One of the biggest challenges any growing stationery business can face is making the move to selling wholesale. It can take a toll financially and it’s a lot of hard work. I’ve seen many businesses give it up for one reason or another. In the end, you need to make the best decisions for you and your business, which is why I’m here to help you make an educated decision on whether or not going wholesale is the right choice for you.
Before diving into the wholesale market head first, you need to take a hard look at your costs and pricing to make sure everything is shipshape. Faulty pricing strategies will prevent you from making a profit, and eventually sink your business.
I blame this failure on a the flawed 50/50 pricing strategy that I call The Wholesale Pricing Myth.
The Wholesale Pricing Myth:
If you have a day planner that sells for $48 retail, the wholesale price for this planner would be $24 according to keystone pricing, which is pretty standard for the stationery industry. The Wholesale Pricing Myth is that your cost to make this planner should be $12.
For more information on keystone pricing, check out my post on Pricing Your Products for Wholesale.
A $24 sale price with a $12 cost doesn’t sound too bad, right? That’s a 50% initial markup. How is this not profitable, you ask? Well, you need to pay for the production of the planner you just sold, which is $12, plus pay for a reprint if you intend to continue doing business.
You see, if you plan on making more planners to sell next year, then you need that extra $12 to pay for the reprint (or another round of production on something new). So there goes your $12 “profit”. And then how do you pay yourself? You didn’t go into business to work for free. You want to be rich.
The 50/50 keystone pricing strategy doesn’t trickle down past the wholesale price and will never work if you plan to build a profitable business.
Now let me show you how to put some of that profit into your pocket.
The Rule of 3:
The scenario is the same . . . you have a day planner that sells for $48 retail and $24 wholesale. But this time the target cost to produce your planner is $8, not $12.
By getting the cost down to $8, you can now pay yourself for all of that hard work. You will still collect $24 for each planner you sell wholesale. Then, $8 will go towards the production of the planner you just sold, $8 will pay for a reprint so you can continue selling in the future, and $8 will go in your pocket.
Get in this mindset . . . the income you bring in from selling wholesale needs to fit into three different banks. This is The Rule of 3. In order to run a profitable, sustainable business, you should be putting money into three banks: the production bank, the reprint bank, and the salary bank (your pocket!).
Makes sense right? Of course. The lower you can get your production costs, the better off you’ll be. Stop thinking about pricing as 50/50. Instead use The Rule of 3 to build a profitable business that can afford to grow with you.