Wholesale Pricing

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Introduction

If you are making candles and are selling them, or hope to sell them, it would be wise to consider wholesale pricing at the outset of your business.  It is a key consideration when deciding on a price-point for your products. Many people get this wrong and after initial success, selling their candles at a bargain price, find themselves unable to grow.

Selling directly to the public is very profitable, but most businesses will end up selling wholesale in order to grow.  Social media, party-plan, subscription services and other ways of reaching customers can offer opportunities for direct selling, but the market place is busy and it can be hard to stand out.  Many people still like to buy gifts from gift shops, where they can pick products up, touch and smell them.

So, if you want to grow your candle business significantly in the years to come, you are probably going to have to consider wholesale selling.

Wholesale pricing - How much will I get?

Shop owners have higher overheads than online retailers, as they will have rent and rates to pay, and usually in more expensive central locations.  As such, they need to make a good return on everything they sell.

For gifts like candles and diffusers, most retailers will expect to pay a maximum of 50% of the retail price.  So, if the RRP of your candle is £25, a shop owner would normally expect to pay no more than £12.50 per item including VAT.  

Negotiating a Better Deal

It may be possible to persuade a store owner to accept less than 50% of the RRP as profit.  One way to do this is to offer a sale-or-return type deal, as this reduces the store owners financial outlay.  For example, you can supply 10 candles at no cost to the store owner and as they sell, you collect 60% or 70% of the retail price and give the store owner the commission of 30%-40%.  Not all store owners will agree to this, but it may be worth asking to get you started.

VAT

Larger gift stores may be VAT Registered.  At the time of writing, any company generating revenues of over £85,000 must register for VAT.  A link to the current thresholds is below.

https://www.gov.uk/vat-registration-thresholds

VAT Registered companies can issue VAT invoices and can reclaim VAT on goods invoiced.  So, if you are not VAT registered, you cannot legally issue a VAT invoice.  This may pose a problem if you are selling to a VAT registered gift shop, as they will be unable to reclaim the VAT on your goods, whereas if they purchased from a larger VAT registered candle maker, they could reclaim 20% of the invoice price.

Here is an example to illustrate the point:

Case 1 - Shop buys candles from non VAT registered supplier

10 x Candles at £12.50 each = (£125)

Shop sells them at £25 each = £250 

VAT payable by shop to HMRC = (£50)

Profit = £75

 

Case 2 -Shop buys candles from VAT registered supplier

10 x Candles at £12.50 each = (£125)

Shop sells them at £25 each = £250 

VAT payable by shop to HMRC = (£50)

VAT reclaimed by shop against purchase = £25

Profit = £100

 

There are a number of ways to deal with this issue.

  1. Sell only to smaller non-VAT registered stores (there probably are not many)
  2. Offer a larger discount against RRP, i.e. if the candle has an RRP of £25, sell it for £10.
  3. Voluntarily register for VAT
  4. Hope that the design or other USP of your product sway the store owner to accept a reduced margin

 

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