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?
Answer:
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)
= $18.00
Manufacturer Selling Price = Wholesale Selling Price * [1 - Wholesale Margin]
= $18.00 * (1 – 25%)
= $18.00 * (1 – 0.25)
= $13.50
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?
Answer:
Manufacturer Selling Price = Wholesale Selling Price * [1 - Wholesale Margin]
Wholesale Selling Price = Manufacturer Selling Price / [1 - Wholesale Margin]
= $19 / (1 – 25%)
= $19 / (1 – 0.25)
= $25.33
Wholesale Selling Price = Retail Selling Price * [1 - Retail Margin]
Retail Selling Price = Wholesale Selling Price / [1 - Retail Margin]
= $$25.33 / (1 – 33.3%)
= $25.33 / (1 – 0.333)
= $37.98
Therefore the coffee maker will retail for $38.00