The usual sequence goes like this. A maker sets a retail price that feels right for the market, sells directly for a year, and then a shop asks for trade terms. The shop wants 50% off. The maker works out that 50% off leaves almost nothing, and concludes that wholesale is not worth doing.
Sometimes that conclusion is correct. Much more often the problem is the order in which the prices were built. A price ladder constructed downward from a retail number you liked will fail at the bottom rung. One constructed upward from cost, with every channel's requirements known in advance, tends to hold.
The structure you are pricing into
Trade pricing in most physical-product categories follows a well-established shape:
- Recommended retail price (RRP) — what the end customer pays, including VAT in consumer markets.
- Wholesale price — what a shop pays you, conventionally 50% of the RRP excluding VAT. Retailers describe this as keystone: they double what they pay.
- Distributor price — where a distributor sells on to retailers, they need their own margin, typically 20-25%, which puts their buying price at roughly 35-40% of RRP.
These are conventions, not laws, and they vary by category — food and beverage often runs on thinner retail margins, jewellery and giftware sometimes on fatter ones. But they are what a buyer will open with, and a business that cannot get within sight of them will struggle to place product at all.
The retailer's 50% is not greed. A shop pays rent, staff, and card fees, carries your stock as working capital, and takes the risk that it does not sell. Their gross margin funds all of that. Arguing the principle rarely works; designing a product whose cost base supports it does.
Build upward, not downward
The correct starting point is the true unit cost — materials at consumption units, loaded labour, absorbed overhead, and a yield adjustment, as set out in how to cost a handmade product. Everything else is derived from it.
Work through the ladder in this order:
- True unit cost. The floor. Nothing below this is a sale.
- Wholesale price. Cost divided by one minus your required wholesale margin. Thirty-five to forty-five percent is a working range for most makers.
- RRP excluding VAT. Wholesale multiplied by two, if you want to offer standard keystone terms.
- RRP including VAT. Add the applicable rate for consumer-facing display.
- Sense check. Is that RRP defensible in the market? If not, the problem is the cost base, and no amount of pricing arithmetic fixes it.
Wholesale = cost / (1 - wholesale margin) | RRP ex-VAT = wholesale x 2
A worked price ladder
A leather goods workshop makes a card holder at a true unit cost of EUR 9.60, and wants a 40% margin on trade sales.
| Rung | Calculation | Price | Your margin |
|---|---|---|---|
| True unit cost | Materials + labour + overhead + yield | EUR 9.60 | — |
| Distributor | 9.60 / 0.70 | EUR 13.71 | 30.0% |
| Wholesale to retailer | 9.60 / 0.60 | EUR 16.00 | 40.0% |
| RRP excluding VAT | 16.00 x 2 | EUR 32.00 | 70.0% |
| RRP including VAT at 19% | 32.00 x 1.19 | EUR 38.08 | — |
| Direct sale on own site | Sell at RRP, absorb 1.9% processing + EUR 2.80 shipping | EUR 38.08 | 60.2% contribution |
Notice the direct channel is more profitable per unit than wholesale but not by the factor people expect, once processing and unbilled shipping come out. Notice too that the RRP was an output, not an input. If EUR 38 is not credible for a card holder in your market, that is a signal about the product's cost structure, and you have found it before signing a stockist rather than after.
When the ladder does not work
If wholesale lands below cost, there are only four real levers, and pretending otherwise wastes a year:
- Reduce unit cost. Larger batches to spread setup, better material yield, renegotiated purchase prices at volume, or design changes that remove labour steps. This is usually the most productive direction.
- Raise the RRP. Viable if the product's positioning supports it. Requires the presentation, materials, and story to match.
- Offer less than keystone. Some retailers will accept 40% off for a product they want. Fewer will, and it narrows your distribution.
- Stay direct. A legitimate strategic choice, not a failure, provided you are honest that customer acquisition then becomes your cost instead of the retailer's margin.
What is not a lever is accepting the order at a loss to build volume. Volume at negative contribution scales the loss. The break-even volume arithmetic in margin vs markup makes this concrete.
The terms that change what you actually get
The headline wholesale price is rarely the money you end up with. Each of these adjusts the real number, and they compound:
- Payment terms. Net 60 on a EUR 16 unit is not EUR 16 — it is EUR 16 two months from now, financed by you. On thin margins this is a material cost.
- Sale or return. You keep the inventory risk and the working capital tied up in it. Price it in or decline it.
- Carriage. Who pays delivery to the shop, and from what order value? Free shipping on small orders can consume the whole margin.
- Samples and swaps. Free samples, damages, and replacements are a real percentage of trade volume. Budget for them.
- Marketing contributions. Catalogue placement, listing fees, and promotional support are discounts under another name.
- Settlement discounts. A 2% discount for payment within 10 days is worth taking only if your cash position genuinely needs it.
Model the account, not the unit. A stockist ordering 40 units at EUR 16 on net 60 with free carriage and a 5% damages allowance is a different proposition to the same order paid on dispatch, and the difference belongs in the decision rather than in a surprise three months later. The working capital effect of trade terms is covered in why a profitable workshop runs out of cash.
Keeping channels from fighting
The fastest way to lose stockists is to undercut them. If a shop pays EUR 16, sells at EUR 38, and finds your own site selling at EUR 29, they will not reorder — and they will tell other buyers.
Practical rules that hold up:
- Sell direct at the RRP. Your extra margin is the reward for owning the customer, not a discount to pass on.
- Differentiate rather than discount: exclusive colourways, bundles, personalisation, or the full range online while stockists carry a curated selection.
- Handle sales periods with a published calendar so stockists can plan around them.
- Keep one RRP per product across every channel and let the trade discount do the work.
Before you accept a trade account
- Is the wholesale price above true unit cost with a real margin, not just above materials?
- Have you modelled payment terms, carriage, and expected damages into the account?
- Can you actually make the reorder quantity within the lead time you promised?
- Does the RRP the shop intends to charge match what you sell at directly?
- Do you have a minimum order value that makes the picking, packing, and invoicing worth doing?
A price ladder built from cost upward answers all five before the conversation starts. That is the whole benefit: not a better negotiating position, but knowing in advance which orders are worth winning.