Product pricing & wholesale chain

How product pricing chains work

If you produce physical goods, you may sell through two channels: direct to consumers (online or at markets) and wholesale to retail stores or distributors. Retailers expect to buy products at a wholesale discount and resell them at the Manufacturer's Suggested Retail Price (MSRP).

• Cost of Goods Sold (COGS): What you spend to create one finished item ready to ship.
• Wholesale Price: What you charge stores. It must cover your cost plus your margin.
• Retail Price (MSRP): What the store charges consumers. In the sample below, a 50% retail margin doubles the wholesale price.
• Direct Sales: When you sell directly to consumers at MSRP, you capture both your margin and the retailer's margin.

A worked example

Suppose you make an artisan food item. Ingredients, pouch, label, and packaging cost $5.00 per unit.

• At a 40% wholesale margin, your wholesale price to stores is $8.33. You make $3.33 on every wholesale unit.
• The retailer applies a 50% margin (keystone markup) and prices it on the shelf at $16.67 (earning about $8.33 before rounding).
• If you sell that same unit directly to a customer on your website for $16.67, you keep $11.67 in gross profit (a 70% direct margin).

Common mistakes

A common mistake is pricing a product for direct sales first (e.g. charging $10 because $5 cost + $5 profit feels good). Later, when a retail boutique asks for a wholesale order, offering a 50% wholesale discount ($5) would leave you with $0 profit! Always price from the bottom of the chain up: Cost to Wholesale to Retail MSRP.