Yesterday, this email landed in my inbox:
When it comes to wholesale, who pays the shipping costs? You or the buyer?
The short answer is simple, the buyer.
But the reality is much more nuanced. Which leads me to a misconception worth addressing. One that I’ve been perpetuating myself for the last several years.
When calculating retail price, the simplest formula out there is wholesale price times two. It’s quick, it’s easy, and for many years, it’s what I used.
But last year, I changed the markup on my own website to wholesale times 2.2. Why?
Because it was more inline with what buyers have to mark up my products in order to make a profit. I found that many of my stores were using a 2.2 markup, and some were going as high as 2.5. (I still have some stores at double, which is why I tried to split the difference.)
When first getting into wholesale, it’s easy to feel like stores take 50% of your profits and make out like bandits. But retail stores have a lot of overhead. Rent, staffing, insurance, display, marketing, and of course, the shipping costs to get all those lovely items into the store.
All those expenses quickly eat into a store’s (to be honest, pretty slim) profit margin.
And if shipping costs are high, stores will need to mark up 2.2 or higher just to offset those costs.
So by all means, continue to charge your stores for shipping. It’s the norm. But keep in mind that it’s just one more costs stores need to factor in when setting a final retail price.
Setting your MSRP (that’s manufacturers suggested retail price) at least 2.2 times above wholesale cost will make life easier for your stores, help keep pricing more consistent, and give you a bigger margin when you do sell at retail. That’s a win-win for everyone.
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Have more wholesale questions? Check out my best selling class on Creative Live, Sell Your Products to Retailers.
In the UK I have to take into account the 20% vat that I have to charge and the retailer has to pay over to the taxman. So my recommended mark-up is 2.4 – which, after the tax element is removed, makes the RRP still only double the wholesale price. I try and make sure that my wholesale price is high enough so that I cover all my overheads etc, without making the products over-priced. But I might review my RRP based on what you’re suggesting.
We pay for the shipping if the retailer’s order is over a certain amount (UK destinations only)
Great post Megan. Shipping cost are what some consider a necessary evil and probably one of the things I had to explain the most to my customers – especially since we were shipping larger items which equals higher shipping and freight costs.
If I had a retailer who was upset or questioning shipping/freight I explained it like this…there is always a cost for shipping and someone has to pay it. If you’re being offering free shipping, they are making up the cost somewhere — i.e. the $$ is usually built into the cost of the product. As a company we decided not to build shipping cost into the cost of the product, therefore…you are paying the shipping based on your area and products purchased instead of a blanket average cost.
I also passed my discounts onto the customer and they could verify this by checking it against UPS/FedEx published rates.
Shipping even get’s tricker when your rates are based on dimensional weight vs. actual weight.
I love your honesty about bumping up your markup to 2.2 – such a great point.
I just found your blog and I am in LOVE. So if you see several comments under old post dont mind me. I am soaking up some knowledge =)
While wholesale customers expect to pay the shipping you should also offer them choices of services. The post office sometimes is better service for remote areas. Many customers have there own courier accounts as well. We always negotiated a good deal with couriers and passed the savings on to our customers. Even though they expect to pay shipping they generally do not like to pay more than you pay or handling charges.
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Great post! My buyers always pay for shipping costs. Since UPS/FEDEX have gone up in cost to ship boxes, I have started using USPS Parcel Select which ends up being less expensive for the buyer. Believe me, the buyers will appreciate you for it.
Hey Geninne, I do want to tell you my experience with Galison I sent an email to Kimberley from Galison the moemnt you published your planner on your blog. Wantd to order a planner, but asked how much the shipping would cost to The Netherlands. Had a reply asking how I got their emailaddress and after I explained that you put a link on your blog where I could buy the planner, I did not hear from them again!!! Now I found out on your blog that they are sold out! A very big disappointment, as I was very early with my mail to Galison…
This discussion explained a lot. While both seller and buyer are willing to cut shipping cost, a few years ago when I introduced SmartPacker software (www.zhihuo.net) and approached a few carriers on how the tool can make fuller use of container space, then learned they may rather use more containers so they can charge more!