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If you sell wholesale, read on to understand the basic formulas to help you successfully negotiate.
Assuming your margin is a % of your retail sales price, let’s go through the basics:
R = Retail Price
S = Sell in Price/Wholesale
M = Margin
Calculating the Wholesale Price
Let’s say you want to make a 40% margin and your suggested retail price is $20.00.
S = R – ( R X M)
S = $20 – ($20 X .40)
S = $20 - $8
S = $14
Bottom line: you will wholesale your product for no less than $14.
If you need your wholesale price to be less than $14, then you need to take less of a margin or increase your retail price.
Calculating the Retail Price
Let’s say you want to sell in/wholesale at $10 and the vendor wants a 40% cut of the retail sales price. What does your retail sales price need to be?
R = S / (1-M)
R = $10 / (1- .40)
R = $10 / .6
R = $16.67
Bottom line: the retail price needs to be $16.67 in order to achieve the 40% margin.
If you need to lower the retail price, then you need to lower your wholesale cost.
Calculating the Margin
If you target your retail sales price at $20 and you need to have your sell in/wholesale price at $10, what is the maximum margin you can offer to a vendor?
M = (R-S)/R
Margin = ($20 – $10)/$20
Max Margin = 50%
Bottom line: if you need the margin to be larger, than you have to lower your wholesale price or increase the retail price.
Wishing you successful win/win negotiations!
P.S. One of Psi Bands’ goals is to land another large retail account (5000+ stores). We have an upcoming meeting with a large retailer. Please keep your fingers crossed for us!
