Dear Design Doctor
‘I’m an embroidery designer. I’ve been a freelancer working in fashion and interiors for about 15 years I have recently started to create and sell my own designs and work. I sell to a London shop who puts their 250% mark up, which makes my work very expensive. If I sell online on my own site do I have to sell at their retail prices?’
We get this question on a regular basis, and is answered by two Design Doctors:
Firstly by Sidsel Dorph-Jensen, who used to be an award-winning contemporary silversmith, but now focuses on creative business advice and helps other creatives run their own creative business.
‘It depends who you are selling to …
If you are selling to end customers, then yes you do need to sell at their prices, or your retail price.
If you are selling to other businesses, then you sell at your wholesale price, which is the price you calculate from your expenses, materials and your making time, with added profit.
You sell at wholesale price, when you sell from one business to another business – never to the end customer.
When you sell from your own website to an end customer then you must charge the retail price, adding on the same mark up a shop reselling your work would. You are then both the maker and the shop.
Think about it in these terms:
the end customer will always pay the same, whether they buy from you, or one of your stockists.
If you only sell wholesale from your website, you should state that clearly, and I would recommend not having prices on there, as it might confuse end customers. Make it clear to interested stockists that they can contact you for a price list.
If you are using your website to sell to end customers, then you need to have an online shop, clearly stating the retail price and how to order or buy from you. You can still state that you also sell wholesale to stockists and ask them to email you for a price list. In that way you accommodate both end customers and retailers.’
‘If I sell to other online shops, why do they charge the same mark up as brick & mortar shops?’
‘Even online shops have expenses to cover for marketing and SEO to drive traffic. But again this is about your end customer always paying the same, no matter where they buy.
Think about it like this: you would expect to pay roughly the same for a pair of Nike shoes, wherever you would buy them – online or in a shop. The same goes for your brand. Your potential customer expects to pay the same, no matter if they buy from you, an online stockist or a brick and mortar shop.
It’s okay for the retail price to vary slightly, as you can’t always control how much mark up or commission a stockist chooses to add, which leads me to your last question:
‘Should I have different kind of wholesale prices for online and brick & mortar shops? Should I just publish on my price list the RRP (Recommended Retail Price), and then negotiate the actual wholesale price depending on the type of shop?’
Yes, because you should always strive towards the end customer paying the same. You will have different wholesale prices based on the mark up or commission that your stockists use, so ask for their percentage before you give them your wholesale price list.
And yes, definitely publish your recommended retail price on your wholesale price list.
I would also recommend being open about how you calculate you price and that you are very committed to offering your end customers the same price no matter where they buy from, and that’s why you ask for their mark up percentage first.
Wholesale and retail prices can be really complicated to manage and keep track of. So make sure you have a system in place to remember what wholesale price you are selling to whom.
So to sum up , just remember these two rules:
Wholesale price is business to business, retail price is business to end customer.
The end customer always pay the same no matter where or whom they buy from.’
Want to learn more about pricing from Sidsel?
Sidsel has recently launched a great online programme with videos and practical worksheets and templates, specifically around pricing: The Perfect Pricing Kit. This is a 3-part online guide for makers to help you get your pricing right. (affiliate link)
‘This is an issue for many creatives who are starting out.
Very often your cost price (how much it costs you to produce one of your products) is too high, which expensive effect is even more multiplied as your whole sale price should be around 200% of that, and then the retailer adds another 200 – 300% on top.
So if your cost price is £15, you will sell it for around £30, and then the retailer will sell this item at £60 – £90. This means that you need to sell this item at the same level as retailers if you sell direct, e.g. your Open Studios, any craft fairs or indeed in your online shop.
So it is really important to keep your (labour) costs down, or to see how you can add value, without adding too many costs. For example by selling larger or more exclusive items, or to provide a made-to-measure service to consumers only so that you can charge for the uniqueness of your tailor-made products.
Also, it is very common that you as a starter need to wait till you have got more regular direct orders from consumers, and only start to sell wholesale after a couple of years.
Don’t despair – Your time will come, and you will learn potentially loads from the feedback you get from consumers!
And the good news then is of course that if you sell both direct to consumers and to wholesale that your profit margin is much higher when you sell direct.
It is crucial that you understand how these retailer’s margins work.
If you don’t then you will simply not be able to sell to retailers, and also it will really show that you don’t understand how business is done, which will damage your potential reputation and credibility.
I recently met a new designer at a trade show who had a price list with a wholesale price of £60 and a RRP of £90. Any retailer would have known straight away that she didn’t know how these margins work, and would not have bought from her.
Be aware that you can’t dictate what the retailer will charge.
Once they have bought from you, they can do whatever they like with it (more or less). You can provide them with a RRP (Recommended Retail Price) but they can charge far more or far less (e.g. in a sale period) if they want to.
Don’t get cross with retailers about these margins. They are pretty standard across all retail businesses. Retailers have far higher costs than you have!
They need to pay their mortgage or rent, business rates, VAT (which goes to the tax man), often employ people, marketing, events, packaging, etc. They need these margins to cover these (overhead) costs, and their profit might only be around 5% or so. So they wont be raking it in at your expense!
I fairly regularly see people getting cross on Twitter and other social media about these rates. It might get you a few supportive comments from your friends, but most retailers and professional designers and makers will realise that you don’t know how business works. Not recommended for your credibility.
Having said that, you can always negotiate! Especially if your are selling on a Sale or Return basis, or if you item is relatively expensive, then you can negotiate a lower commission rate.
Also, see what you actually will get in return for your commission rate. Some galleries or shops are great to increase your profile. And if a gallery or independent retailer is doing a great job in promoting you as a designer, maybe putting on a special display with your work, including you in newsletters or even organising a Private View or solo exhibition then the commission will often be worth it! Discuss with them what to expect in sales and marketing, and how you can work together.
Selling on the High Street is a challenge right now as we all know. Work together with your stockists and retailers, you need to be a team. Get feedback regularly, show them how to display your work at their best, educate them on your way of working and your interests, so that they can tell their customers.’