Q: What is MSRP?
A: The acronym stands for Manufacturer's Suggested Retail Price. Normally, this is the top price that you (the manufacturer) determine the market will bear for your product.

In practical terms, MSRP is the price a retailer sells your item when it is not on sale. Whether the MRSP is discounted or not varies from manufacturer to manufacturer and from industry to industry.

Yes, MSRP is often abused to the point that it becomes meaningless. But only if you, the manufacturer, allow it.

Q: If I discount the MSRP, then I will sell lots of products, right?
A: Maybe, but you might go broke in the process. Offering periodic sales and rebates is one thing, but setting your MSRP below reasonable profitable levels is the way to see your product die and go extinct. Some manufacturers allow unlimited discounting which often results in price wars that spiral down until it no longer pays to sell the product—which eventually disappears from the market place.

To combat price wars, savvy manufacturers offer incentives to retailers who refrain from advertising a discounted MSRP. (We are not talking about occasional sale offers or special pricing levels for private customer groups, all of which are fine.) Such incentives to retailers might include an authorized distributor link that sends shoppers to you directly from the factory store. Other practical rewards are free products, free accessory items, additional price discounts, and/or advertising rebates.

Q: How do I determine the MSRP?
A: Your MSRP should be high enough so the retailer can earn a fair profit, but low enough to keep the item competitive in the market place.

Q: I want to make top dollar. How about we all agree to sell my stuff for lotsa bucks at a set amount?
A: Sorry, but that is price fixing, which is illegal. Below is a clear and concise description of price fixing from the office of Mike Cox, Attorney General of Michigan—

• While the manufacturer may suggest a retail price, it cannot coerce the retailer into agreeing to it. If an agreement between the manufacturer and retailer is obtained, then the agreement is illegal.
  
  
• A number of different manufacturers may not agree to set prices for their products. Agreements between manufacturers to set prices are illegal.
  
  
• Similarly, a number of different retailers cannot agree to set prices for their products. Agreements between retailers to set prices are illegal.

Q: What is the Selling Price?
A: Selling price is the same as street price (see below).

Q: What is the Street Price?
A: Street Price means the actual price (aka selling price). Some call it the 'everyday' price. Although street price is commonly the same as MSRP, you often see it in catalogs as: "Retail Price: $10.00. Our Price: only 8.95." This definitely encourages impulse sales, but unfortunately the MSRP is often artificially inflated. Ultimately, it's you (the manufacturer) who creates the environment which determines whether street price drops to a sale amount, or remains MSRP.

Q: What is a 'good' price?
A: Your challenge is to come up with a Wholesale Price and MSRP that makes everyone happy - you, me, and the customer.

• You: Wholesale price lets you earn a reasonable profit.
• Me: Wholesale price allows for sufficient retail MSRP markup.
• Customer: MSRP perceived as good value.

Retailers typically keystone retail prices from 2 to 3 times the cost of goods, including overhead and shipping. That means, ideally, you should be able to sell your products in quantity lots from one-third to one-half the retail selling price.

So if your price allows for sufficient markup—enough so a retailer can keystone your product and still remain competitive in the marketplace—then your wholesale price is good to go.

Q: What is so great about Keystone pricing?
A: Current economic wisdom says to survive in the market place, a retailer needs to at least double the cost of goods, including overhead and postage.

That usually comes down to selling an item from double to triple the wholesale cost. This is known as 'keystone' pricing. Keystoning is the world standard for retail pricing. The method is embraced by small mom and pop shops as well as large billion dollar firms. Why is keystone pricing so popular? Because the rule-of-thumb is quick, easy, and effective. What's more—and this is a crucial reason—keystone pricing provides enough margin for retailers to offer their customers special sales and discounts without giving away the store.

For example, with keystone pricing I can offer products to newsletter subscribers at an ample discount. On top of that, Rhythm Bones Society members can get their group discount. Plus I can delight everyone with a freebie such as a thermometer refrigerator magnet. And, I can do all this without going broke. When managed properly, keystone pricing is a handy and practical marketing tool that keeps happy customers coming back—and moves products off the shelf.

Q: What wholesale price do the other guys charge?
A: The wholesale discount from most of my bone suppliers is 50% retail (i.e. street price = 2x wholesale). Frankly, since our market is so teeny-tiny and because the sales volume is so low, the discount should be closer to 60% (i.e. street price = 2.5x wholesale) or more for a retailer to earn a fair profit. But alas, this is a cottage industry. And with the current sad state of the economy, a pair of bones at retail already cost too much, and folks like you who make the bones barely earn enough to stay in business as it is.

So I would advise you to set your wholesale prices low enough to stay competitive, but high enough so you will want to keep producing more products. After all, if you don't get paid enough for your work, then you might say the heck with it. So come up with a wholesale rate that makes everyone happy (you, me, and our customer)—and let's get those bones into the hands of folks who love to rattle them.