Do you struggle to understand the difference between cost price, wholesale price, retail price, consumer price, trade price, …?
You are not the only creative struggling with pricing terminology!
In this practical blog post, Patricia van den Akker (The Design Trust’s Director) explains what the cost price, wholesale price, retail price, and consumer price actually mean, how to calculate them and how they work.
These are the different price terms that trade buyers refer to and it is essential that you as a creative know exactly which price term to use, otherwise your professionalism and credibility will take a big hit!
The cost price
This is your own calculation of how much it costs you to actually produce one of your (craft) products or art pieces.
This is the first step in identifying the costs that you need to cover and to help you price your creative products.
The cost price will cover your time x hourly rate, your material, and marketing costs, but also overheads such as studio rent, telephone, and transport.
If you are a designer maker or other creative professional and you want to learn how to calculate your cost price in 7 easy steps, then click here.
Keep your cost price confidential. Do not share with others (including your retailers or competitors!) It’s nobody’s business how much you want to earn or what your annual costs or overheads are.
Trade or wholesale price
This is the price you charge to trade buyers (e.g galleries or shop owners) so that they can sell your creative products in their shop or gallery.
You calculate your trade or wholesale price based on your cost price. As a guideline, this is around 2 x your cost price, but your actual trade or wholesale price depends on:
- If your cost price is relatively high (more than £100 per item) then you decrease this percentage. For example, if your cost price is £150, then your trade/wholesale price would be around £250.
- If you are very new then you will probably take more time to create products you can sell, therefore you can’t double your cost price as it would be too much. But be aware that this will cut into your income!
- If you sell most of your stock then you can increase your percentage. Doubling your cost price to get to your trade price will help you to cover for the amount of unsold stock so that you still reach a decent turnover. If you are selling most of your stock then that might be a sign that you are actually too cheap (!) and also by increasing your prices you can actually earn more money or you can produce less but still earn the same amount.
- If you only sell to consumers (and not to trade at all) then you can increase this profit percentage too, because this is your ‘final price’ that you sell online or at events to consumers for. There won’t be any additional commission added by a retailer and therefore your price point might be lower than other creatives who sell wholesale (see below).
Remember that calculating your trade or wholesale price is up to you, and that you can decide what profit margin to use.
Share your trade price or wholesale price with your retailers only, e.g. publish a trade price list in a wholesale catalogue or you send one out to a gallery or shop. Do NOT share this list with the general public or with the media (they might accidentally publish the wrong price!)
(Recommended) Retail price
This is the price that a consumer pays, and which is displayed on your website or on an event’s price list. This is the same or approximate price that retailers charge to consumers.
The retail price is normally around 2 to 3 x the trade or wholesale price, depending on the mark up of the retailer.
It’s best practice to charge around 2.5 and this has been the case for many decades.
So, for example, if your cost price is £20, then your trade/wholesale price is £40 (what you sell it for to a stockist, see above), then your recommended retail price is between £80 and £120 (what a consumer pays online or in a shop).
Do you think that these markups by retailers are excessive?
Please note that the retailer really needs this mark up to cover their own higher overheads such as the shop rent, taxes, business rates, and staff.
Do not undercut a retailer, as they will very quickly stop buying work from you! You can read this blog post from a gallery owner about what happened when a jeweller undercut them.
Some retailers might charge less and others might charge more! Why is that? Retailers who charge a rate of around 200% are more likely to be smaller retailers, away from larger city centres, with lower rental costs, who use family members to work with them, and who are not likely VAT registered. Retailers who charge a higher rate of around 300% are more likely based in London, where costs are higher for their space and staff. They also probably have clients who can afford to spend more.
Be very aware that the consumer will always pay more or less the same price, but that your trade price can fluctuate.
What do you do if your stockists charge different amounts? If your trade clients buy from you there is actually very little you can do about dictating what they charge! You can give them a recommended price, but indeed it’s recommendation only! If you keep to the advice of calculating your own retail price at 2.5 x the wholesale price then you are always safe. It doesn’t overly matter if a gallery in the north of England would charge say 10% less than your boutique in south-east London because it will be rare that their audience overlaps.
If your trade client places a very large order from you then they would probably expect to pay less per unit anyway! To find out more about what to do if you get a large trade order click here.
What about trade discounts?
Great question! If you are selling to trade buyers who buy regularly from you, or order larger quantities, but aren’t buying for a shop (e.g. a public art consultancy or an interior designer) then I suggest you offer them a trade discount.
This trade discount is often around 20% – 30% off the retail price, so sits between the trade and retail price. Depending on the quantities and your negotiations this can vary.
Did you find this blog post about cost price, wholesale price, retail price, and trade discounts useful? Please share it with others on your social media. If you have got any further questions or comments then do let us know in the comments box below.