So, you’ve got a creative business and you’re looking to sell your products to shops. That’s great, but is your pricing giving you and your prospective retailer enough profit?
Let’s be honest, the whole point of running a business – small or large – is to make a profit, and we shouldn’t be embarrassed about that. That means that whether you’re looking to sell wholesale or on commission to gift shops, there needs to be enough of a margin to make it worthwhile for both.
Wholesale vs Commission
There are two ways to sell your products to other businesses; wholesale and commission.
Wholesale is the most straightforward whereby you set the trade pricing for your products, sell in bulk quantity and be paid up front. Once the shop has purchased your products, they own them, just as if you sold them directly to a customer.
Commission is a little different. No money exchanges hands up front – your products are stocked in the shop, and you will be paid an agreed amount on each sale. You retain ownership of your products, and you should have an agreement in place with the shop over payment frequency, damages and so on.
So, you like the idea of being paid up front and you think wholesale would work best for you. Right, so how do you set your pricing?
Put simply, there is no hard and fast rule; some products will allow for a higher margin than others. However, the typical retail markup is between 2.4 and 2.5. Depending on the product, some shops may accept a little less, but usually no less than double. Remember, with wholesale the shop is purchasing your products outright, so it’s on them to sell it.
Give me an Example
Sound like a lot? Consider this – a shop purchases a notebook at £4.16, so with a 2.4 markup, the RRP price of this would be £10.00. If the shop is VAT registered – as many are – a portion of this goes straight to HMRC, so the shops profit is as follows:
If you are a business who is VAT registered, the calculations are a little different, but we won’t worry about that now as this is just to give you an idea.
This profit has to also cover all the overheads that the shop has on a daily basis such as rent, business rates, utilities, staff wages and so on, so this isn’t unreasonable from the shop’s perspective.
Minimum Order Totals & Quantities
One way to make this work better for you is to set either minimum quantities on the purchase of individual products (e.g. it’s typical to buy greetings cards in packs of 6 per design) or a minimum order value to make sure the shop is buying enough to make it worth your time and ensure that you make enough profit on the order as a whole.
It’s no secret, shops hate paying delivery! It eats into their profit, so it can be easy to tempt them with free delivery. But this also eats into your profit, so you need to make sure it works for you. One way of doing this is to have a free delivery threshold – this will usually be much higher than your minimum order value, but means that the shop is spending enough to be worth you covering the delivery costs.
Local? Save yourself the cost of postage and hand-deliver it – it also gives you a great opportunity to meet the shop owners and staff in person and build what will hopefully be a lasting (and profitable!) relationship.
Commission is a great way to sell your products in shops with little risk to you or the shop owner. It also works particularly well for products such as art or high-value items which you may look to sell in places like galleries.
Shops will usually set a commission rate, and will expect you to maintain the stock of your products in their shop. They’ll then pay you at an agreed interval such as weekly or monthly. You still own your products, but you can expect the shop to take good care of them.
Commission will vary from shop to shop and again will depend on the type of product. However, it’s not unusual to be looking at a commission rate of 30-50% (so you will receive between 50% and 70% of the sale price).
That Sounds a Lot!
Let’s look at another example. You’re stocking your product with a shop that’s VAT registered, and they want a 40% commission rate, and you’re selling a necklace with a retail price of £20.00.
Again, the shop makes a modest profit which is reasonable, as it needs to be making enough to cover the overheads listed above.
As selling commission is an ongoing process, make sure you agree everything up front with the shop before taking in any items.
As well as agreeing the commission rate and frequency of payment, your agreement should also include who’s responsible for any damages or theft (this should be the shop), how long your products will be sold for and if there’s a notice period should you no longer wish to be stocked in the shop/the shop no longer wishes to stock your products.
Can I sell my products at a higher price in retail shops?
Technically, there’s nothing stopping you suggesting a higher retail price. However, most shoppers these days are pretty savvy, and they’ll look you up if they like your products.
If they find out that the shop is considerably more expensive than buying directly from you, it reflects badly on the shop, the customer is unlikely to purchase from them, and the knock-on effect is that the shop is unlikely to come back to you for another order.
Firstly, decide which route works best for you. Make sure that whatever pricing structure you use, you’re making enough money – it may be that you simply can’t offer the expected wholesale prices, but you might be able to do commission or offer wholesale on just a selection of your product range.
Seek out shops that you believe suit your products and ethos, introduce yourself and your products, and don’t be offended if they are looking for a higher cut – they’re just trying to make a living too!7