1/26/2025

Wholesale Pricing on Shopify: How to Calculate Fair Rates

Setting the right wholesale pricing is CRUCIAL for any business looking to thrive in the competitive world of retail. Prices that are too high can push potential customers away, while prices that are too low can leave you with an unsustainable profit margin. If you are selling products on Shopify, understanding the intricacies of wholesale pricing can help you develop a successful strategy. In this blog post, we will cover everything from calculating production costs to setting profit margins, and the different pricing methods available to you.

What is Wholesale Pricing?

Wholesale pricing refers to the charges that retailers pay to purchase products in large volumes. Typically, these prices are lower than retail prices. This is because wholesalers rely on economies of scale; the more products they sell, the cheaper the cost per unit. For instance, if a product costs $5 in labor and materials, a wholesaler might set the wholesale price at $10, allowing for a gross profit of $5 per unit sold (source: Shopify).

Wholesale vs. Retail Pricing

It's essential to understand the key difference between wholesale and retail processes. Wholesale involves moving goods from manufacturers and distributors to retailers, while retail is the process of selling these goods directly to consumers. As a result, profit margins tend to be higher in retail, but the effort and investment required to achieve those margins is also considerably more (source: Shopify). When you're selling wholesale, you're generally selling larger quantities, which means you have to adapt your pricing strategy accordingly.

How to Calculate Wholesale Prices

Calculating your wholesale pricing can be broken down into a few straightforward steps:

1. Research the Market

Before you set your prices, you need to gather relevant market data. Research potential competitors and determine where your product fits into the market—whether it’s a discount brand, a contemporary brand, or a luxury designer brand (source: Shopify).

2. Calculate Production Costs

Next, you need to determine the Cost of Goods Manufactured (COGM). This includes all expenses associated with creating your product, such as materials, labor, and any additional overhead costs required to get your product ready for sale (source: Shopify). The formula for COGM is:

Total Material Cost + Total Labor Cost + Additional Costs (Overhead) = Cost of Goods Manufactured

3. Set a Profit Margin

Your desired profit margin will play a vital role in determining your wholesale prices. Typically, aiming for a profit margin of between 15% to 50% is common in wholesale pricing scenarios (source: Shopify). If you’re unsure exactly where to set this margin, utilizing tools such as Shopify's Wholesale Price Calculator can help!

4. Account for Additional Costs

Don’t forget to factor in other costs associated with running your business. This can include overhead expenses, such as rent, utilities, and customer acquisition costs (CAC). To maintain profitability, make sure to calculate your costs of goods sold (COGS) and overhead accurately (source: Shopify).

5. Use the Wholesale Pricing Formula

Once you have all your costs and desired profit margins sorted, you can apply them to the following formula:
Wholesale Price = Cost of Goods x 2
By applying this formula, you can ensure that your wholesale prices allow for a gross profit margin of at least 50%. If you're dealing with B2B customers, they will most likely mark up products further when selling at retail prices. Apparel brands, for example, often aim for a 30% to 50% wholesale profit margin, while direct retail might shoot for a profit margin of 55% to 65% (source: Shopify).

Wholesale Pricing Methods

Keystone Pricing Method

The keystone pricing method is relatively straightforward and widely used. In essence, this method involves setting retail prices at twice the wholesale price, meaning a 100% markup. The formula looks like this:
Wholesale Price = Retail Price / 2
However, this approach doesn't take into consideration market competition or perceived value. This means it may not always provide enough margin to cover operating expenses (source: Shopify).

Absorption Pricing Method

Absorption pricing is another effective method. By factoring in all costs, including fixed costs and profit margins, you determine the final price for each product. The absorption pricing formula is as follows:
Wholesale Price = Cost Price + Profit Margin
This strategy can be particularly useful as it ensures that nearly all costs are covered, leading to predictable profits; however, you must be cautious about market perception and competition (source: Shopify).

Differentiated Pricing Method

Differentiated pricing can optimize return on investment (ROI) and allows you to charge different prices based on demand conditions. This pricing strategy lets different buyers pay different prices for the same product based on their circumstances, helping you maximize revenues in varying market conditions (source: Shopify).

Tips for Setting Wholesale Prices

Set Manufacturer's Suggested Retail Price (MSRP): The MSRP is the price that the manufacturer recommends retailers charge customers. Setting this price helps to avoid potential conflicts between resellers and promotes fair pricing practices (source: Shopify).
Consider a Dual Pricing Strategy: By creating different price points for separate customer bases (e.g., a retail price for regular customers and a wholesale price for B2B customers), you can ensure profitability no matter who buys your products (source: Shopify).
Think About Sales Volumes: When setting your prices, consider how many products your retailer clients will purchase. Lower prices can incentivize larger orders, while higher prices might work for smaller quantities. You should also consider setting minimum order quantities to keep profits up (source: Shopify).
Regular Reviews: Prices should not be set in stone! Regularly auditing your pricing strategy is crucial to remain competitive against new entrants and fluctuating customer demands (source: Shopify).

Make Your Pricing Strategy Work With Arsturn

If you’re looking to enhance your business and customer engagement while managing all this pricing complexity, why not take a look into Arsturn's services? Arsturn allows you to effortlessly create custom AI chatbots for your website that can assist customers in real-time, providing accurate and timely information on pricing, stock levels, and product details. With no coding skills required, Arsturn enables you to build meaningful connections across all your digital channels, enhancing your overall brand communication.

Join thousands of satisfied users leveraging the power of conversational AI to elevate customer engagement while streamlining operations. So, grab a free trial today to see how Arsturn can supercharge your business!

By understanding the ins and outs of wholesale pricing on Shopify, you’re not just setting your business up for success today—you’re creating a sustainable model for the future. As the market evolves, so too should your strategies, and having reliable tools and partners like Arsturn can make all the difference. Happy wholesaling!