Hello,
I read through your responses in this AMA just now. I was computing the suggested formulas such as:
Selling Price = Product Cost x 2.5 Markup
Selling Price = Product Cost / (1 - Desired Gross Profit Margin)
But I then realized that this would only work if you are the main producer of the item, and therefore you have the lowest production cost possible. In my case, I am just a middleman reselling a product from a distributor. Therefore, I have to pay a wholesale price (which is my cost but this is significantly higher than the product cost). Those formulas above would not make sense for me because the selling price would be too high if I were to use the wholesale price as my cost. What would be the right markup for me as a middleman reselling a product online? What net profit margin should I be aiming for?
Thank you!
Hey @anothersale , thanks for the question - very spot on.
If you’re acting as a middleman and assuming you don’t have any other costs besides the wholesale price (and potentially shipping), here’s a simple formula you can use:
Your product price = Wholesale price + Other costs + Expected profit
Your expected profit should be an amount you’re comfortable with, but also something that won’t push your price too far beyond the market standard. Depending on any other operational costs you may have, you can adjust your expected profit accordingly.
For example, if you purchase a product from a manufacturer with a cost of $30, pay $5 for shipping, and spend $5 on customer acquisition, your formula could look like this:
Product price = $30 (wholesale) + $5 (shipping) + $5 (customer acquisition) + $10 (desired profit)
In this case, your total product price would be $50, with a markup of approximately 1.6x. The $10 represents your actual net profit, assuming there are no other costs.
Hope this helps clarify things! Let me know if you’d like me to dive into any more details.
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