Worksheet: Metric 6 Pricing Wholesale to Retail
1) You are a manufacturer of widgets that sells your products to a wholesaler who in turn
sells directly to retailers. You have developed a new widget and you know that your
competition’s product retails for $23 in hardware stores. You know yours is slightly
better, and are pretty sure your product could sell for $27. Assuming a retail margin of
33.3% and a wholesale margin of 25%, what is the wholesaler’s selling price, and how
much can you sell the widgets to the wholesaler for?
2) As a small appliance manufacturer, your cost to manufacture and package your coffee
maker is $10/unit. You want this to be a cash cow, so you decide to sell the coffee maker
to your wholesaler for $19/unit. You know that the wholesaler’s margin is 25%, and that
retailers typically take 33.3% margins on small appliances. What will your coffee maker
retail for rounded to the nearest whole number?
3) A bearing manufacturer buys raw materials for $0.50 per unit, turns the raw materials into
a roller bearing, and then sells the bearings to a wholesaler for $1.00 per unit. The
wholesaler then sells the bearings to retailers for $2.00 per unit, and finally consumers
buy the bearings for $3.00 per unit. What is the per unit margin in dollars for the
manufacturer, wholesaler and retailer? What is the percentage margin for the
manufacturer, wholesaler and retailer? What is the per unit margin in dollars and
percentage margin for the entire chain?
4) If the raw material cost goes up by $0.25 per unit for the bearing manufacturer in
question 3, what will be the retail price charged to consumers if all members in the chain
maintain the same percent margin? What is the effect of the raw material increase to the
consumer? Why is it important to understand channel margins and pricing practices?
Answer to Question 1:
If the suggested retail price of the widget is $27, then:
Wholesaler Selling Price ($) = Retail Selling Price * [1 Retail Margin (%)]
= $27 * (1 – 33.3%)
= $27 * (1 – 0.333)
Manufacturer Selling Price = Wholesale Selling Price * [1 Wholesale Margin]
= $18.00 * (1 – 25%)
= $18.00 * (1 – 0.25)