How to Price Wholesale Inventory

When one of your locations receives a new shipment from a wholesaler, how do you decide the prices of the inventory inside? Knowing how to price wholesale inventory for your customers is a challenge for even experienced retailers, but there are certain criteria that can help you price products so they sell. 

“The goal is to price your product high enough where you can make a decent profit,“ says successful boutique owner Alli Schultz. “Yet not too high where it’s going to scare away all of your customers.”

As Schultz explains, there are a few strategies you can use that will help you know how to price your wholesale inventory so it sells. Let’s take a high-level look at the most common ones. 

In this post, we’ll cover:

• Wholesale vs retail price strategies
• 4 pricing strategies for wholesalers
• 5 wholesale inventory pricing strategies for retailers
• How to calculate your wholesale price strategy

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Wholesale vs retail price strategies

While it’s not uncommon for a business to participate in both wholesaling and retailing, they are ultimately different business strategies.

Let’s start off by defining the differences.

Wholesale pricing

When you’re selling wholesale, you’re selling in bulk to retailers and making your profits largely through volume. 

Some key characteristics of wholesaling include:

• Volume: wholesalers sell products in large quantities at lower prices per unit
• Low margins: margins are generally lower since the focus is on volume sales
• B2B market: wholesalers primarily sell to retailers, businesses or other entities rather than individual consumers
• Simpler logistics: wholesale often involves fewer transactions but larger orders

Retail pricing

With retail pricing, you’re selling individual units and deriving profits from the markup on the goods you bought wholesale. 

Some key characteristics of retailing include:

• Single unit sales: retailers sell products individually at higher prices per unit
• Higher margins: products are often marked up significantly from the wholesale price
• B2C market: directly sells to end consumers
  • Wholesalers who sell directly to consumers are DTC, or direct to consumer
• Complex logistics: retailing involves more frequent transactions with varied customer demands

4 pricing strategies for wholesalers

1. Cost-plus pricing

With cost-plus pricing, you calculate the total cost of production, including raw materials, labor and overhead, then add a markup percentage to determine the selling price. For example, if the total cost is $50 and the desired profit margin is 20%, the price is set at $60.

Pros of cost-based pricing

• Simplicity: cost-plus pricing is straightforward to calculate, ensuring a clear understanding of costs and profit margins
• Predictable margins: it guarantees a consistent profit margin, making financial planning and forecasting easier

Cons of cost-based pricing

• Ignores market demand: this method does not consider competitor prices or market demand, potentially leading to overpriced or underpriced products
• Limited flexibility: it can be rigid, making it difficult to adjust prices based on changes in the market or customer preferences

2. Market based pricing

Market based pricing has you set prices based on the prevailing market rates and competitor pricing. If competitors sell similar products for $40-$50, you might set your price within this range to stay competitive. A larger margin wouldn’t necessarily translate to higher prices if your competitors are pricing below you. 

Pros for wholesalers

• Competitive edge: aligning prices with the market ensures competitiveness, attracting price-sensitive customers
• Market relevance: this strategy reflects current market trends and consumer demand, enhancing market alignment and relevance

Cons of market based pricing

• Margin uncertainty: profit margins can fluctuate based on competitors’ pricing strategies, making it hard to maintain consistent profits
• Market dependency: this can make you heavily reliant on market conditions, which can be unpredictable and beyond the wholesaler’s control

3. Value based pricing

If you manufacture and/or wholesale luxury goods or trending products, you might price products based on the perceived value to the customer rather than the production cost.

Pros of value based pricing

• Higher margins: value based pricing can command higher prices by leveraging the perceived value, especially for premium or unique products
• Customer loyalty: retailers may be willing to pay more for products they perceive as high value for their customers, enhancing brand loyalty and differentiation

Cons of value based pricing

• Subjectivity: determining perceived value can be challenging and may vary significantly among different customer segments
• Market education: this strategy requires effort to educate the market about the product’s value, which can be time-consuming and resource-intensive

4. Tiered pricing

Some wholesalers might find success offering different price points for varying quantities or service levels. You could give retailers discounts for large bulk purchases, such as $10 per unit for orders under 100 units and $8 per unit for orders over 100 units.

Pros of tiered pricing

• Encourages bulk purchases: tiered pricing incentivizes retailers to buy in larger quantities, increasing sales volume and inventory turnover
• Customer flexibility: it provides options for retailers with different purchasing capacities, broadening the customer base

Cons for wholesalers

• Complexity in management: managing multiple pricing tiers can be complex, requiring careful inventory and pricing management
• Margin dilution: offering discounts for bulk purchases may reduce overall profit margins, necessitating careful balance to ensure profitability

5 wholesale inventory pricing strategies for retailers

Now let’s flip sides and go over pricing all the inventory you’ve bought from wholesalers. 

Wholesale inventory is inventory that retailers purchase from wholesalers (aka publishers or manufacturers) and then sell in order to make a profit. The manufacturer’s suggested retail price (MSRP) or recommended retail price (RRP) is set by the wholesalers, who sell their inventory to the retail store for around 50% of the RRP. The retailer (that’s you) then marks up the inventory accordingly and sells it to make a profit.

After buying your inventory, there are a variety of pricing strategies you can use to determine product pricing for retail, including keystone pricing, cost-based pricing, bundle pricing, loss-leading pricing and competition pricing. 

1. Keystone pricing

Keystone pricing is the rule of thumb for retail and often the goal. It’s achieved by taking the wholesale cost per unit from your distributors and doubling it to reach the retail price. So if a shirt cost $4 to buy from the manufacturer, you would then use a 100% markup percentage and sell it for $8 in your store.

This straightforward method is easy to calculate and helps cover both cost and profit margins.

Pros of keystone pricing

The benefit of the keystone pricing method is that the suggested retail price provides a nice round number around which to calculate your profit margin. You never have to guess what a product will be priced at, no matter the variation in type or manufacturing quality, because it’s always double the wholesale price. That has the potential to save time for your teams.

Cons of keystone pricing

The downside is that this price isn’t always feasible, and it doesn’t factor in variables like the cost of running retail stores in different regions. Some customers may not be willing to pay such a high markup on goods they perceive as lower quality, and this strategy doesn’t set your business up to respond to fluctuating demand.

When to use keystone pricing

Keystone pricing is ideal for products with consistent demand and stable wholesale costs. It’s also great for those new to retail pricing needing a simple, reliable method.

Alternatives to keystone pricing

• Market-based pricing: adjust prices based on what the market can bear, ensuring competitiveness
• Discounted keystone: use a slightly lower markup (e.g., 80%) to stay competitive while maintaining a healthy margin

2. Cost-based pricing

Keystone pricing is one example of a cost-based pricing method, which is choosing a price that results in a profit margin high enough to cover your fixed and/or variable costs of doing business: your rent, your electricity, the hourly rate you pay your employees, etc. Unlike keystone pricing, other types of cost-based pricing will have higher or lower markups than 100%.

This method is primarily based on your individual business costs and based less on what your retail competition is charging. 

Sub-types of cost-based pricing

• Absorption costing: this method includes all fixed and potential variable costs in the price
• Variable cost pricing: with this strategy, you price based on variable costs and then add a margin

Pros of cost-based pricing

With slightly more flexibility than keystone pricing, a general cost-based pricing strategy allows your business to still recoup costs while potentially offering a lower price to customers. Or, on the other hand, you could charge a higher markup and compensate customers with better services.

Cons of cost-based pricing

With this wholesale inventory pricing strategy, you might not make as large a profit as if you were marking up 100% across the board. Your financial experts will need to re-evaluate your markup at least annually to ensure you’re still covering your costs effectively, which adds extra admin time that keystone pricing doesn’t have. 

When to use cost-based pricing

Cost-based pricing works well for businesses that have significant fixed costs, or who make customized goods with variable production costs.

3. Bundle pricing

Bundle pricing is an appropriate method for certain industries. In fact, a la carte pricing generally gives the advantage to the buyer, and bundle pricing favors the seller (that’s you), so you may want to experiment with this strategy.

Unbundled pricing is generally more transparent. But when you bundle your complementary stock and sell items together as packages, you are providing quality customer service, and often a bundle is perceived as a discount by the customer. This strategy is common among service providers (you probably bought a cable bundle) but with a little creativity, bundle pricing can be applied to any market. 

Bundle pricing ideas

• Complementary products: bundle items that customers frequently buy together, like socks and shoes or golf clubs and cleaning rags
• Seasonal promotions: bundle special deals during holidays or events to move stock before the season is over

Pros of bundle pricing

Like we said, bundles are often perceived as a discount by customers (and if you’re bundling products and/or services they see as valuable, their perception isn’t exactly wrong). That means in addition to being profitable for you, they can increase brand affinity, which is key to customer loyalty.

Cons of bundle pricing

Bundle pricing isn’t a one and done affair. Every product and/or service you want to bundle needs to have its own margin and sales strategy set, which is a lot of admin time for multiple teams. Unless you only sell a few products, you’ll probably want to use bundle pricing for your flagship offerings and use other wholesale pricing strategies elsewhere.

4. Loss-leading pricing

Did you know that Amazon loses money on every Kindle they sell? However, the gadgets drew customers to Amazon as it amped up its online store, and continue to serve as a gateway for ebook purchases. In the end, even though each Kindle costs more to make than its retail price, the boost the product provides to Amazon’s bottom line justifies the negative profit margin.

This is an example of loss-leading pricing. This aggressive method is often used to beat a competitor at their own game, and only works if you have a very robust market and pricing strategy in place. 

Pros of loss-leading pricing

This pricing strategy can establish your business as the key player in your niche—the one with the must-have product that customers can’t get elsewhere without paying a lot more. It has the potential to bring in shoppers who go on to become repeat, loyal customers once they’ve got their initial foot in the door, a step they may not have taken otherwise.

Cons of loss-leading pricing

Loss-leading pricing is a risky strategy. If customers don’t bite in large enough numbers, you’ll just be losing money. If you are successful, but ever want to move away from loss-leading pricing, customers may be upset and move to a competitor (either someone established or a new disruptor in your space). 

When to use loss-leading pricing

• Established markets: when you’re breaking into an established, competitive market, loss-leading pricing can help secure customers
• Complementary products: loss-leading pricing is highly effective when paired with higher-margin products

5. Competition pricing

This is exactly what it sounds like. Competition pricing strategy bases price around what the competition is choosing. It’s often used for key products by grocers (you don’t want to charge more for milk than the store down the street).

Competition pricing use cases

• Highly competitive markets: competition pricing is essential in markets with many similar products
• Price-sensitive customers: this strategy is ideal for customers who prioritize price over other factors, like those that shop at clearance retailers or brand outlets

Pros of competition pricing

Competition pricing places your business in direct competition with other retailers—and for price conscious shoppers, that’s a good thing. It helps you remain in the running when potential customers do price comparisons without needing to cut margins too deeply (hopefully).

Cons of competition pricing

This pricing strategy can be hard to follow consistently for every product you sell. Your business has the potential to end up in an arms race with a competitor also using this pricing strategy, eliminating any gains you might make by reducing margins more and more.

How to calculate your wholesale price strategy

How do you know which pricing model is best for your company? With a little research. These variables are collectively known as value perception, and it’s where the art of pricing comes in. If you price your stock on math alone, you’re losing out on profits derived from the quirks of human nature.  

Here are some basic steps for determining your wholesale pricing.

How valuable are your products?

Customers tend to spend more on certain types of products, like outerwear, so you can mark those up more than, say, a t-shirt.  If you’re selling a name-brand product, you can generally charge more than you can for its generic equivalent.

Where are your locations?

Your store locations also matter. If you’re based in areas with lots of tourists, those customers may be willing to spend more than locals. A store in a high-income area like Beverly Hills is able to charge more for a product than the same type of store in a small Texas town.

What are the market conditions?

Is your industry thriving right now, or are sales slow? How are direct competitors picking their pricing methods? Where does your brand fall in the value perception scale?

A bundle pricing strategy might not work for a luxury retailer—those customers typically care much less about discounts. Is that your market niche? Try something else instead.

What is the cost of goods sold? 

You don’t want to set prices that leave your business with barely any profit once COGS comes into consideration. In this sense, nearly all pricing strategies except loss-leading are cost based pricing!

Need to keep up with your COGS?

You can easily check on your COGS with Lightspeed’s built-in sales report.

Is there a MSRP or list price?

Some products have manufacturer suggested retail prices. While you can sell goods for under their MSRP, you’ll be making less profit. Also, other retailers might beat you out if you try to sell it over.

Software can help

Pricing wholesale inventory can be hard, but the right point of sale (POS) software can help. A robust POS like Lightspeed gives you automatic insights about which products are (and aren’t) selling in your store, so you can adjust your price level accordingly. 

Your POS should automate your inventory management so you have a perfect view of your merchandise situation. Then you can analyze your own sales data and develop a unique pricing strategy that works for you. 

Now that you know how to price wholesale inventory, it’s time to get to work. Watch a demo to learn how Lightspeed Retail POS can help your entire team manage every part of your business, while saving time and effort in the process.

Frequently asked questions about wholesale pricing

How do I determine the right pricing strategy for my retail store?

Choosing the right pricing strategy depends on factors such as your business costs, market conditions, competitor pricing, and customer demand. 

Common strategies include keystone pricing, cost-based pricing, bundle pricing, loss-leading pricing, and competition-based pricing.

What is keystone pricing, and when should I use it?

Keystone pricing involves doubling the wholesale cost to determine the retail price. It’s best used for standard products with consistent demand and stable wholesale costs, particularly for new retailers seeking a simple and reliable pricing method.

What is loss-leading pricing?

Loss-leading pricing sets prices below cost to attract customers, aiming to increase overall sales through other profitable products. Benefits include customer attraction and market penetration, but it requires a robust strategy to be sustainable and can initially reduce profit margins.

What is the difference between wholesale and retail prices?

Wholesale prices are the cost at which products are sold to retailers or other businesses in bulk. These prices are lower per unit because they are bought in large quantities. Retail prices are what consumers pay for individual units of a product in a store. Retail prices include a markup over the wholesale price to cover the retailer’s costs and profit margins.