DISTRIBUTOR PRICING

[IMKENOBI]

The following is from a reader:

I’m sure you know this, but ‘margin’ and profits’ are very different. My experience is that many retailers resent others talking to them about ‘profit’ since that is the ultra confidential end-result, after margins, and all operating expenses.

The delicate negotiation with customers over market prices is what, ultimately determines what margins "remain"…but those "left over" margins also are part of a target forecast. Most distributors will price their products to retailers at 25% margin, but then make concessions of various kinds. Distributors that place individual units on shelves operate at 30%+. But their year-end result, after allowances for volume (for example) may be 22%. If they can’t operate their business at 22% they may stretch their target margin to 32% or higher.. this is a back-and-forth calculation that goes on all the time.

FYI

Steve

[Dave Lee]

Hi Steve,

I'd like to ask for your advice in regards to distributor pricing:

I'm a manufacturer of disposable paper tableware (cups, plates, to-go boxes etc...). Currently I sell directly to restaurants. If I want to sell to a distributor, how should I price my product?
For example, right now, I can sell one carton of cups to the restaurant at $100 (retail). Does that mean I should sell to the distributor at 25% below that, or $75?

thank you,

Dave

[IMKENOBI]

Hello Dave,

In the specialty food business, one works with profit margins, not mark ups.

So, you would sell your $100 carton to the distributor for $75.00. The distributor would divide that price ($75) by .75 to get his/her margin of 25% and sell to the retailer for $100.00.

Might I suggest that you do NOT approach the distributor with a 25% off retailer price. Rather, just tell the distributor the price is $75.00.

Does this help?

Best wishes for great profits.

Steve

p.s. I just noticed that this discription appears at the top of this thread. sfh

[Dave Lee]

Thanks for the advice, yes this helps.

So should I assume that the dealer is selling to the restaurant at retail ($100)? I would assume for disposable supplies, since its residual income for the dealer, the dealer might be willing to offer some discounts.

Also, does "markup" equal a dollar figure and "profit margin" equals a percentage?

thanks for your help,

Dave

[IMKENOBI]

Terms:

1. Retail = sales to consumers / end users
2. Wholesale = sales to retailers at the "retailer" price
3. Wholesale = sales to distributors at the distributor price

Another way = Exwharehouse cost plus profit margin = price to distributor. Then distributor adds profit margin for price to retailer, who adds profit margin for price to consumer.

Both mark up and margin equal both dollar figure and percentage.

The difference is that mark up means one adds profit to the cost; whereas, margin mean a percentage off sales price.

Having fun, yet? :-)

Steve

[Dave Lee]

Tons of fun :) Thanks Steve for your help!

[Dave Lee]

Steve,

Another question for you:

When making my price-list catalog to hand out to dealers, which price should I publish? Retail price? List price?

What exactly is the list price anyways?

I was told to put the list price on the pricing sheet and then verbally give the distributor price when asked. Is this common practice?

thanks,

Dave

[IMKENOBI]

Generally, I use two, separate price lists.

One for the distributor, and the other for the retailer.

Use one price list if you like being chewed up and spit out by distributors. Meaning, if you start with a retailer price of $1.00 and tell the distributor to take 25%. He will ask for 25 + 5, etc.

I am unsure of what a list price is in the context of specialty food. Maybe it is the price on the list you use, then offer special volume, first time, etc. discounts off that.

Same offer must be made to all buyers or it is restraint of trade.

Cheers,

Steve