To wholesale or not to wholesale? It's a question I see coming up again and again in forums.
First, when it comes to wholesale pricing, it can vary. Typically it's been 50% of your retail price, but I'm happy to see that more and more dyers aren't doing that because of the already slim margins. 60/40-- where the store is getting 40% off the retail price seems to becoming more common, and I'm also seeing 70/30, which is what my terms are, and which I think is ideal for indie dyers.
However, you need to know what your retail price is, what the profit is that you are making from that, and then you can calculate a hypothetical wholesale price and make an educated decision from that. Especially if you are hiring help...otherwise you can end up in the situation that I did at one time, where I was actually losing money with every wholesale order. That was a pretty big shock, although entirely my fault, since I hadn't run the numbers.
Numbers and math are not my strong suit, to put it mildly, but luckily I have a partner who runs a successful company (Mil-Spec Monkey), one of the most logical and practical persons I've ever met, and helped me figure out calculations for this post.
We're starting with a hypothetical order of 48 skeins of American Sock. First, we need to figure out the raw material costs. 48 skeins is the number I can get from 4 cones of Tahoe from Ashland Bay.
I sell my yarn in skeins of 400 yards. Tahoe comes in 3 lb cones, 5040 yards/cone, so I can get about 12 skeins from one cone, and 4 cones is what I need to purchase to get the lowest price per cone.
Price per cone: $69
4 cones: $276
Shipping costs (don't forget this!): $18.62
More than yarn goes into dyeing, though, so we also need to calculate the cost of dye and citric acid and labeling. I use a lot of different dyes, but I decided to use a packet of Cushing's Dyes as a measurement to make things easier. 3 packets of Cushing's Dyes (1/3 oz per packet) will dye a 3 lb cone.
3 packets plus an estimated $3 shipping: $12.75/cone.
4 cones: $51
I use citric acid, which I buy in bulk of 50 lb bags (I bought my most recent stock from soap goods.com).
50 lb bag: $64
I estimate that I use about a cup of citric acid for 6 skeins the way I dye, so for a 48 skein order I would use 8 cups, which we'll round to about 8 oz to be on the safe side.
800 oz (the total bag) divided by 8 oz: 100 cups
This breaks down to $1.10/cup
8 cups at $1.10/cup= $8.80
Labels (I use tags): For 1000 tags I paid, with shipping, $115.75.
$.12/tag is what it breaks down to, so
48 tags: $5.76
So for raw materials cost for a 48 skein order we have:
Citric Acid: $8.80
Total raw materials cost: $360.18
Now, let's figure out the time I spend on that order. I'm being a little optimistic here on time, as I'm not including the drying time and time taken to let yarn cool before being rinsed off, and general faffing about time that inevitably we all do a little! That would be something to keep in mind.
Since I buy my yarn on cones, I need to break those cones down into 400 yard skeins before I can start the order. My skein winder does 3 skeins at a time, and I'm estimating it takes 5 minutes for 3 skeins in that case.
48 skeins at 5 minute/3 skein set: 80 minutes.
The way I dye multicolor yarn, I can do 8 at a a time, and it takes me about an hour and a half per batch for the actual dyeing.
48 skeins: 9 hrs total
I used to re-skein, but I'm starting not to, and I know a lot of people don't, so I'm not including that time. If I was to re-skein, I would of course have to add in those costs.
Twisting and labeling for 48 skeins: 1 hr
Total hours: 11.4, rounding up to 11.5 hours.
Now, I need to figure out how much I want to pay myself. I want to pay myself $25/hr.
$25 times 11.5 hrs: $287.50
So, adding the raw materials cost, $360.18 with my time, $287.50, gives me a total of
$647.68 for how much a 48 skein order costs me.
I charge $26 per skein retail, so
$26 times 48= $1248
So, I'll take that number, $1248, subtract how much the order has cost me to make, so
$1248-$647.68= $600.32 profit
$12.50 profit per skein
Not too shabby. However, what if I want to do wholesale, and at what percentage?
If I did 50% off, the wholesale price per skein would be $13, so for a 48 skein order, I would be making $624. However, the order has cost me $647.68, leaving me with a debit of $-23.68.
If I did 30% off the retail price, 30% of 1248 equals $873.60, so my potential wholesale price for 48 skeins would be $873.60, leaving me with an owner profit of $225.92.
This is with me paying myself $25/hr. If I was fine with paying myself much less, like $12/hr, making my total costs $498.18, then 50% wholesale pricing would give me an owner profit of $125.82. I give that as an example so that if you are thinking that you'd be totally fine with paying yourself less per hour, you still wouldn't end up with much profit at all.
And, we've actually left out a few numbers that would figure into all of this. Shipping supplies, time spent doing that, for instance. But also very important ones like rent, mortgage, utilities, water, Etsy fees if on Etsy, PayPal or credit card transaction fees, website, advertising. If you're paying someone for help, that would make your margins even less. You can see how one can lose money with wholesale easily. Too easily.
Then, let's say I want to make $30,000 a year. I would have to make $2500 a month, meaning I would have to sell 200 skeins a month full retail price, also keeping in mind the additional costs that can factor in that we discussed above.
Those are things you need to think about. If you're thinking about wholesaling, you need to really think about it. This is why I get worried when I see wholesale being thrown out there as a suggestion when a dyer is having money issues, because it may not be the right decision for that dyer at that time. I've also heard wholesaling being used as a tactic to compete amongst the saturated market, and while I understand wanting to get the word out, I personally don't think it's the best tactic unless you've already got your finances all figured out and are comfortably making a retail profit, enough to live on, already.
I cut way back on what I was offering for wholesale, and changed my terms to 30% after that horrifying realization that I'd been losing so much money, plus I haven't been seeking it out. However, I'm not taking any wholesale orders on right now, or for the forseeable future, due to the massive -- and really weird--physical issues I've been dealing with, which you can read about if you want here. I've done a couple of collaborations with Knit-Purl here in Portland, but both projects, the yarn and the colorways, were exclusive to the store, so I was able to make sure I made the profit that I wanted.
(disclaimer: that link is to the insane saga of my last three months, but it is on a medical and illness go fund me page. Starting that was one of the hardest decisions I've ever had to make, and I still feel uncomfortable about it, (although there was no other option) so I'm just going to link to it and emphasize that I have no expectations of and am not asking for contributions, especially from anybody who doesn't know me personally. It's an really interesting story, though, as it's something that nobody's seen before. I guess yay for being original?)