In my previous post I wrote about setting up the right wholesale price in the ‘bottom-up’ approach. If you have missed reading it you can catch up here.
In this blog post I will guide you through the ‘top-down’ approach, which in a way is a cross checking your calculations and probably makes you face the real retail world.
Let’s assume your cards would sell in the gift shops at the retail price of £2.99. In my last blog post we arrived at the calculation of £1.50 wholesale price of your cards, which you propose to the retailer, so he/she can sell them at £2.99. It now means that you will have to sell an awful a lot of cards to make a viable business.
Additionally, it also means that if you register for VAT you have to ‘lower’ your wholesale price to £1.25 in order to be competitive. If you ask why ‘lower’, it is because if you increase your original £1.50 wholesale price by 20% (at current VAT), it will become £1.80 (£1.50*1.20=£1.80) and the cards retail price is no longer £2.99 but is £4.32 (£1.80*2.4=£4.32), which the retailer will possibly round up to £4.49, in order to sell. This also means that now your cards are in a different price bracket and the competitors you are competing with are completely different. Additionally, as a rule of thumb, the higher the price (trade or retail), the slower the sales rate although your margins would be higher.
Despite the fact that you could never dictate the RRP to a retailer (generally, once they have paid for the goods it is their property and they can do whatever they like with them) it is advisable to know where your product sits in the market place. So, if you were generally happy with your £1.50 wholesale price, it means that those £0.25 have to be absorbed somewhere or you have to sell more product at the market place.
You can safely apply the usual mark up of 2.4 to check your prices but make sure you know it for your industry or the specific stores you are trying to sell to as it can vary a lot. For example, at some expensive places like London or for some department stores it can be 3.2. The mark up can also go up to X5 for some trendy fashion labels, which are trend setters, so make sure you understand everything in advance.
Hope this post was useful to cross-check your trade prices.
In the next blog post I will look at some wonderful PR opportunities for card and gift shops.