There are essentially two numbers for inventory in the retail trade: wholesale pricing and retail pricing. The term wholesale denotes the transaction between a distributor or manufacturer and a retailer in which the retailer buys products in bulk. The retail price paid by the end consumer is set by the retailer, but wholesalers usually offer “suggested retail pricing." In general, retail price is set at “keystone," which is double the wholesale price. However, some retailers use a set gross profit margin to determine retail prices.
Calculate the item's unit price. Wholesale pricing is for bulk purchases, so to determine an appropriate retail price you must first take the total wholesale price and divide it by the number of units received in the bulk order. This will give you the item's wholesale price per unit.
Determine your keystone price. Multiply your price per unit by 2 to calculate the unit’s retail keystone price. For instance, an item with a wholesale price per unit of $1.65 would be priced at $3.30.
Factor in your gross profit margin. In an alternative to keystone pricing, you may set a desired gross profit margin or percentage to calculate your retail pricing. If your stated gross profit margin is 40 percent, you would take the wholesale price per unit and multiply it by .40, or 40 percent. Next, add this calculation to the wholesale price per unit. For example, a unit with a wholesale cost of $1.00 would retail for $1.40.
Revisit your profit margin or percentage on a quarterly basis. This number should be arrived at by taking into account your business' monthly expenses, including rent, utilities, insurance and cost of goods.
- Revisit your profit margin or percentage on a quarterly basis. This number should be arrived at by taking into account your business' monthly expenses, including rent, utilities, insurance and cost of goods.
Owen Richason grew up working in his family's small contracting business. He later became an outplacement consultant, then a retail business consultant. Richason is a former personal finance and business writer for "Tampa Bay Business and Financier." He now writes for various publications, websites and blogs.