Retail Price VS Wholesale Price: Main Differences
16 Dec 2020
If you have heard about retail, wholesale, the prices then you probably would like to know the differences. That is why we are going to analyze the main aspects of wholesale and retail so that we can understand the difference between retail price VS wholesale price.
Wholesale Price and Retail Price Definition
What is retail and wholesale?
Due to modern supply chain technologies, business holders have the choice of different delivery systems. Wholesale and retail are the two effective methods of business that are based on products. They are popular distribution methods – the main components of the supply chain. When the manufacturers make the products in large amounts, they are also supposed to be sold in those amounts. The wholesalers are hence for this process (to buy things in bulks). After the next “player” comes – the retailer, who buys stuff from the wholesaler and sells to the final buyers in smaller amounts (piece by piece).
Thus, wholesale deals with a large number of products, that’s to say it is bulk selling, retail works with selling smaller amounts of products. The absence of both the whole supply chain will break down and stop working.
What is the wholesale price?
As the wholesalers do not send the products directly to the customers, so the wholesale price differs from the one in the retail shops. They are a linking side between the manufacturers and retailers. Wholesale price is the cost charged by the manufacturer or business owner from the retailer. Usually, the wholesale price is the lowest possible price for the bulk of items.
What is the retail price?
The retail price is the last price that appears on the labels in the stores or online store pages display on online store pages. It is the price that is set by the retailer for the end consumer. Retail price, as a rule, involves a significant markup.
Retail and Wholesale Price Difference
Wholesale businesses have some advantages. There is no need to advertise goods, rent a store or think about how to exhibit your interests. You only have to manage to deal with large amounts of items and communicating to the retailers. You as a wholesaler should also be ready to send out products to other countries and towns.
As for the prices, the wholesale price is always lower than the retail price. The retailer pays the product cost and the profit cost that the wholesaler has set.
The owners of shops (no matter brick-and-mortar or online) buy goods from wholesalers having an aim of selling them to their customers. On their turn, they can also trade both in retail or wholesale. Retail price is higher than the wholesale. The retailers set the prices themselves. In contrast to wholesale, they do not vary depending on the number of items. But it can be lowered from time to time if the seller decides, for example, to announce a discount.
As for the higher price in retail, it comprises the costs. In the retail business model, there are costs of advertisements, packaging, salaries, bills, on e-commerce the paid plans for the platforms used and many more. A retailer should take into account every single detail essential for the customer experience.
Retail price formula and wholesale price formula
How to calculate the retail price
There exist different strategies for different types of businesses; they should be taken into account when setting up retail prices. It would be best if you started researching the market and holding a price comparison. And also the client segment should be of great importance: you’d better know whom to you sell.
Before coming straight to the point of setting a price, you should find out the wholesale price. Then you should add the profit margin that usually is aimed to be 55-65%. Of course, calculating the retail price is individual, it depends on your business type, market, plans and more. One famous pricing strategy that is called SRP (Suggested Retail Price), calculates the retail price according to the formula:
Retail Price Formula: Retail Price = Wholesale Price / (1 – Markup Percentage)
How to calculate wholesale price
Not only wholesalers need to find out the wholesale price. Retailers need it as well to calculate the retail price. For a wholesale price calculation, you need to know the COGM (cost of manufactured garments). It includes the fee required to make the product, as well as the materials, shipping, handling, labour and others spent on the final product.
Cost of Goods Manufactured Formula:
COGM = Material Cost + Labor Cost + Additional Costs and Overhead
Wholesale Price Formula:
Wholesale Price = Materials Cost + (Labour Invested x How Much You Value Time) + Other Overheads (Rent, Fixed Costs, Electricity, etc.) + Profit Margin
If summarizing the topic, we can mention the key differences between Wholesale and Retail according to several points:
- Products in wholesale are more limited, while in retail, the number of products to work with is larger.
- Profit margin and markup is higher in retail than in wholesale.
- You can reach a broader range of customers through wholesale selling your items in different stores. In retail, you usually trade in just one particular store.
- Retail business is more competitive than wholesale.
No matter what type of business you choose – retail or wholesale, in the supply chain process, there is one crucial step – inventory management. Both retail and wholesale should have specific approaches to management. It is suitable for any business holder to think about the budget supposed to spend on inventory management when setting prices (both wholesale price and retail price). When considering and planning your costs as a retailer or wholesaler, you can use accounting software and calculators. eSwap tools can be of great importance for both. We have integrations with two of the leading and best accounting platforms (Xero and Quickbooks). As for the calculators, various free calculators (for example, eBay final value fee calculator or Amazon fee and profit calculator) are available. You can plan your business better and more effectively with the help of eSwap.