What is wholesale price?
Wholesale Price · Also called wholesale cost, list price, cost to retailer, case price, unit cost to retailer
Wholesale price is the price in a business-to-business sale. Say who sells to whom: your price to a distributor is usually lower than the distributor's price to the retailer.
What it is
Through a distributor there are two wholesale prices. You sell to the distributor at one price, and the distributor sells to the retailer at a higher one, keeping the difference as its margin. At a $6.00 SRP with a 40% retailer margin and a 25% distributor margin, the retailer's buying price is $3.60 and your invoice to the distributor is $2.70.
If you sell direct to the store, there is only one: you invoice the retailer's buying price yourself, and you take on the delivery and account service the distributor would have done.
Use labels such as "brand invoice to distributor" and "retailer buying price" on every price list. A list price can also differ from the invoice price, and the revenue you keep can be lower again after discounts, returns and allowances.
Why it matters
Your price to the trade is the anchor for every retail conversation. Too high, and the shelf price is out of line with the category. Too low, and there is not enough left to cover your costs and trade spend.
Wholesale prices are hard to raise after launch, because retailers have to approve cost increases and reset their shelf prices. It pays to get the number right before your first order.
Formula
Retailer buying price = SRP × (1 − retailer margin)
Through a distributor: Brand invoice to distributor = Retailer buying price × (1 − distributor margin). Both margins are percentages of each seller's own selling price; the actual prices are whatever the agreements say.
Worked example
Both wholesale prices, per unit and per case
- Assume a $6.00 SRP, a 40% retailer margin and a case of 12 units.
- Retailer buying price = $6.00 × 0.60 = $3.60 per unit, or $3.60 × 12 = $43.20 per case.
- A distributor selling that case to the retailer at a 25% margin pays you $43.20 × 0.75 = $32.40 per case, which is $32.40 ÷ 12 = $2.70 per unit.
- You invoice $2.70 per unit before any discounts or allowances. That is your net revenue per unit in Vaaha Unit Economics.
- Selling direct to the retailer instead, you would invoice $3.60 per unit, and pay for delivery and servicing the account yourself.
Common mistakes
- Quoting the same price to a distributor and to a store. If the distributor has to sell at your direct-to-store price, its margin pushes the shelf price up.
- Mixing up unit and case prices on a sell sheet or price list. Show SKU, unit size, case pack, case price and unit equivalent together.
- Leaving minimum order, payment terms and freight terms off a quote, or not saying whether allowances are included.
- Comparing a direct-to-store price with a distributor price without comparing the work and costs each route needs.
Common questions
- Is wholesale revenue the cash I collect?
- Not necessarily. Payment terms, deductions taken off your invoices and payment timing all change what reaches your bank, and when. Track net revenue and cash received separately.