How To Calculate Wholesale To Retail Markup
Updated June 24, 2022
Many retail companies calculate the wholesale to retail markup, which helps these retailers set appropriate selling prices for consumers. If you're helping your business determine the best selling prices to set, you can calculate the wholesale to retail markup to get an idea of what to charge customers for a specific product.
Similarly, calculating wholesale to retail markup using the formula retail price = wholesale price ÷ (1 - markup %) can help companies determine the best retail prices for their products. In this article, we explore what wholesale to retail markups are, what formula to use to calculate a wholesale to retail markup and how to calculate retail markup so you can help your company meet revenue goals and fulfill customer needs.
What is a wholesale to retail markup?
A wholesale to retail markup refers to the process businesses use to set selling prices for products available to consumers. You can calculate wholesale to retail markup using the wholesale price of a product and evaluating the best possible selling price for consumers to purchase the product. The selling price you calculate can vary depending on several factors, including competitive pricing, customer needs and the value customers place on the product. Retail businesses that purchase wholesale goods to sell to consumers typically use wholesale to retail markups to set prices that achieve revenue and profit goals.
Formula for calculating wholesale to retail markup
The formula for calculating the wholesale to retail markup percentage of a product is retail price = wholesale price ÷ (1 - markup %), where the wholesale price is the cost of the product from the manufacturer or supplier and the markup percentage is the ideal percentage of the wholesale price you add onto the costs to find the ideal retail price. You can use this formula for determining appropriate retail prices as long as you know the percentage of markup to apply to the product.
How to calculate wholesale to retail markup
Use the formula retail price = wholesale price ÷ (1 - markup %) and the following steps to calculate wholesale to retail markup:
1. Determine the wholesale price of the product
The wholesale price of a product is what a retail company pays for products to sell to consumers. Typically, the wholesale price shows on the products businesses purchase as bulk prices. As an example, assume a company pays $2,500 for a wholesale purchase of small key chains to sell on retail.
The company must calculate the wholesale cost per unit to apply to the formula. If the company pays $2,500 for a bulk purchase of 10,000 key chains, the wholesale price for each key chain is $0.25. Using the formula, plug this value in for the wholesale price:
Retail price = wholesale price ÷ (1 - markup %) = retail price = ($0.25) ÷ (1 - markup %)
2. Identify the ideal percentage of markup
Many wholesalers and manufacturers set suggested retail prices (SRPs) that retail companies use to determine the percentage of markup to apply. However, some businesses have predetermined percentages of markup that result in appropriate retail prices that achieve revenue goals and meet customer needs. Using the example of the key chain retailer, assume the company's ideal markup percentage is 65%. The company uses this value in the formula:
Retail price = wholesale price ÷ (1 - markup %) = ($0.25) ÷ (1 - 65%) = ($0.25) ÷ (1 - 0.65)
Related: How To Calculate Percent
3. Subtract the markup percentage from one
Once you have both the wholesale price and your desired markup percentage, subtract the markup percentage from one. With the example company, this step may look like this:
Retail price = ($0.25) ÷ (1 - 0.65) =
Retail price = ($0.25) ÷ (0.35)
4. Divide the difference by the wholesale price
After finding the difference between one and the markup percentage, divide the result by the wholesale price of the product. For instance, the company selling key chains to customers divides its wholesale price of $0.25 by the difference between one and its markup percentage of 65%. Using the formula, the company calculates:
Retail price = ($0.25) ÷ (0.35) = 0.71 or $0.71
5. Set the retail price based on your results
If you have a manufacturer's SRP, you can usually set the retail prices using this information. However, using the formula can help you determine a retail price point that meets both revenue goals and customer demands if your business sells products without manufacturers' SRPs. In the case of the example company selling key chains, it finds that a retail price of $0.71 per key chain supports its revenue goals while remaining within customers' price needs.
Related: How To Calculate Selling Price
Tips for calculating wholesale to retail markup
When determining the most appropriate wholesale to retail markup for company products, consider the following tips to guide your evaluation:
Research pricing data: Consider competitive retailers and how these businesses price products and determine what customers are likely to pay for similar products within your market. This information can give you insight into where to set your retail prices.
Consider sales volume: Understanding your sales volume can give you an idea of which products can benefit from retail markups and how to make each markup work together to maximize sales and profits.
Look at product diversity: Consider the diversity of products in your company's inventory. For instance, more unique or rarer goods can generally mean a higher markup if the wholesale costs are higher. Similarly, some products benefit from mark downs, especially if it's a common product widely available.
Analyze business costs: The retail markup of inventory goods often includes the costs businesses incur to provide products to consumers. Consider what it costs your company to purchase and supply goods to determine an appropriate percentage of markup.
Make necessary modifications: Wholesale to retail markups benefit from continuous evaluation. Check periodically to determine if current retail prices meet company goals and make modifications where necessary.
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