Wholesale vs retail: how to price both as a maker

Wholesale vs retail: the difference for a maker

Wholesale is selling your product to a business that will resell it. Retail is selling it to the person who will use it. When you sell candles at a market or on your own site, you sell at retail. When a gift shop orders a box of them to put on its shelves, you sell at wholesale.

The same product then has two prices. The wholesale price is what the shop pays you. The retail price is what its customer pays the shop, and what you charge when you sell direct. The gap between them is the shop's gross margin, which pays its rent, staff and profit.

What is a wholesale price, and how does MSRP fit in

A wholesale price is the price per unit you charge a business that buys to resell. It has to cover what the item costs you to make, the time it takes to pack a larger order, and a profit, while leaving the shop enough room to sell at your retail price.

MSRP means manufacturer's suggested retail price. It is the price you tell shops you expect the item to sell for. For a maker who also sells direct, the MSRP is normally the same as the price on your own site, so a shop is not undercut by you.

If you are a US or Canada based brand selling on Faire, its pricing policy ties the two prices together: wholesale and MSRP pricing must be the same or lower on Faire as on other places you sell your products, including your direct wholesale site if you have one. Set your wholesale price and MSRP once and use them everywhere you sell.

Keystone pricing, keystone markup and the standard markup for retail

Keystone pricing means a shop doubles its cost to set the shelf price. If you sell a candle to a shop at your wholesale price, the shop puts it on the shelf at twice that, and keeps half of the retail price as gross margin.

Working backwards, keystone tells a maker to set the wholesale price at about half of the retail price. A keystone markup is a 100% markup on cost, which is the same as a 50% gross margin on the selling price. Markup is measured on what the shop paid; margin is measured on what the customer paid.

Keystone is a rule of thumb, and real retail margins vary by kind of shop. The U.S. Census Bureau's Annual Retail Trade Survey reports gross margin as a share of sales for each kind of retailer; the latest year in its table is 2022. In that table, the kinds of shops that often stock handmade goods sit close to keystone, while retail as a whole runs lower.

In the Census tables, miscellaneous store retailers include office supplies, stationery, and gift stores, the kind of shop most makers sell to first.

A gross margin near half of sales is what keystone pricing produces. If your wholesale price is more than half of your retail price, a gift or home shop has less room than it is used to, and is less likely to stock the item.

How to calculate wholesale price, step by step

Example: a hand-poured candle. The figures are assumptions for the example, not typical costs.

1. Add up the cost of one unit

   Example: wax, wick, jar, label and box come to $6, and your time at your own hourly rate adds $3. The cost per unit is $9.

2. Set a wholesale price above cost

   Example: a wholesale price of $20 leaves $11 per unit before fees. Check that this still covers your overhead once you sell a full order.

3. Set the retail price from the wholesale price

   Example: at keystone, the retail price is $40. Use this as your MSRP and as your own site's price.

4. Check the retail price against the market

   Look at what similar items sell for in the shops you want to reach. If $40 is too high, lower your cost or rethink the product; cutting only the wholesale price eats your margin.

Margin on each channel: one candle, four ways to sell it

The same candle earns a different amount per unit on each channel. The table uses the example above: a $9 cost, a $20 wholesale price, a $40 retail price, and a wholesale order of 24 candles. Order fees are spread across the 24 units, and the Shopify plan fee is left out.

Direct sales keep the most per unit, but each sale needs its own buyer, photo, message and parcel. A wholesale order moves 24 units in one shipment to a buyer who then does the selling.

Use the table to decide where your time goes. If a wholesale order still leaves a profit on its first order, reorders from the same shop leave more on Faire's marketplace, because Faire charges the new customer fee only on a new customer's first order. Faire Direct orders pay only processing.

Wholesale order sizes, minimums and payment terms

Shops buy in quantity. You can set an opening order minimum and a smaller reorder minimum, and sell some items in case packs, such as six of one scent. On Faire, minimums are optional (its help center says Order minimums aren’t required), and a reorder minimum is usually lower than the first-order minimum.

On your own invoice you choose the payment terms: payment up front, or net terms where the shop pays within an agreed number of days. Net terms help a shop buy stock before it sells it, but you carry the wait and the risk of late payment.

On Faire, the shop's terms and your payout are separate. Faire offers 60-day payment terms for eligible retailers, while you choose when Faire pays you: a next-day payout costs 3.5% + $0.30 in processing, a 30-day payout costs 2.4% + $0.30, and a 60-day payout costs 1.9% + $0.30, each counted from when the order ships.

Where Nation fits

Questions about wholesale and retail pricing