Pricing is a topic that many makers struggle with, and once you start selling wholesale to shops it can get even more complicated. Luckily Cat How from super-cool design shop Howkapow is on hand to explain how it all works. In the second of our Cat’s How To series, she talks us through wholesale and retail prices, mark-ups and how to make pricing work for you…
As a shop owner and creative director of Howkapow, the one thing I love to find most are beautiful products. But no matter how beautiful a product may be, what it costs – not only to my customers but also to me as a buyer – is the deciding factor over whether we get it in the shop or not.
We’ve had many a painful moment where we have found something beautifully made and perfect for our shop, but simply not been able to stock it because either the price is too high for our customer base, or the designer hasn’t worked out their wholesale prices properly. Here are a few tips from a buyer’s point of view that will hopefully help to iron out some of the questions you might have about pricing.
Wholesale vs. Retail
Wholesale can be defined as ‘the selling of goods in large quantities to be retailed by others’. As a retailer, I would buy a product from you (a designer/wholesaler), then add my mark up (usually x 2.4 which includes VAT) to get a retail price. A retail price (also known as RRP or recommended retail price) is the agreed price I would sell your product for to my customers, and which I would expect you to sell it at too.
A 2.4 Mark Up
For shops and buyers, a 2.4 mark up is the holy grail. Some shops, especially those in fashion use a mark up of 3. Any design shop which is VAT registered (like ours) usually works on a 2.4 mark up to take into account a 20% Value Added Tax fee.
Breaking Down The 2.4 Mark Up
To break down this pricing, I would buy a product from you at a wholesale price of £10, then double that to get £20 in order to get our fee, and then we would have to add 20% on top of that (£4) to make sure we cover our VAT. So something that you sell in your shop to the general public for £24 you should expect to wholesale to a shop for £10. Most shops expect this and often will not even consider a product if it doesn’t adhere to these rules. It might seem pretty steep that a shop would get the same amount as you (£10) simply for selling your product on, but you have to take into account overheads a shop may have (like staffing, rent, packaging, press and promotion around your product and website or shop maintenance), so actually it works out pretty even.
How To Make This Work For You
Most designers find it really hard to stick to this rule, as they make many of the products themselves and so can’t cut down their prices to take into account the amount of time they have invested making something. I totally understand, and in this instance we’d probably say it’s best for a designer to sell directly to the public themselves as that way they can get the biggest profit margin. Another option is to have pack sizes or minimum order quantities so that you lock a shop into buying a certain amount from you for a certain price and you know you are making money by selling in bulk.
Make sure that when you work out your wholesale and retail prices, they are relative to similar products also available in the market. For example, a tea towel generally retails at around £10, so you need to be able to sell a tea towel to a shop for no more than £4.20 and still make money for yourself. However, if you make hand-blown glass vases which cost you £60 in materials and time, then pitch your products at more high-end shops which can sell it for the retail price that it deserves – so around £144 or indeed more.
If a shop (in particular an online one) buys a load of products from you wholesale, then the worst thing you can do is undersell this shop on your own website. It will not go down well. If you have your own online shop it is imperative that you sell your products at the same price you expect the other online shop to sell them for – this is just to keep it fair on the Big Bad Web where customers can hunt for the best price. It means you are not in direct competition with each other, and can simply be two separate places for customers to buy your work. You cannot expect a shop to place another order with you if they find out that they are having to cut down their margins to keep to the same price you are selling your product for. So if you want to reduce the prices on your products, it’s always best to tell the shops which sell your work beforehand :)
Next time, product shots!
Cat How studied English Literature at Bristol University and Communication Design at Central Saint Martins College. She worked as a professional journalist and graphic designer, but made jewellery as a hobby and sold it at artist markets on the weekends when she lived in Melbourne and London. In December 2010 Cat set up Howkapow with her husband, Roger How. Howkapow is a colourful design shop which supports and promotes the work of independent designers and illustrators. Follow @howkapow on Twitter.
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