Wholesale vs retail price: setting both for one product

To set wholesale and retail prices for the same product, start from the price the end customer pays and work down. Your retail price, when you sell direct, has to cover your loaded cost plus what it costs you to sell. Your wholesale price is what a shop pays you: the shelf price minus the margin the shop needs. If that number does not cover your loaded cost and leave you a profit worth having, that channel does not work for that product as it stands.

The price ladder

One bottle can carry up to three prices, one for each step:

1. Consumer price: what the person who takes it home pays, whether at your stall or in a shop.
2. Wholesale price: what the shop, deli or café that resells it pays you.
3. Distributor price: what someone who buys in volume and sells on to shops pays you.

Every step you put between yourself and the customer needs its own margin, and that margin comes out of the same final price. The rule that keeps the ladder working: the customer should pay roughly the same whether they buy from you or from the shop. If you sell direct for much less than your stockist, you are taking their customers, and sooner or later they stop ordering.

Start from the consumer price

The usual mistake is to take your direct price and "give the shop a discount" without knowing what the shop needs to make it worthwhile. Work the other way:

1. Decide the consumer price. Look at what similar products sell for in that kind of shop and check your price makes sense there. The guide on how to price a food product covers the full method.
2. Ask what margin the shop needs on its selling price. Do not guess; every shop has its own number.
3. Work out your wholesale price: wholesale price = consumer price × (1 − shop margin).
4. Subtract your loaded cost and delivery per unit. What is left is what you make per unit in that channel.

Many buyers talk in markup rather than margin. Convert before you do the sum: a 50% markup on what they pay you is a margin of 0.50 ÷ 1.50 = 33.3% on their selling price.

What it costs to sell in each channel

Selling direct is not free. At a farmers market you pay for the pitch and spend hours behind the table; online you answer messages, pack and deliver. That cost per unit comes out of your retail price.

Selling to a shop saves that time but adds the delivery run, and sometimes payment terms or unsold stock coming back. The guide on selling wholesale to shops and cafés goes into those terms.

So it is normal to make less per unit wholesale. The question is whether the volume and the hours you save make up for it, and the only way to see that is to put the channels side by side, as in the guide to comparing profit by channel.

Worked example: a bottle of hot sauce

You make hot sauce in 150 ml bottles. Your loaded cost per bottle is $3.10: chillies, vinegar, garlic, bottle, cap, label, your time, energy and waste. All prices here are before any sales tax.

Selling direct. At the farmers market and through your website you sell it for $9.00. Between the pitch fee, card fees, bags and your time on the stall, selling costs you about $1.20 a bottle.

• Profit per bottle: 9.00 − 3.10 − 1.20 = $4.70

A deli. A local deli wants to sell it at $9.00, the same as you, and needs a 35% margin on that price.

• Wholesale price: 9.00 × (1 − 0.35) = $5.85
• Check: the deli makes 9.00 − 5.85 = $3.15, which is 3.15 ÷ 9.00 = 35%
• Your profit before delivery: 5.85 − 3.10 = $2.75 per bottle

Delivery. Each drop costs you $18 in fuel and your time. How much that matters depends on order size:

Minimum order. You decide wholesale has to make you at least $2.00 a bottle after delivery. So delivery can be no more than 2.75 − 2.00 = $0.75 a bottle, which means an order of at least 18 ÷ 0.75 = 24 bottles. You pack in cases of 12, so the minimum is two cases.

A distributor. A distributor offers to take it into several shops and wants a 25% margin on the price it sells to them at, which is your wholesale price.

• Your price: 5.85 × (1 − 0.25) = $4.39 (rounded from $4.3875)
• Your profit: 4.39 − 3.10 = $1.29 a bottle, with no deliveries or shop visits

None of these is wrong on its own. At $1.29 a bottle, the distributor only makes sense if it moves a lot of bottles you would never sell yourself. If its margin goes up, or your costs do, it is the first step on the ladder to stop working.

When the wholesale price does not work

When the sum gives a profit that is too thin or negative, you have these options:

• Raise the consumer price, if the product can carry it in that shop. Your wholesale price rises with it.
• Change the format. A smaller bottle may reach a shelf price the shop will accept. The guide on price endings, bundles and sizes shows how to build sizes without tricks.
• Lower the loaded cost by looking again at the recipe, packaging and waste.
• Stay out of that channel with that product and keep it for direct sales.

What you should not do is accept the price a buyer suggests without running the numbers. A big order with a thin profit fills your week and leaves you little money.

Big orders and volume tiers

Some customers buy a lot at once: a café group with several sites, a company sending gift boxes at the end of the year. You can offer tiers, say one price from 24 bottles and another from 60, as long as each tier still leaves the profit you decided on after delivery. An order for an event has its own costs (timing, transport, staff) and is quoted separately; the guide on how to price a catering order explains how.

Put your wholesale terms in writing: unit price, minimum order, who pays for delivery, payment terms and whether prices include tax. Then you do not renegotiate every order, and the buyer knows where they stand.

Do it with the calculator

Put your recipe into the food cost calculator to get your loaded cost per unit, then use that number to check whether the wholesale price a shop offers leaves you the profit you need.