dejure

Retail Pricing for Consignments

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Forty years or so ago, I started the craft of woodworking.  Shortly after that, a few of my things started selling.  Like many, I desired to sell more, if only to allow me to buy more and better equipment, or to buy more and better materials needed to produce things.

Outlet sources for selling things are abundant, but getting a store to buy your things outright can be a challenge, as I found out.  Because of that, I decided to look into consignment sales.  However, I soon discovered the following:

    1)    Stores do not all want the same percentage of a consignment sale. Some might settle for twenty-five percent, another thirty and yet another fifty percent.

    2)    Determining the retail price was its own challenge. Most stores wanted to take my wholesale price, take their percentage of that, then add the result to the wholesale and call it retail. 


    If the store just took the money they added to my wholesale for each sale, I would get my required wholesale price.  Taking their percentage off the entire retail, on the other hand, left me less than my wholesale, and gave the store a higher percent of the sale.

    I needed a way of arriving at a retail price from which stores could just subtract their percentage. I inquired around to stores, bankers and mathematicians, but just got the method noted above.  In addition to the problem noted, above, it seemed a cumbersome way of figuring one hundred different retail prices.  Since each item was often quite differently and, accordingly, would be priced differently. Using that method, I had to enter the 1.25, or the 1.30 and so on, then multiply it against each of my required wholesale prices.

    For the reasons stated, I needed a better way, so experimented and, after some time, lucked on to the right formula. It is simple and to the point. A warning though, many calculators are defective or otherwise incapable of this simple calculation.   So if you buy one and hope to use this formula, check first to be sure that subtracting the store's percentage leaves you with your wholesale price.  That said, here is the price method:


First, you need to know your percentage of the sale.

Next, divide your percentage into your wholesale amount for your retail price.

     NOTE:  Divide the decimal representing your percentage (e.g., for 75%, use .7 (store's share 30%), for 75%, use .75 (store's share 25%)
                 into the wholesale price, or use the percent key.  However, the percentage key may put you a decimal off. If so, it should be obvious
                 and you can just move the decimal right one place.


    When you subtract the store's percentage, you will have your wholesale amount.




NOTE:       The process of computing retail was made more complicated by that I hadn't done that kind of math in years and forgot things, like 100% equaled one, 99% and less was the same number in a decimal and so forth.  As such, it taxed my brain [and there was no internet to get it back on track] to figure out all I had to do was add a one in front of the store's percentage to arrive at their method of determining retail.

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Dejure is saying they are taking x% commission on retail, not a markup, so he wanted his wholesale price to compensate for the commission. A mark up like your example (35%) would be simpler all around but markup and commission are different things. I've never sold on commission so I have no idea what is normal. 

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So, this one instead?

35% commission

R=retail

W=wholesale

100%-35%=65%

R(.65)=W

R=W/.65

What calculator won't perform this function? I still feel I am missing something.

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I always divided to get the retail price.

to add a 25% my method was always to divide by .75

Because

X / .75 = y

y x .75 = X

 

If you do instead

 

XX x 1.25 = YY

YY x .75 =  less than your original XX

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Looks like a lot of overthinking is going on.  The OP knows what wholesale amount he wants to achieve and he knows what the commission is.  Probably the most basic algebra problem.  R=retail price, C=%of commission (expressed as a decimal), W=wholesale (or net return)

 

R- (R*C) = W

 

Or am I missing something?

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Actually I simplified the process ... I tell stores ...

 

This is "your" price ... end of story

 

And I never discount. If you discount that means your original price was a lie. No trust ... no relationship.

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Yeah Byrdie, the 100%-commission% is one I do in my head. That single step of mental math eliminates the need for any subtraction step on your calculator. If you take your wholesale asking price and simply divide it by your net take home percentage, the very same algebraic process becomes a simple division on your calculator. Your post, my second post, and Bobby's first half without double letters are all the exact same process.

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you guys make money doing this?

 

most of our galleries 50%.  They work for it though and it gets your name out for customers to approach you directly  which is nice because you get the commision.   I say this because if a gallery finds you selling similar piece and trying to undercut them you'll never show there again.

 

how do you pay yourself to sell a piece?   are you driving to craft fairs with entrance fees?  you have to recover those costs. 

 

The price to produce a piece is just a part.

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I started with big dreams and then realized that the most important thing is to build a reputation and a brand.

 

Without a name you are nothing.

 

Start with simple products and build from there.

 

you guys make money doing this?

 

most of our galleries 50%.  They work for it though and it gets your name out for customers to approach you directly  which is nice because you get the commision.   I say this because if a gallery finds you selling similar piece and trying to undercut them you'll never show there again.

 

how do you pay yourself to sell a piece?   are you driving to craft fairs with entrance fees?  you have to recover those costs. 

 

The price to produce a piece is just a part.

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35% was not a recommendation, it was an arbitrary number just to show a process. Each shop and each gallery behave uniquely and vary from market to market and price point to price point. Experience is your teacher. Until you have experience, plan to lose money on at least a few. You might not, but if you do it will not paralyze you with disappointment.

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It's not really that hard to figure out, if people want I can post a spreadsheet that I made that lets you see what you will make on Etsy, after Etsy and PayPal take their cut.

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Actually I simplified the process ... I tell stores ...

 

This is "your" price ... end of story

 

And I never discount. If you discount that means your original price was a lie. No trust ... no relationship.

 

That would be the best and easiest all around, a simple mark-up. You get your money and they get the difference but I suspect that many consignment shops are working off commission. 

 

In dejure's case it sounds like the store wants him to set the retail price in which case it's the simple formula in my first post.

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McQ, it really really depends on how you define profit.

I should have written wholesale price instead of profit as they are different things.

Sent from my T-Mobile G2 using Tapatalk 2

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I used stores around me and gave them a set price and sat down to observe. Then I used their formula .... raised my prices again and tested the market. ... kept getting orders and raised them again ... kept getting orders and raised them one more time. I am up at a point where I am getting 20% no's which tells me that I could raise them a bit more but I am OK with the money I am making.

 

So ... use the market to test the pricing structure. Economists call this the elasticity of the demand curve.

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If your using simple MU your going to go broke.

 

Example for basic retail: cogs = $150

                                       GPM= 60%

                                       Cost to store = $375

                                       Your margin = $225

                                       Retail @30% commission = $487.50

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I apologize in advance, because this doesn't answer your question, but instead posses more.

 

Why are you trying to set your retail price based on your wholesale price?  Where did you get your wholesale price?

 

In most cases, you have to be willing to take a haircut selling to a retailer over a wholesaler, because the retailer has more overhead to absorb (which isn't your problem...but it is).  In exchange for the haircut, you should get volume, which you should be able to convert to efficiency (cost reduction).  That is all textbook theory, and not always practical fact.  

 

They should provide you a price they can sell at.  The biggest trap that craftsmen of all trades fall into early on is the idea of cost+ pricing.  The market doesn't care what your cost is, or profit margin, or any of that.  That is your business.  They care that they get value.  Price is only half of the value equation, so don't forget to compensate for features.  Further, price is dependent on competition, and the markets willingness to pay, not cost.  

 

I recommend you find the price the market will bear, and they calculate your costs.  If you are in the hole, find a way to lower costs or move on.  Cost+ pricing is a surefire way to end up sitting on inventory indefinitely, until you finally clearance it and lose your shorts.  Better to find out up front that the product isn't worth your time, before you invest too much effort and resources.

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