Many of today’s entrepreneurs make their income via commissions. When reseller product prices change, it can have a direct affect on the commissions you earn. There are three factors that will directly affect the commission you will earn. They are:
- Buy Rates
- Minimum and Suggested Retail Price
- Price Settings
Commission is often calculated on the difference between your buy rate and the price you charge your customers.
Buy Rates
This is the wholesale price you pay for products you buy for resale. As the reseller, the supplier determines what this price will be.
Suggested Retail Price and Minimum Price
The suggested retail prices is the price the manufacturer recommends the product(s) be sold for, while the minimum retail price is the lowest price you decide you will charge your customer.
Price Settings
This is the amount your customers will pay. This can be based on the manufacturer’s suggested retail price or it can be custom, based on your own markup formula.
When your reseller changes product prices it is reflected through on your commission and/or the amount you charge your customers. If only the buy rate changes then only commission changes. If you are using suggested retail pricing then both the amount, you bill your customers and your commission will be affected. However, if you are using your own pricing structure neither the amount you bill your customer or your commission has to change.
Anytime a reseller is trying to decide whether or not to change their price they will take into consideration how that change will affect you and your business, and whether it is the wisest thing to do. How well it is accepted by resellers and customers alike depends on how drastically the change to price is.
Anytime the idea of changing a price is entertained, it’s important that the whole picture be considered and analyzed. You never want to change the price only to discover the number of customers drops off significantly, because it’s quite possible that the increase can actually have a negative effect leading to a decrease in sales and thus profits.
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Changing a price is not always the best way to increase profits. There are many other options available to you including a reduction in operating costs, or an increase in sales. The reduction of your price can actually lead to more of an increase in profit than an increase in price does. Consider carefully the outcome of your decision and the decision of your supplier. Also check out our article on price elasticity of demand before you change the price of your product or service.
