I have a question about pricing. I am starting an online boutique, and all suppliers have a wholesale and retail price. Do I have to sell merch at the suppliers retail price or can I make my own price? If I can choose my retail price do I risk upsetting my suppliers by not going with their price?

Hey, if you want, you can sell things at a loss if you want. No one can set prices for you... that would be price fixing and its against the law.

Thanks Maria.

Maria is partially correct. The MSRP is a "Suggested" price. No manufacturer can demand you use it. Technically once the merchandise is paid for I don't care if they push it off the end of the Santa Monica pier.

Realities many times are different though. As a manufacturer I can't tell you what price to sell a product for, I can only tell you what you'll pay for it. But there is a caveat. You'll find many manufacturers if a customer is creating pricing problems for them will all of a sudden have a lot of backorders to that company.

Pricing is always the most difficult thing for newbies to deal with. Too many times I see them spending years only trading dollars. It's a pretty safe bet that unless a product has unusually high margins you only have so much wiggle room because yours and your competitors costs are going to be very similar unless he's grown to the point where he has a payroll and you aren't there yet.
Good luck
Denny

Denny,

What you said about backorders, that's exactly what I was thinking could happen. I wasn't sure though so thank you for confirming. I really appreciate everyone's input here.

>Maria is partially correct. The MSRP is a
>"Suggested" price. No manufacturer can demand you
>use it. Technically once the merchandise is paid for I don't
>care if they push it off the end of the Santa Monica pier.
>
>Realities many times are different though. As a manufacturer I
>can't tell you what price to sell a product for, I can only
>tell you what you'll pay for it. But there is a caveat. You'll
>find many manufacturers if a customer is creating pricing
>problems for them will all of a sudden have a lot of
>backorders to that company.
>
>Pricing is always the most difficult thing for newbies to deal
>with. Too many times I see them spending years only trading
>dollars. It's a pretty safe bet that unless a product has
>unusually high margins you only have so much wiggle room
>because yours and your competitors costs are going to be very
>similar unless he's grown to the point where he has a payroll
>and you aren't there yet.
>Good luck
>Denny
>

Denny is totally correct. Some will tell you that legally they can tell you what price to charge but they suggest very strongly that you use the MSRP. Basically if you want to maintain a good business relationship with them you will use the MSRP.

Thanks!

Another pricing question. Is there a certain formula for determining wholesale price? I'm wondering how I come up with wholesale/retail prices for my products.

Rebecca,

Different industries have different "customary markups". Many industries today do what is called keystoning. This means whatever you pay for something you double it to get the selling price.

Don't confuse markup with gross profit. A 100% markup is only 50% gross profit.

Utimately, you'll have to determine what it'll take you to keep the doors open and return a net profit and figure this into your pricing model.

In my own company we try to average a 40% gross profit margin. Some things we may only make 10% on and others 60% on, but on a quarterly or annual basis, our weighted margins average 40%. This covers the overhead and returns a fair net profit.

A good place to start will be by determining your break-even point.
Hope this helps.

Denny,

When you say that "whatever you pay for something you double it to get the selling price" does the selling price refer to the wholesale or retail price?


Rebecca

Sorry I took so long...I missed your last question.

When you keystone that becomes your retail price.

Example:

If an item costs you $50 and you keystone it (or mark it up 100%) your retail price will be $100. This gives you a 50% Gross Profit Margin.

Now depending on how much you want to provide another retailer for a profit margin you'll offer a discount, say 40%. That means you're wholesale customer will pay $60 for it. If they use your MSRP they'll make 40% GP and you'll be making 20% GP.

I know if your new to this it can be confusing, especially since people always confuse markup and margin...biiiig difference. To show you how confusing it can be: If I'm offering to sell you a product with a MSRP of $100. I can tell you I'll give you discounts of 34%-25% and 10% and this will be your cost. Or I can offer it to you as discounts of 50%, 10% and 10%, or 50%, 5%, and 5%. They're all the same. Each industry has it's own way of expressing things.
I hope this helps more than confuses.