the level of production these are fixed, in order to use this figure you will need to know your total number of products you intend to manufacture in order to allocate a percentage of the operating costs to each product produced.
Calculate your break-even per unit cost by adding the direct cost per unit to the allocated operating costs. This will give you a figure that will allow the business to run without making any profit and is used to calculate your wholesale price.
Calculate your wholesale price; in order to calculate your wholesale price you need to first decide what profit margin you would like per unit, if you are unsure of your desired profit margin you can double your cost per unit to give you a starting point. The formula for calculating wholesale price per unit is: Break-even per unit cost x desired profit margin = wholesale price.
Research your competitors prices and industry standard pricing for your product. This will have an effect on your wholesale prices, if you calculate your wholesale price to be significantly higher than your competition you will need to either re-examine your desired profit margin or manufacturing and operating costs.
Tips and warnings
- Decide whether you are going to have labour costs for manufacturing your product as an indirect or direct cost as this will affect your wholesale price. Does your labour fluctuate with the quantity of products produced? If so, this would be a direct cost if it is fixed every month then it would be indirect.
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