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Determining wholesale prices?

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Yesterday I e-mailed a high end boutique manager at a performing arts space of sorts about the possibility of them carrying a selection of my sculpted leather masks, either on consignment or wholesale. Today he requested my wholesale price list. It caught me off-guard, as I expected he'd want to try them on consignment first.

Is there a formula for determining wholesale pricing? Is it half of my retail price, like most consignments would be? Or, should it be even less - 40% or so, since they'd be buying them outright?

The venue is a great match of my own interests and some of my styles will, I think, be very popular there. I don't want to over-price them and risk missing the opportunity, but at the same time, I don't want to under-price them, either. Any advice?

Thank you!

~Tammy

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Tammy,

I have been down that road a little. Not too long after I got into this as a business, I started getting wholesale orders. I made a lot of mistakes. First off, the standard retail price is doubling the wholesale price. In my case, something like spur straps that comparably sold for $30 meant my wholesale price was $15 - materials and labor. Not a huge moneymaker, and in retrospect, not any kind of a money maker. I priced some other things the same. I didn't do the math because some stuff did pay well and carried the losers. The checkbook looked OK, so everything seemed fine. Unfortunately I didn't identify the losers right off the bat. I was too busy losing money in volumes and mkaing it up on singles to do the math to see that.

Once I got that little item straightened out and some advice, I restructured the pricing. I added up the materials and waste and the unaccounted for things like thread oil and finish. I added a markup on that for the materials cost. That gave me a total materials cost, and that was not negotiable. I then added up my labor and shop rate. I set two rates - one for custom retail orders and one for the wholesale and award orders. When I knew the times involved, then I could add materials and the appicable time and rate to set the prices. Some things were heavy on materials and shorter on labor, but most went the other way. It ended up so that the wholesale price was often 3/4 of the custom price. If I just divided the retail by half, I would have lost bigtime on labor. If they could buy something comparable cheaper elsewhere, we both won.

I had a few good wholesale and award customers, and made a lot of different things. I got a lot of experience, paid for equipment as I could justify buying within the proceeds of a few orders, good exposure, and it all fell at a time when I needed the extra money and something to occupy my mind. I spent a lot of long nights and weekends in my little corner of the world. I have no regrets about doing it. One of my belts has been in the Wrangler jeans ads for a couple years now. These customers have kind of faded. One business sold, and enough said there. The other I do intermittant custom orders for now, and I set my price. He usually just sends it on or has me dropship directly. More a customer service to him than a profit center now.

For consignment, that is a two edged sword. If they have competing products, they are going to push whichever one gives them the best margin. If it is an imported planner with that oversized pattern with the odd sized tools used, they'll push it. Your stuff will get shop worn or road weary. Stuff will get lifted or lost. They will lose track of what they have, and will forget they sold 4 things last month and not send you the check. Know who you are dealing with. I had two good ones, that I could deal with. I mostly reserved the consignments for the bigger events like the NFR. You know that in 2 weeks it will be sold, or you can get it back for Christmas presents. I usually set my price on the consignment items higher than wholesale, since they had no inventory cost in it. I made them things that were not competing with similar items they stocked. Basically display it and take the money. Some of these were one-ofs I was trying out new patterns or ideas. The last couple years I have been busy enough, I haven't had time to make consignment orders before Christmas. It was pretty cool for my folks to go to Las Vegas and see my stuff though. My mother's favorite joke was to ask them if it was imported.

Then comes the elephant at the table nobody tells you about. What do you do when one of the wholesale accounts customers finds you, calls you and wants to place an order directly? Do you refer them back to the wholesaler or take them on at your retail rate, after the wholesaler spent their time, overhead, and expense to get them onto your products? The wholesaler may have been charging even more than your normal retail rate. Who's customer are they? Do you put your maker's maker on everything or the customers? Things to think about.

I would talk more at length with the manager a little more about what they are expecting. Come in with a price sheet and a flexible plan, but don't show it right off the bat. You are dealing with a pretty uniqure product, and they aren't selling them on every corner.

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Bruce, I enjoyed reading your comments this morning. Very insightful. I know nothing about the business side of leatherwork, but it sure makes for interesting reading!

Tammy, on an entirely different subject, how's the new shop going? Any lessons learned?

Regards, -Alex :)

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Hi Tammy,

Normally retailers will double the wholesale cost to determine retail price. This is called keystoning. Jeweler's will triple the price; grocers will mark up food way less than double, but for leather masks they should double it.

Consignment should mark it up less than that, and did when I got started years ago. It used to be 67% went to the craftsman, then it went to 60%. When it went to 50% I stopped consigning. Retailers have nothing invested in consignment goods except for wall space, so they would rather sell goods they've bought outright.

I recently went to a local craft/gift shop to see if they wanted to carry my masks (in the past they've bought other craft items from me). The owner said they no longer buy outright--just do consignment. She also said she was expanding her website to sell online, and she would include my masks.

Well heck, I can do that myself and get 100%! I have recently opened a shop on Etsy, and have had success selling there. I recommend it.

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Bruce, That's some of the best advice I've read in a long time. I found that I was ignoring my actual cost in time and materials just to get the order and compete with mass produced products. As a result there was often very little profit in what I sold. As long as the big picture wasn't looking too bad, I didn't really see how I was selling myself short. Looking back, I feel pretty stupid, but reading your advice, I can see how it's part of the learning process.

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