I tried posting this in ecommerce but got no responses so I'm hoping I'll have better luck here.
Our company makes adult novelty items and we have been selling to a major retailer who will be distributing our products wholesale to other retailers. I have already established pricing to sell directly to this company's retail business, but now I need to come up with a way to price for distributing my product. They suggested 30-30-30 meaning 1/3 to the manufacturer (us), 1/3 to distributor, and 1/3 retailer. This sounds fair, but our product even if manufactured on a large scale is labor intensive and 1/3 is not going to be enough to cover our costs.
Any suggestions out there on pricing for distribution?
#1. "RE: Wholesale/Distributor Pricing Question" In response to Reply # 0
Try to avoid having your customer setting your price. You have to start with your costs. You have to cover those, and then add on a reasonable profit. Now I'd recommend you keystone it, which is what most resellers do these days. This means taking your cost and marking it up 100% (doubling it). This becomes your selling price. In all likelihood, your customer is going to do the same thing.
Be sure you understand the difference between Markup and Gross Profit. Many new entrepreneurs confuse these terms. An example might be: You pay $1.00 for a widget and "mark it up" 100%, that's a 50% Gross Profit.
One of my companies is a manufacturing business. We aim for 45% GP. We issue price lists twice a year, Jan and July. When the prices are first released, our margin will be closer to 50%...nearer the end of the 6 months, it will have eroded down closer to 41% because of cost increases we've had to absorb until the next price list is released.
Nowadays especially prices (costs to us) go up so frequently that we just found it easier to adjust our prices 2 times a year to avoid losing profit through silent cost increases.
I don't know how you track your costs. We have a sheet for each product we mfgr. It lists every component, the vendor and backup vendor and the latest cost for that component, then there's a labor line and a shop overhead line. Labor rent, utilities etc are pretty stable throughout the year...the components are going up every couple months. Some of that is from material cost increases and some from the lost value of the dollar against other currencies if it comes from offshore...which most does. Hope this helps a bit...
#2. "RE: Wholesale/Distributor Pricing Question" In response to Reply # 0
First, sir or madam, I use sex products, mainly stimulation gels with maca and horny goat weed (very pleasurable indeed!) but 30% is NOT 1/3! 33% is approximately 1/3 although it is closer to 33.33%. Finally, if your suppliers etc., are willing to accept 1/3 that sounds fair to me. Good luck!
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