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.
Thank you !! Really consise and helpful
Do you charge the same trade price to online retailers as you do to high street retailers, as the overheads are less for online retailers?
Hi Claudia, thank you for the question. Yes, you should charge the same for both online and high street retailers. Your trade price, based on your costs, will be the same for you regardless of who you are selling to. Plus, it is important that the retail price of your product be the same across all retail outlets whether on the high street or online. Anne-Marie
Excellent article, I was really struggling with my wholesale price and retail price because my cost of goods is so high well well over £100, and I don’t want my retail price to be stupidly high. This helped! thank you
Does the RRP include VAT I cannot seem to get a legal stand point on this.
As most shops & galleries are VAT registered the RRP indeed includes the VAT. But most creatives are not VAT registered, but the 2.5 covers the VAT that the shop or gallery is not able to claim back from you. Remember that can not charge VAT if you are not VAT registered.
Thanks for this, understood that RRP includes vat, but what about wholesale? My plan is to suggest a recommended RRP to the shop inclusive of VAT while my wholesale price is exclusive of VAT. So for example, wholesale is 4£ (plus VAT) and the RRP is 10£ (incl. VAT). Doing so, I should ensure the 4£ cover my costs, while the extra VAT is what I will pay in taxes to HMRC.
Does this make sense or am I getting it all wrong and the shop doesn’t make enough to pay their own share to HMRC? Thank you very much
Hi Virginia
The RRP should always include the VAT as that’s what the consumer pays, and most retailers are VAT registered.
The VAT on the wholesale price depends on if you are VAT registered or not – if you are not VAT-registered then you can’t charge VAT. So you give the wholesale price as a net price without VAT. You might even state clearly that you are not VAT registered so that the retailer might not get confused. They will have to add VAT on to their retail price as they are VAT registered.
Looking at your price calculation if your wholesale price is £4,- without VAT then times 2.5 = £10 RRP (incl. VAT), and yes that should cover all your costs incl. labour, materials, overheads, and even include a bit of profit just in case you don’t sell all your items! Do make sure that you charge a proper hourly rate (our suggestion is between £25 – £50 per hour, which is in line with trade unions and the Arts Council etc – this is a higher hourly rate than you would get in a regular job, but it’s exactly because you don’t work as regular that your hourly rate needs to be higher to also cover the hours that you work on marketing, finance, admin, learning etc).
The 2.5 includes 0.2 for VAT already for the trade client.
Hope this helps!
Hi , this is a wonderful article, thank you. I have a query please as I am VAT registered and so is the retailer that has enquired about my stocking my products. Can I ask if the calculation is the same as the above but to use my COST GROSS price ( inc VAT) and x 2 that to get the trade price? My head hurts and I as struggling to find the right formula for this calculation. I am designing bespoke items that are digitally printed. The cost of the printing. quality and making these locally come with a premium cost price and I am worried that wholesale may just not be a viable option for me due to my cost prices. Any advice you can offer would be appreciated. Thanks so much
Hi
I think a similar question might have been asked around VAT in this calculation before so do have a look at other comments here too.
The 2.5 calculations includes the VAT that the trade client is most likely to have to charge.
Example: say if your cost gross price is £100,- (£83.33 nett + 20% VAT) then the wholesale price (incl. VAT) is £208.33, so yes if you do your gross price x 2 you are roughly there (round up upwards).
It is very common for new creatives, but also now with cost prices increasing rapidly that selling to wholesale is not an option. You might decide to focus mostly on selling directly (via events or online), or create a collection specifically for retailers where you are very conscious of the price from the start, or you opt for other marketing channels e.g. pre-order, crowdfunding, or sell through places such as spas or popups who might charge a lower commission rate as they aren’t retailers and have other main incomes.
Hi, can anyone help me with setting my Wholesale price please?
My total cost of product to me is £2.90. And my RRP is £9.99 inc VAT. I know this is the correct amount having sold 10000s of the product. Where should I be setting my wholesale price? If I do £2.90 x 2 then the wholesale cost would be £5.80 – should VAT then be added to this? As I am afraid it would cost the retailer too much to make a decent profit, which would make my profit undesirable. This would give the retailer a profit margin of around 30%
I have seen other people advise that retailers will not buy if they can’t double the wholesale price to make the RRP – this would be £5 inc VAT or £4.16 exc VAT.
This whole wholesale thing is a minefield, isn’t it!
Thanks for your advice.
Hi Sarah
Thanks for asking and sharing.
These calculations are for creative products that are handmade or in small production. I just checked out your website and within your market the margins might be very different, as production methods & quantities are very different! I would highly recommend that you check within your field what the margins are that your retailers are charging so you can do this correctly for your kind of business.
However if you were a creative business then I would start with your RRP of £9.99 (especially if that’s the psychological price point) and then work out your wholesale price from there. That would be £4,- (As the creative retailer indeed would need to charge x2.5. That’s the nett price, you can only charge VAT if you are VAT registered. The 2.5 markup includes the VAT).
So that means that if your cost price is £2.90 you only make £1.10, which makes your profit margins very small (about 30%). However if you are selling 1,000s of them then that might work out absolutely fine for you because of the quantities. Also if you sell directly at the same retail price, then the numbers might still stack up for you as your own profit margin (as you need to charge at a similar level as a retailer!) is much higher (the difference between £9.99 and £2.90).
However you might want to look at increasing this product price point to say £12.50 (Now is a good time to increase prices and to check your cost price!). Then you could charge £5,- wholesale price for that item (if you were a creative business).
Hope this helps.
I recently sat down with a colleague to work out some trade prices to offer to a retailer. The products we buy in are a mix of hand crafted from artists and finished product from manufacturers. For example a stuffed toy that we customise we buy at £12 and has a srp of £32
My queries relate to working out trade prices for resellers…which I guess is what we are as well.
My colleague was massaging the proposed srp to ensure that the potential new client could have, what they termed a 100% mark-up. The expectation is that it’s a volume customer. So for the £32 stuffed toy we would need to sell to them at £16. Is there a general guide of what retailers expect as a discount? Min/Max?
We also had a discussion about our own prices needed to be altered to reflect the inflated prices because in my opinion, we should not be seen to be under our own srp…surely that’s not good for relationships?
Hi Daniel
The example that we are giving here is based on a soletrader creative working with a gallery or shop. When it comes to bulk buying / volume customers this really depends. You would need to do your numbers and agree with a specific retailer what your discount would be. There is no guidelines on this as it really depends on your costings, profit margins and how much you would want to sell to this client. It would be a trade discount, but indeed I would try to make sure that the RRP or SRP is similar wherever you sell.
Hi Patricia, many thanks for the great article and replying to all the comments!
We design and manufacture apparel for children (leggings, tights, shirts) and so far were only selling direct to consumer. We’re looking to start selling wholesale as well. If I understand correctly, the ideal pricing would be:
Our wholesale price (net, without VAT) x 2.5 = RRP (including VAT). Correct, please?
So for example, if we sell a product to a retailer for £8, the final price including VAT will be £20.
Is that correct, please?
Many thanks 🙂
Hi Martin
I am not entirely sure what the commissioning rate is for manufactured children apparel, so you might need to check that. Also I believe that chilren’s clothes are non-VAT, see here: https://www.gov.uk/guidance/vat-on-young-childrens-clothing-and-footwear-notice-714
But indeed otherwise the above calculation is right.
If you are based in the UK then I suggest that you get in touch with Fashion Angel, who are a specialist business support organisation for fashion brands. They will be able to help you much more than us as we focus more on designers, makers, illustrators etc.
Hello, So glad I found this article as it is a minefield out there with very little clear info.
As others above I am not VAT registered so I am looking at using the formula you mention (x2.5) to get the RRP including VAT. So far all makes sense.
I am not making my items myself, they are designed by me but made in India, by artisans, all in very small quantities so it is still a premium product. My RRP price range from £10 to £295 depending on the items.
Now my question is, what profit margin would be considered acceptable to make myself against my landed prices? I am doing the calculations and based on giving the retailer the x2.5 you suggest. I can achieve margins between 23.50% (which is obviously really bad but this item was expensive landed so not much I can do) and 65% which is great. I am in the 40% for a few items if I follow the formula.
I can always work it out and only offer retailers the items that give me acceptable margins but I was wondering if there is as general bottom line that would be accepted? Hope that makes sense. My website is already up and running so I am not able to recost my collection and this was costed in line with the competition in any case.
Many thanks for any info
Hi Sarah
Thanks fr your question. Fashion is slightly different than what we deal with here mostly at The Design Trust, as we work mostly with designer makers at the higher end. Also I am not sure which country you are in (we are in the UK) and both these facts will have an impact on the retail margins usually charged.
It’s very common at the start of your retail journey that your own profit margins are very small, and sometimes creatives even sell at a loss to get into wholesale, which is of course not great but if it’s a conscious and short term decision to get longer term relationships and profit then that is often worth considering. But this is on a case-by-case basis with which retailer it is and per item even as you suggest. Some items might just not work for retail so always keep an eye on this! There is no ‘set’ acceptable margin as it’s such an individual decision. Hope this helps.
Thank you so very much, yes that makes sense and is in line with what I was thinking in terms of getting the brand out there etc 🙂
Thank you so much.
I am in the UK , selling homewares such as cushions, quilts etc and some pjs and dressing gowns
Thank you very much for the useful information Patricia. I have a question that I can’t seem to find an answer on. I am about to go VAT registered and have wholesale customers for my hand made jewellery. Some of the shops are VAT registered Standard Rate, others are VAT registered Flat Rate at 7.5% and others are not VAT registered. I am trying to create a level playing field by where all my wholesale customers achieve between a 2.2x and 2.4x margin compared to my online prices which will include the VAT @ 20%. I have however only put my online prices up by 10% as I will only be paying 7.5% back in VAT on gross sales. Essentially I suppose I am discounting my prices by 10% to keep the cost competitive! So I want to do something similar with my wholesale customers who are not Standard Rate 20% VAT registered and have calculated that a 9.5% discount on the Nett value then add the 20% VAT on after that keeps the flat rate and non-fat customers close to the standard rate customers. Very confusing I know but is this a sensible and workable approach in you opinion or will I just be losing money to help my customers? THANK YOU SO MUCH FOR YOUR BLOG!
The reality is that you can not force your retail clients to charge a certain amount. If you use the 2.5x wholesale price to get to your retailer’s RRP then you are fine. I think you are making it really complicated here and a lot more admin for you to keep track of what you are charging and to whom. Shops and galleries will charge different amounts due to their costs and who their clients are. You can’t micro manage that. Your time will cost you money!
If your trade clients are not VAT registered that means often that they are smaller as they are below the £83K VAT treshold, might use family instead of employees so their costs will be lower. I question a little bit how viable a non-VAT jewellery shop is to be honest if they are not selling for more than £83K in a year, so be careful with that.
For businesses who are or are not VAT registered it doesn’t matter frankly if you are or are not VAT registered, as VAT registered businesses will be able to claim it back against their own sales, so it does not matter to retailers!
When you start charging VAT indeed the prices for your consumer individual clients will be increased by 20%. However in the current climate many businesses have had to increase their prices by that amount due to inflation. Focus much more on making your jewellery look worth it by creating special pieces, by great images and branding and you can charge more.
Hope this helps. Focus much more on creating new and exciting work than worry about the exact pricing within each shop you sell too.
Thank you very much Patricia for the quick reply.
I completely take on your point of micro-managing and that each shop has individual sets of circumstances and costs to bear.
I think the potential issue is that many of my wholesale customers will be flat rate at 7.5% and unable to claim back the VAT. It is these customers that I am trying to help because I will charge 20% but only pay 7.5% in VAT.
Your comment :”For businesses who are or are not VAT registered it doesn’t matter frankly if you are or are not VAT registered, as VAT registered businesses will be able to claim it back against their own sales, so it does not matter to retailers!” This is true for Standard Rate VAT customers but not Flat Rate or Non-VAT. I think this is correct?
Thank you again Patricia. You are a true gem!
Hi,
This is a brilliant article Thankyou so much. I’m a writer and have just self published my 1st book. I have started to talk to small independent bookshops and a larger wholesaler. Could you keep it really simple for me please and give me some advice about prices…. Cost price to me currently is £5.10 per unit, what ‘should’ the cost to the independent book shops should be? What would you recommend the RRP should be ? And what should the cost to a wholesaler be? I am not VAT registered. Thankyou so much for any help you can offer!!!
Hi Imogen
We work with designer makers, crafts people and artists who work with galleries and shops. I do not know what the markup would be for publishing or for book shops. Do check out The Creative Penn website and see if they can help as that’s all about self-publishing.
Hi there.
Thank you for the article. Very helpful as I am just starting out.
I make and sell clay items.
I am trying to figure out my sales cost to a shop (to sell my items) vs what I sell the product for personally on social media/craft fares? I understand from your article you sell to a shop x2 the cost price, but generally how much percentage do you sell to a directly to customer for? And how should this figure relate to selling to a shop? Would it be the RRP suggested or can you sell a bit cheaper (without annoying the shop) as you don’t have the same overheads.
Hope this makes sense! Thank you
Hi Daisy
You only double your cost price if your cost price is below £100, otherwise it would all become very expensive.
What’s very important is that the retail price is similar to the price that you charge to the price you charge to your consumers on your website or at events. THIS is the big issue when starting to sell wholesale … it makes your own prices much higher too! You can sell a little cheaper (say 10%) but not a lot less. You might find this blog post useful too about a retailer who was undercut by a creative.
I’m an emerging jeweller, self-directed learning. I am currently finding my feet with pricing and wonder if I can simply offer to sell privately at my own cost price first, then as I gradually fine-tune my work, reprices for wholesale / retail a year or so later? I just need to get started but prices seem so excessive for a newbie like myself! (E.g. using your seven steps, a small silver pendant cost price alone has worked out at £41, beefing that up for wholesale trade alone, worries me!) Any advice most welcome!
Hi Marianne
Thanks for your question. I would be very careful if you would only charge your cost price and wouldn’t have any profit margin as you would by its nature make a loss as you won’t be selling everything you make. For the short term that might be ok, but it’s not a professional long-term strategy.
We recommend that new creatives do not try to sell wholesale for the first 3 years or so of their business, and really focus on selling online and directly to consumers. Because it will make your prices relatively high. Learn from your mistakes and see what works, and get quicker, and only then start selling wholesale.
Hope this helps!
Hi Patricia,
Great article, thank you.
I’m setting a price for a retailer in Europe, and my company is UK-based.
My RRP will be €26.
My issue surrounds the VAT and customs considerations in the EU country and shipping to that EU country from the UK.
If I sell into the retailer at €10 ex VAT (as I believe selling from the UK to the EU, the buyer will account for this using the reverse charge mechanism), does the retailer view this as a 2.6x margin or will they view the margin as 1.86x (which I arrive at after adding VAT, customs and shipping expenses on their end, where their total cost comes to €13.95).
Thank you.
Hi Catherine
The 2.5 calculation is if you sell within the same country. Although you would still use the 2.5 as a guideline. Are you VAT registered? Otherwise you can’t charge VAT, and there is no difference then for the retailer as they would be able to either offset it against the reverse charge or by claiming it against income.
However as there will be shipping. duty and custom charges they will probably have to adjust for that, but you can’t take that into account in your price calculation. It might be that relevant to other products in this country your products are cheaper or the same, or that they are unique and very much worth it. I would not adjust my prices for international retailers, unless it would be a very big order. Each EU country has got different duty and customs fees so you won’t be able to adjust your price per country. It’s the rist the EU retailer takes for having something unique, but indeed rather a lot of UK products have now become too expensive for EU retailers and there is a lot more hassle.
Hi Patricia,
Thank you for the helpful response.
So we are UK-VAT registered, the EU company is likewise. The customs fee in this EU-country is 9% while the transport and customs clearance fee is approx. 6%.
After discussing with the retailer, they want their 2.5-2.6x margin post these costs on a RRP ex-VAT basis, so yes it is indeed quite difficult to achieve.
Anyway, appreciate your help!