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What is a Retail Price?
Starting a business

What is Retail Price?

Every business owner has struggled with the issue of product pricing. How do you know what the right price is, how do you calculate the retail price? If you’ve struggled with these questions, you’re not alone. This is an ongoing concern for all business owners.

To break it down, the retail price is the price set by business owners for their products in retail. This is the final selling price for customers. Which means customers do not buy the product to resell it but to consume it. For example, you will pay retail prices when purchasing groceries at a local store. 

What does ‘retail price’ mean?

When looking at the buy and supply chain, you would start with the manufacturer making the product and distributing the product at wholesale prices to retailers. Retailers will then charge consumers for the same product at a higher price - the retail price. 

The term is applied to the price final consumers pay at retail outlets, different from manufacturer price and distributor price. The latter are prices set from one seller to another through the supply chain. 

You might have seen mention of business-to-business (B2B) sellers and business-to-consumer (B2C) sellers. These terms explain who a business's primary target market is. For example, B2B sellers will aim to sell to other companies and will have primarily wholesale prices and sell products in bulk. 

B2C sellers, in contrast, sell to general consumers, and their target market are consumers that buy products to consume i.e. the end user. 

In some cases, a company can be both. Amazon is an example. It sells various products, and the capacity to sell wholesale to retailers and directly to the consumer. 

The difference between retail price and base price

We have established what the retail price is. A different term is the base price, the recommended retail price (RRP). 

RRP means the manufacturer's suggested retail price (MSRP). This is a price set by the company that manufactured the product, sometimes known as the sticker price. 

The RRP typically excludes anything extra, such as 

  • Add-ons
  • Upgrades
  • Applicable taxes 
  • Title
  • License 
  • Document fees and other dealer-related charges.

An example is the base price of a car, on top of which you can add extras like more electronics, roof racks, and different interiors. 

The manufacturer's suggested retail prices (MSRP) are to keep prices at the same level from store to store. This keeps the products' price constant between different retailers. In a way, this is brand protection for the manufacturer, creating consistency. 

How to calculate the retail price

When calculating retail price, you must first work out your markup percentage. This is the percentage you will charge over and above the cost price. This percentage will help you set the prices that will help you obtain an appropriate profit margin while remaining competitive.

There are various ways to go about deciding and calculating a markup percentage. Choosing a markup percentage can be as simple as what percentage of profit you want to earn. Keep in mind that competitively pricing your items is very important for sales. Higher prices might result in fewer sales, and too low can impact your base profit margin if you cannot cover all the expenses. 

A good starting point is to perform an industry analysis to determine what percentage others in your industry are using. An average markup percentage of the industry can be calculated as follows if you have competitor prices available: 

Markup Percentage = [(Selling Price – Cost Price)/Cost Price] * 100

Once you have decided on your markup percentage, you can calculate the retail price for your products. 

Retail price is calculated with the following formula: 

Wholesale Price x (1 + (Markup percentage / 100) = Retail Price

  • You can also use our retail price calculator to save you time and avoid manual calculations. 
  • In this formula, the wholesale price will be the price you pay to buy the product from the supplier. Although in a service-based business, the wholesale price will be replaced with the service cost - the cost you will incur to provide the service to the customer. 

Now that you have a better idea of retail pricing and calculating it, you need to implement it in your business. 

A quicker and easier way to make sure you set all your prices at the right amount is to use Quickbooks online. Our efficient software helps you audit your business performance by tracking your pricing, and creating reports. This way, you can price your items accurately, which ultimately adds to your bottom line. Visit our pricing page to find the right plan for your business or sign up to a free 30-day free trial