AIWholesale vs retail price: formulas, worked examples and a price floor
The wholesale price is what a shop pays you for each unit. The retail price is what its customer pays at the till, and the gap between the two, once VAT is taken out, is the retailer's margin. To work out wholesale price from retail price, take VAT off the retail price, then multiply by (1 minus the retailer's margin): a £30 face oil with 20% VAT, sold by a shop working to a 50% margin, has a wholesale price of £12.50. This guide covers wholesale vs retail price with the formulas, a worked table for three products in different categories, a margin vs markup table, a spreadsheet margin calculator and how to set a price floor.
1. Wholesale vs retail price: what is the difference?
The same product carries two prices. You set one and recommend the other.
| Wholesale price | Retail price | |
|---|---|---|
| Also called | Trade price | RRP (recommended retail price), shelf price |
| Who pays it | The shop, salon, café or other stockist | The shopper |
| Who sets it | You | You recommend it; the shop decides the final shelf price |
| VAT | Usually quoted excluding VAT, with VAT added on the invoice if it applies | Includes VAT where VAT applies |
VAT is where most pricing mistakes start. Most food in the UK is zero-rated, so a jar of chutney's shelf price has no VAT in it. Crisps, confectionery, soft drinks and alcohol are standard-rated at 20%, and so are non-food goods such as skincare and candles. A shop selling a £18 candle hands £3 of that to HMRC, so its margin comes out of £15, and your wholesale price has to be worked out from £15 too.
2. The wholesale margin formula, and the others you need
Margin is profit as a share of the selling price. Shops talk in margin, so work in margin too. These five formulas cover every calculation in this guide:
Retail price excluding VAT = retail price ÷ (1 + VAT rate)
Wholesale price = retail price excluding VAT × (1 − retailer's margin)
Retail price excluding VAT from a wholesale price = wholesale price ÷ (1 − retailer's margin)
Retailer's margin = (retail price excluding VAT − wholesale price) ÷ retail price excluding VAT
Your wholesale margin = (wholesale price − your unit cost) ÷ wholesale price
Use 0.2 for 20% VAT and 0 for zero-rated products. A 50% margin is 0.5.
Wholesale margin vs retail margin
There are two margins on every product you sell through a shop. Your wholesale margin is your profit on what you charge the shop. The retail margin is the shop's profit on what it charges the shopper. Both are measured against the selling price, excluding VAT.
Take a 200g candle from Ember & Wick, a candle maker, sold to a gift shop at £6.75 and on the shelf at £18.00. Ember & Wick's unit cost is £3.10, so it makes £3.65 a candle, a 54% wholesale margin. The shop takes £15.00 after VAT and keeps £8.25, a 55% retail margin. The percentages look close, but the shop makes more in pounds because it is working from a bigger number. Both have to work. If the shop's margin is too thin it won't stock the product, and if yours is too thin it isn't worth making.
3. How to calculate wholesale price from retail price
Work backwards from the shelf, because the shelf price is the one the shopper judges you on. For each product:
- Pick the retail price. Look at similar products in the shops you want to be in and decide where yours sits.
- Take off VAT if the product is standard-rated. Divide by 1.2 for 20% VAT.
- Ask the buyer what margin they work to. It varies by shop, by category and sometimes by product, so ask rather than assume.
- Multiply the retail price excluding VAT by (1 minus that margin). This is your wholesale price.
- Check your own margin at that price against your full unit cost. If it is too low, change the retail price, the cost or the product before you change the shop's margin.
Here is the method for three products in three categories. The retailer margins are examples; use the ones your buyers give you.
| Product | Retail price | VAT | Retail ex VAT | Retailer's margin | Wholesale price | Your unit cost | Your margin |
|---|---|---|---|---|---|---|---|
| Kindred Skin face oil, 30ml | £30.00 | 20% | £25.00 | 50% | £12.50 | £4.20 | 66% |
| Ember & Wick soy candle, 200g | £18.00 | 20% | £15.00 | 55% | £6.75 | £3.10 | 54% |
| Wildfire Chilli Co chilli jam, 250g | £5.50 | 0% | £5.50 | 40% | £3.30 | £1.95 | 41% |
Kindred Skin, a skincare brand in Leeds, has plenty of room on its face oil. Wildfire Chilli Co in Bristol makes £1.35 a jar, so it has less room for discounts and delivery costs, and section 6 shows how to check how far it can go.
Example: forgetting the VAT
Ember & Wick works from the £18.00 shelf price instead of £15.00: £18.00 × 0.45 = £8.10.
The shop sells at £18.00, pays £3.00 VAT and keeps £15.00. Its margin is (£15.00 − £8.10) ÷ £15.00 = 46%, not the 55% it asked for.
A buyer who checks the sum will either ask for a lower price or decline the range. Run the check yourself before the price list goes out.
4. Margin vs markup: a conversion table
Margin and markup use the same profit in pounds but divide it by different numbers:
Margin = (price − cost) ÷ price
Markup = (price − cost) ÷ cost
To convert: markup = margin ÷ (1 − margin), and margin = markup ÷ (1 + markup).
A 50% margin equals a 100% markup. If you add a 50% markup to Ember & Wick's £3.10 cost, you get £4.65, and the margin on £4.65 is only 33%. Use this table to switch between the two:
| Margin | Markup | Multiply cost by |
|---|---|---|
| 20% | 25% | 1.25 |
| 25% | 33.3% | 1.33 |
| 30% | 42.9% | 1.43 |
| 33.3% | 50% | 1.50 |
| 40% | 66.7% | 1.67 |
| 50% | 100% | 2.00 |
| 55% | 122.2% | 2.22 |
| 60% | 150% | 2.50 |
The "multiply cost by" column works for both sides. A shop working to a 50% margin doubles your wholesale price to get its shelf price before VAT. When a buyer quotes you a percentage, confirm whether they mean margin or markup before you build a price list on it.
5. A wholesale margin calculator you can build in a spreadsheet
A spreadsheet with one row per product does all of this for your whole range and updates when a cost changes. Set up these columns, enter the formulas in row 2 and copy them down:
| Column | Heading | What goes in it |
|---|---|---|
| A | Product | Name and size |
| B | Retail price | The shelf price including VAT |
| C | VAT rate | 20% or 0% |
| D | Retailer's margin | The margin the buyer works to, such as 50% |
| E | Unit cost | Your full cost for one unit |
| F | Retail ex VAT | =B2/(1+C2) |
| G | Wholesale price | =F2*(1-D2) |
| H | Your margin | =(G2-E2)/G2 |
| I | Your markup | =(G2-E2)/E2 |
| J | Minimum margin | The lowest margin you will accept, such as 40% |
| K | Price floor | =E2/(1-J2) |
| L | Room above floor | =G2-K2 |
Format C, D, H, I and J as percentages. Sort by column L to see which products have the least room for discounts.
6. How to set a price floor
A price floor is the lowest wholesale price you will accept for a product. Work it out once, write it down, and you can answer a discount request on the spot.
Price floor = full unit cost ÷ (1 − your minimum margin)
Full unit cost means everything it takes to get one unit to the shop: making it, packaging, labour, your share of the delivery, and any card or marketplace fees. Your minimum margin has to cover the costs that aren't in the unit cost, such as rent, software and your own pay. Your accountant can help you set it from your figures.
Example: Ember & Wick's floor for its 200g candle
Unit cost £3.10, plus £0.40 for its share of delivery = £3.50 full unit cost. Minimum margin 40%.
Floor: £3.50 ÷ 0.60 = £5.83. The wholesale price is £6.75, so there is £0.92 of room.
A 10% volume discount gives £6.08. That is above the floor, so Ember & Wick can offer it.
A 15% discount gives £5.74. That is below the floor, so it says no or offers 10%.
A distributor that needs 25% off the £6.75 would pay £5.06, below the floor. Ember & Wick would need a higher shelf price or a lower cost before that deal works.
Check the floor whenever you are asked for something that cuts your price:
- Volume discounts and trade show offers. Work out the discounted price and compare it with the floor before you print the offer.
- Early payment discounts. "2/10 net 30" takes 2% off for paying within 10 days. Our guide to wholesale payment terms explains how it works.
- Marketplace orders. Faire and Ankorstore charge commission on orders. Take the commission off at the marketplace's current rate, then compare what is left with your floor.
- Distributors and wholesalers. They buy from you and sell to shops, so they need a margin as well as the shop. Ask what price they need, then check it against the floor.
Review your floors when ingredients, packaging or delivery costs change. If the floor moves above your wholesale price, you need a price rise; the prices clause in our wholesale terms and conditions template covers how much notice to give stockists.
Questions about wholesale and retail prices
How do you calculate wholesale price from retail price?
Take VAT off the retail price if the product is standard-rated, then multiply by 1 minus the retailer's margin. A £30 product with 20% VAT and a 50% retailer margin has a wholesale price of £25 × 0.5 = £12.50.
What is the wholesale margin formula?
Wholesale margin = (wholesale price − unit cost) ÷ wholesale price. A product that costs £3.10 to make and sells to shops at £6.75 has a wholesale margin of 54%.
What is the difference between margin and markup?
Margin is profit divided by the selling price; markup is profit divided by the cost. A 50% margin is the same as a 100% markup, so always check which one a buyer means.
Is wholesale price half of the retail price?
Only when the retailer works to a 50% margin and the product has no VAT. Margins vary by shop and category, and VAT has to come off a standard-rated product first, so ask each buyer what margin they work to.
Do wholesale prices include VAT?
Wholesale prices are usually quoted excluding VAT, with VAT added on the invoice if the product is standard-rated. Retail prices include VAT, so take it off before you work out anyone's margin.
What is a price floor in wholesale?
A price floor is the lowest wholesale price you will accept for a product. Work it out as full unit cost divided by (1 − your minimum margin), and check every discount or distributor price against it.
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