Pricing / commissions / profit - Your thoughts.

[adrianh]

I am trying to find a rule of thumb for pricing products for wholesale and retail.

Let's say cost of sales is R50.

Would it be sensible to sell wholesale at R 150 and retail at R300 given the following:

Basic selling price = Cost of sales x 3
Cost of sales = 33%
We also need to pay a rep 10% which puts us up 43% before profit.
We then also want to incentivise the staff by giving them 10% to split amongst them.
We are now at 53% of wholesale price going to our bottom line cost of sales leaving us with 47% profit.

Ok, so this is all just a theory and it may not be viable. I need your input into what you think the percentages should be. We are now in the process of creating product ranges that will be sold to shops and we will stay out of that retail space. I am able to calculate my cost of sales in terms of manufacture extremely accurately. But I now have to be sure that my other numbers make sense.

We have an entire retail range of products that are not in the wholesale market so we have a range that is very profitable already. We simply have lots of spare capacity which includes machines, skilled technical and artistic staff and we see many opportunities that can be realized very easily with a couple of reps walking the beat..

[IanF]

Adrian
Don't forget your cost of labour and overheads, I know you will be doing this with your spare capacity but you need to cover those costs as well. Marginal costing has killed many businesses.
As to the formula yours looks viable I would just base the commissions on cash flow or have some claw back for bad debts and returns.
Then be prepared for exact delivery times and co-operative advertising.

[HR Solutions]

Don't forget to deduct your own salary before you get to your net profit ...

[ians]

This is an interesting topic. I am in the same place with my hobbies.

I have people who want to sell my product, display in shops etc. So now i need to back off and stop selling directly to the public. I need to work out how much i must charge for the item if purchased in bulk ie min. 5 products.

At the moment i made x amount of units from one sheet, i sell one unit for the price of the sheet, then the other 4 as seen as profit, well thats how it has been up until now. Because like adrian my workshop is at home and i run another business from my workshop it get complicated, working out actual cost per product, electricity rent etc etc. So now because i want to move up one step...now overheads, profits etc start become real headaches will have to start doing the math.

[wynn]

Retail price depends on 'What the Traffic can Bear' just marking it up by percentage may leave a lot of profit on the table?

Then rather discount from the retail price with incentives for bulk purchasing (20% per ea, 25% per 10, 30% per 50 etc.) that leaves a reasonable profit for the retailers and you can still sell to the public at retail earning yourself a good margin per item.

Commission and bonuses would be a % of wholesale depending on purchase size.

Just make sure that you calculate a reasonable markup for yourself by adjusting the discounts if you have to depending on what becomes the reasonable retail price. (maybe 10, 15, 20%)

[adrianh]

Discounting from retail is problematic because retail prices vary depending on location. I buy from a particular company at wholesale prices. The general mark-up is 100% but the same product is marked up by 200% when sold at the Waterfront. I've been bitten by discounting on retail prices many times. I think that one should sell a product line retail or wholesale but never both. Being in competition with your customers create lots of problems. I have also been told that when you sell wholesale that you should stay out of retail pricing. The reason for doing so is that you have no idea of the overheads of that retailer.

[Newretailer]

I have a couple of rambling thoughts.

I have sold my products both wholesale and retail for years. On my wholesale price list I have a SRSP and I make sure I do not undercut that price, both on my website and my shop. It has worked out well for me. Strangely, the shops who sell it for more than I suggest, tend to sell far more than the ones selling it cheaper.

I recently did an excellent on-line course on value pricing. All along I have been pricing my products based on the formula: my cost * x for wholesale and double that for retail. Apparently this is not the right way to do it. You need to work out what the value of your product is to your customer and that must be your selling price, provided it is more than the formula above. I am also learning how a story around your products can make it more valuable to the customer and you can charge more.

To give a ridiculous but true example, a customer asked me to refill a container for a liquid soap she bought in the UK. She told me how precious the contents were and asked me not to wash the bottle first. I went onto the website and saw that she paid R1100 for a liter of soap. Why was she prepared to pay so much? Because they said it would "clear the aura" of any one going through chemotherapy. I know it is nonsense as the ingredients are inferior to mine and at the end of the day they have an employee manufacturing it and there is nothing special about it. The story around the product made it far more valuable to the customer. Some companies do this with a "special" ingredient etc. That's why Woolworths tell you these stories about their amazing farms so you would be prepared to pay more. Anyway, the value pricing course has opened my eyes.

As far as the agents go, be prepared that agents in South Africa want 30%, at least in my product line. I know agents in the USA work for 10 to 15%, but maybe that is because orders in the USA tend to be bigger? If I ever appoint agents, I will work on a sliding scale. If you bring in x amount, you get 15%, 3x you get 20%, etc.

[adrianh]

Why was she prepared to pay so much? Because they said it would "clear the aura" of any one going through chemotherapy.

This is exactly why I shouldn't go near retail - I simply do not have the audacity to write such things. (Yes I know that bull$h1t baffles brains but I simply can't) That's what marketeers are for :-)

[wynn]

Two bins of exactly the same panties at the top and bottom an the escalator marked at different prices.
The more expensive ones sold out first because the customers believed the extra price meant better quality?

Try packaging your product in a fancier wrapping and see if it sells for more? Bet some do! People are strange.

[adrianh]

Aye well, that is exactly why people buy name brands.

[Justloadit]

We tend to forget something here. Lets be honest, most people can not evaluate the quality of a product, whether is is performance related or features or whatever, so the way that a customer can be sure about it is 2 things, whether it is right or wrong is irrelevant, Price and Brand. If you want to buy a car, reading through the specs is another language to most people, however if you say BMW or Mercedes, then people immediately think quality, the fact that there are other brands with similar specs is totally irrelevant, the customer knows, that if I have a problem, I can go back to the orginal brand company, and they will sort my problem out. For this benefit, they are prepared to pay a lot more.

[mosby71]

I agree with everyone.

My believe is in simplicity...

P = S - C
S = P + C
S = sale/price
First cover all your costs and then check market price, what's left will be profit

Market price - C = P

Then you have your price.

If you tapping into new untapped markets, then use your desired "P".

[HR Solutions]

C = P ????? Please explain .....

[mosby71]

C = Cost, P = Profit

Market price/sale - C = P

[HR Solutions]

Mmmm I know what C & P is ........... I just don't get how your COST = to your Profit ......ie the same !

But anyway ......