Question about wholesale costs for soap

[kdaniels8811]

I was approached about wholesaling to a local business so gave them a list sheet of costs and minimum order quantities. My wholesale cost would be $3.65 in quantities of 50+ bars. I suggested they sell for $6-8 per bar and the response was the wholesale cost is too high!

I sell at local farmers markets for $4.50 a bar but cannot wholesale for half that cost which is what I think they were expecting. The soap would be sold at a gift shop so I do not feel the suggested price is out of line. Your thoughts and suggestions?

I plan to respond with information about the quality of handmade, natural soaps and the materials required to make the product all contribute to the cost. This is a great opportunity to get product out to a lot of people but I cannot cut my cost any more.

 

[Lindy]

True wholesale is 50% of your retail. So it is really important to keep your pricing at the x2 for wholesale and x4 for retail. I retail at $3.25 and have it listed on my webpage for $6.50 - $8.00 depending on the soap.

 

[kdaniels8811]

Thanks, Lindy. I will go back over my costs to see where I can reduce them and approach them again. I appreciate your feedback.

 

[Lindy]

You're welcome

 

[kdaniels8811]

Lindy - just to make sure I understand - if my cost is $1 a bar (just for ease of math) my wholesale cost should be $2 and my retail should be $4, correct?

 

[coffeetime]

Lindy - just to make sure I understand - if my cost is $1 a bar (just for ease of math) my wholesale cost should be $2 and my retail should be $4, correct?

Not Lindy, but you need to include packaging and labour costs in that too.

 

[Lindy]

Leave the labour costs out of the pricing those are taken out of gross sales so that the more efficient you are the more money you can potentially make. That is standard business practice for this time of industry ~ manufacturing. If we were lawyers or accountants then our time is what we charge out to the client.

KDaniels - that is correct and yes do include your packaging.

 

[DeeAnna]

I know you've said this before, Lindy, and I'm not trying to argue that you are wrong, because it is clear you have a business model that works for you. But I cannot wrap my mind around the idea of leaving labor expense out of the equation when figuring the basic costs for my company to produce a product.

Perhaps we are viewing the problem from different perspectives -- you as the owner of a sole proprietorship and me as the owner of a business with employees.

I have a business of making gifts and home decor items. If I did not include labor and associated employee costs in my price calculations, I'd go out of business. The cost of labor is significant part of the cost to manufacture our products.

I understand that the salary I draw as the owner is not the same as labor cost (hourly wages, federal and state taxes, unemployment fees, workman's comp insurance, etc.). My salary is not included in calculating the cost of production. If I am in the shop doing what everyone else is doing to produce goods and provide services, then I'm essentially working for the same hourly compensation that my employees are.

 

[kdaniels8811]

I am definitely going to have to rethink wholesale. I am back to reviewing my actual costs as I am buying everything in bulk at this point so do not see much opportunity to save there. I make 16 pounds at a time and may invest in more molds to increase volume.

I am still taken aback that my wholesale costs are too high and am working on my response to the customer. Handmade, natural, insured, experienced (been making soaps for over 25 years) are all valid arguments but I see I have to work on my costing. Thanks to all of you for your responses, I feel like I have some mentors in this group. More questions forthcoming!

 

[DeeAnna]

If the wholesale price you have come up with is correct for your business, then it's not too high. Pricing is a difficult issue and is always worth a re-think, but other factors may be driving this situation. I've got some suggestions for you to consider. I don't know you and I don't know your products, so I'm speaking in general here. Some ideas may fit your situation, some may not, and that's fine.

For one thing, some retailers will push hard to get the lowest possible price from a supplier -- up to and past the point of rudeness. You may be dealing with that type of person. If you are insecure about your products, prices, and wholesale policies, you may be inadvertently signaling the retailer to push hard for the best advantage.

Evaluate how your product looks, how it is packaged, what image it presents to the retailer. Does your product LOOK like it's worth paying $3.65 wholesale? Some products do, some don't. I haven't seen your products so I mean no disrespect or criticism. I'm just speaking in general about the important issue of consumer perception of value.

If you are retailing your soap at the farmer's market for $4.50, but want to wholesale at $3.65, this is never going to make your retailers happy. I recommend you set your retail price at 2 times your wholesale. If you are serious about wholesale, then you cannot undercut your retailers.

I hope this gives you some useful ideas!

 

[girlishcharm2004]

I know a lot of people preach the "4x the cost of goods" business model. While it may work for some, it does not work for me. I live in an expensive place and have to take that into consideration.

How I do it is I add up the cost of goods, monthly expenses (taxes, licenses, fees, insurance, etc.), labor to make the product, plus 10% = my wholesale price. Then I double that and sell at my retail price. If I'm only making 6 bars, each bar is expensive! But, if I make more, the cost per bar goes down because of efficiency in working.

I'm guessing that if you're asking a question about pricing, then you haven't been keeping track of your expenses. How much paper do you print for inventory? How much do you pay to ship all your oils to you? How much gas did you use to get to the farmers market to sell? I saw a good equation that lined up with how I priced my products which was (cost of goods + labor)x3 = Retail. Divide that in half for your wholesale price. Figure out how many bars you need to make in one soaping session to bring the cost down.

However, that aside. Telling the wholesale account all the wonderful qualities of your soap is great and all, but you need to sell at retail price, too. You're cheating the market and you're cheating yourself the chance at selling wholesale when you don't sell at your actual retail prices.

 

[boyago]

I'm curious how those of you who sell handle wholesale v private label. Do you do take wholesale + negotiate a packaging deal? How does insurance and liability work with private labeling?

 

[DeeAnna]

I adjust my profit margin to fit the circumstances too. My preferred markup is the usual rules of thumb: 2 x cost = wholesale and 2 x wholesale = retail. But sometimes I do as low as 1.5 x cost = wholesale on certain products at my discretion.

I rarely violate the rule of 2x wholesale = retail. The only exception I can think of is a product that we package in a simple plastic bag for retail sale -- this saves a lot on shipping costs, and this is a big issue with my retail customers. For wholesale, we package the exact same item in a clear plastic box with printed insert. In that case, the finished wholesale product takes more time and materials to prepare than the retail product.

As far as private label, pricing would depend what needs to be done to meet the private label requirements. If it's something kind of simple, I sometimes price it the same as my regular product. If there's a fair amount of extra effort involved, I treat the private label item as if it's a new product. I refigure my costs based on the extra labor and materials. Then the wholesale price is figured based on those costs.

In my line of work, insurance for private label business is fairly inexpensive. I have to arrange for a specific rider in my insurance policy that names the other company. Yes, I could be held liable for claims.

 

[Lindy]

Hey Deanna,

I'm working off the manufacturing model. Wages should never be more than 10% of gross sales. I work from the model that since we are not a business based on selling labour then we are selling the product. Most business models (owned larger businesses before that were financially successful) are looking for a net return of 8%, I look for a 20% return on my gross sales. So to determine that I sell my product at 2x the actual cost of materials, this is where I am going to make my profit from, plus packaging. Retail is 4x actual cost. From my gross profits come out my cost of doing business which includes power, heat, telephone, wages, taxes and advertising. If I have done my job, sales, then I will realize at least an 18% profit which for any business is a healthy profit. Even in my wholesale business because I have lower costs of doing business since there is no space to rent to sell, there is no employee working the table/mall booth and I am making product that is not going to sit around so there is no accrual of interest costs for product carried.

So yeah, I think we are approaching from different viewpoints, and neither is wrong, just different. I do not undercut the market but my profits are calculated using regular business models. I hope that helps you understand where I am coming from on my pricing.

 

[DeeAnna]

Yes -- very helpful. Thank you for the explanation, Lindy. I appreciate the insight.

 

[arg25]

I was approached about wholesaling to a local business so gave them a list sheet of costs and minimum order quantities. My wholesale cost would be $3.65 in quantities of 50+ bars. I suggested they sell for $6-8 per bar and the response was the wholesale cost is too high!

I sell at local farmers markets for $4.50 a bar but cannot wholesale for half that cost which is what I think they were expecting. The soap would be sold at a gift shop so I do not feel the suggested price is out of line. Your thoughts and suggestions?

I plan to respond with information about the quality of handmade, natural soaps and the materials required to make the product all contribute to the cost. This is a great opportunity to get product out to a lot of people but I cannot cut my cost any more.

Wholesale at 50% is keystone pricing. And that's just what is easiest to do so many people and industries follow that. Your base wholesale price should be 2x or 2.5x your cost then double that of you want to keystone. But in luxury handmade items it is not uncommon for wholesale to only be discounted 30%-40%.

 

[Relle]

Wholesale at 50% is keystone pricing. And that's just what is easiest to do so many people and industries follow that. Your base wholesale price should be 2x or 2.5x your cost then double that of you want to keystone. But in luxury handmade items it is not uncommon for wholesale to only be discounted 30%-40%.

The person you quoted hasn't been here for 1 1/2 yrs and the thread is 8 yrs old, so not likely to see your post to them. If you look at the date on the top left hand side of the avatar that will tell you if it's an old post or not.