Romy Taormina

Psi Bands - Nausea Relief Chief/Co-Founder
Pacific Grove, CA
http://www.psibands.com

    Calculating Your Margins

    July 28, 2009

    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!

    Read Romy's other blog entries >

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