Wholesale and Retail Markup

Wholesale and retail are two very important components of the supply chain that every eye care provider needs to understand and know how they function and how they are interrelated in the optical industry. As practice owners become busy with patients, they rarely become interested in understanding wholesalers as their focus remains in retail. For all, we know that wholesalers make the liaison between manufacturers and retailers. Their role as a bridge is very important to maintaining a healthy supply chain and a healthy market. However, failing to complete this role may lead the whole chain into oblivion; the unconsciousness that this role is a responsibility and an obligation at the same time to prevent any negative consequences from happening especially when it comes to inappropriately pricing products.

Setting the retail price is one of the most important decisions that an Optometrist should make. To be able to do so, he must understand key differences between the wholesale price and the retail price which is most of the time difficult for new optometrists and practice owners who are just getting started in the business. For most of it, we cannot argue that wholesalers have low-profit margins and retailers have high-profit margins.

The wholesale price formula encapsulates material costs and overheads added to profit margin, whereas the retail price formula is obtained by dividing the wholesale price by one minus markup margin in percentage.

Wholesalers invest large capital, have no overhead expenses (ex: advertising), and sell in a variety of outlets in various less competitive markets. Whereas retailers invest smaller capital, have showroom and advertising expenses, and sell exclusively in one or two shops where the environment is highly competitive.

Wholesalers don’t sell products directly to the consumers, they sell products to retailers, and retailers resell those products to the end-user or consumer.

Wholesale profit margin is less than retail profit margin. This is mainly due to the fact that wholesalers’ financial advantages are based on the concept of stock being purchased and sold in bulk which cuts down shipping costs and other overheads. Not having to invest in advertising, renting commercial spaces, and paying for updating displays is another key financial advantage.

The reason why retailers have a higher profit margin and markup prices than wholesalers is that retailers’ costs are higher (advertising, individual packaging, displays costs, lighting, and electricity,) and a higher profit margin is often subject to the discount and special offers to benefit loyal customers and on special occasions (sale, events, black Friday,)

According to “ABB Soft Lens Retail Price Monitor”, soft-lens profit margin at independent practices ranges from 40% to 60%. The lowest margins are for heavily advertised spherical disposable contact lenses (40%) and the highest margins are for specialty contact lenses (60%). Read more on Patreon