How to Calculate Wholesale Price: the Formula, Worked Through
To calculate a wholesale price, first work out what one unit really costs you - materials, your labor and a share of overhead - then divide that cost by one minus the margin you want to keep. In the illustrative example below, materials are $6.40 but the full unit cost is $15.90, and a 45% margin gives a wholesale price of $29.00. A shop that doubles it puts the item on the shelf at $58.00.
The wholesale pricing formula
unit cost = materials + labor + overhead per unit
wholesale price = unit cost / (1 - target margin)
retail price = wholesale price x the shop's multiplier
Margin here is profit as a share of the price. That is not the same number as markup, which is profit as a share of the cost, and confusing the two is the first of the mistakes worked through below. If the difference is new to you, the markup vs margin chart has both conversions.
Step 1: the unit cost, time included
These inputs are illustrative, chosen to show the method. None of them is a market figure or a claim about what any maker spends.
| Part of the cost | Working | Per unit |
|---|---|---|
| Materials | as bought | $6.40 |
| Your labor | 20 min x $24.00/hour | $8.00 |
| Overhead | $600/month / 400 units | $1.50 |
| Unit cost | $15.90 |
The labor line is what you decide to pay yourself per hour, multiplied by the time one unit takes. Here it is 50% of the unit cost. A price built from materials alone leaves that share out entirely.
Overhead is the rent, software, insurance and packaging stock you pay whether or not you make anything, spread over the units you make in a month. If you make fewer units in a slow month, each one carries more.
Step 2: wholesale price from a target margin
With a unit cost of $15.90 and a target margin of 45%:
wholesale = $15.90 / 0.55 = $28.91
Rounded up to a whole dollar, that is $29.00, which leaves $13.10 of profit per unit and a margin of 45.2%. Round up, not down: rounding down puts you under the margin you chose.
Step 3: what the shop does with it
The shop sets its own retail price, by multiplying your wholesale price by a figure of its choosing. A multiplier of 2 is called keystone. Ask the shop what it uses rather than assuming.
| Price | Amount | Profit on it | Margin | Markup |
|---|---|---|---|---|
| Unit cost | $15.90 | - | - | - |
| Your wholesale price | $29.00 | $13.10 | 45.2% | 82% |
| Shop’s retail price | $58.00 | $29.00 | 50% | 100% |
The same $58.00 shelf price is a 100% markup and a 50% margin for the shop - one price, two percentages. From your unit cost to the shelf is a factor of 3.65, which is why the first question a maker should ask about a retail price is whether a customer will pay it, not whether it looks high.
You can run the formula backward, too. If you know the shelf price an item has to sit at, divide it by the shop’s multiplier to get the wholesale price it allows, then check that figure against your unit cost divided by 0.55. If the wholesale price it allows is lower, the item does not fit that shelf at your costs.
Two ways the wholesale price formula goes wrong
Adding the margin to the cost. Adding 45% to $15.90 gives $23.05. That is a 45% markup, and it is only a 31% margin. The correct price is $29.00, so this mistake leaves $5.95 on the table on every unit. To keep a margin, divide by one minus it; never multiply by one plus it.
Pricing from materials alone. Doubling the $6.40 of materials gives a wholesale price of $12.80. On the example’s full unit cost, that loses $3.10 on every unit sold, before the shop has marked anything up. The loss is invisible if labor is not counted as a cost, which is exactly why it has to be.
How to price wholesale vs retail
Wholesale pays less per unit than selling direct. Sell the same item yourself at the $58.00 shelf price, with $4.50 of extra cost per sale for payment fees, packaging and the time spent packing, and you keep $37.60, a 64.8% margin. At wholesale you keep $13.10.
So it takes 2.9 wholesale units to earn what one direct sale earns. What wholesale gives you in return is volume you did not have to find a customer for, one order at a time. Whether that trade is worth it depends on how much a direct sale costs you to win, which this example does not include. Marketing to direct buyers can be the larger cost.
The insight the calculator pack is built on is that wholesale and retail are not two prices you pick separately. Retail is your wholesale price times the shop’s multiplier, and your wholesale price is your full cost divided by one minus your margin. Set them in that order and the numbers hold together; set retail first and work down, and you may find there is no margin left.
How to price wholesale items when a buyer asks for a discount
A discount comes off the price, but the cost does not move, so it cuts profit per unit by more than its own percentage. To earn the same total profit, the order has to get bigger:
| Discount | Price | Profit per unit | Margin | Order must grow by |
|---|---|---|---|---|
| 5% | $27.55 | $11.65 | 42.3% | 12% |
| 10% | $26.10 | $10.20 | 39.1% | 28% |
| 15% | $24.65 | $8.75 | 35.5% | 50% |
| 20% | $23.20 | $7.30 | 31.5% | 79% |
A 10% discount needs an order 28% larger just to stand still; a 20% discount needs one 79% larger, more than twice as much growth for twice the discount. If a volume discount is part of your terms, set the quantity break from this column, not from a round number. For the order count where a whole line starts paying for itself, see the break-even analysis formula.
How these were calculated
Unit cost is materials plus (minutes per unit / 60 x hourly pay) plus monthly overhead divided by units made per month. Wholesale price is unit cost / (1 - target margin), rounded up to the next whole dollar. Retail is wholesale x the shop’s multiplier. Margin is profit / price and markup is profit / cost throughout. Discount rows take the discounted price minus the same unit cost and divide the original profit by the new profit.
Every figure on this page was computed twice: once by the code behind the product below, and once by an independent program that finds the wholesale price by searching for the price whose margin equals the target rather than using the closed formula. The two agree to the cent. All inputs - materials, time, hourly pay, overhead, margin, multiplier and discounts - are illustrative, not market figures. None of this is financial, legal or tax advice.
To run the same steps on your own costs, the pack below has eight linked calculators, including consignment against wholesale, minimum order size and what a rise in material prices does to the price you need.