RRP vs Distributor Price vs Wholesaler Price

[5andcounting]

Hi all,

I designed a new product last year, had it manufactured for me and began selling it in my small online shop. I've done a lot of social media work on the brand and the product has developed a good following. The next steps are for me to look at selling to retails and/or distributers.
My limited understanding is that the structure/flow of selling products is as below:

Supplier/Manufacturer (me)
Distributer
Wholesaler
Retailer

Selling in bulk is new to me, and I'd previously been working on "wholesale" price in my mind, without thinking about distributer price.
Having been to a few trade shows, I've met some distributors who sell multiple branded products to retailers - usually at 50% discount of the RRP.

I'm now confused as to what discount I should be offering if selling direct to retailers, and presumably should be looking at a larger discount if I were to be selling to distributors?

If it helps, my figures are as below:

Product has a RRP of £45.99
Each product costs £4.69 to be produced (excludes customs, VAT etc)

What price should I be selling to

a) Distributors
b) Wholesalers (though I think these people buy from distributors rather than from brands?)
c) Retailers?

I hope this all makes sense!

 

[Mr D]

Retailers, sell at 50% or less. Pricing will affect your sales - if its not profitable enough then they won't buy it.

Wholesalers may sell a little above that price but will be buying in bulk - so will need somewhere between 25% and 50%. Just remember set price too high and they walk away.

Distributors - if by chance you get any - will be wanting bigger discounts.

Figure out your actual unit cost to have produced, shipped and delivered to your customer - then figure what profit you want on top. That determines your minimum price. Don't ever offer that, though you could in negotiation go down towards it.


Oh and factor in returns, breakages, freight to deliver etc.
Used to get pallets from one supplier, a thousand pounds wholesale value order could have in excess of £100 in damaged goods. Which supplier had to discount or refund.

 

[DontAsk]

No reason you can't sell direct to retailers or to wholesalers. There's no fixed flow. What exactly are "distributors" or "wholesalers" anyway?

In the electronics trade many "distributors" sell direct to the public as well as to OEMs.

I sell to the public, to retailers worldwide and also to "distributors" in a few select geographies.

Margins depend on volumes and sector. For me, niche, low volume, a rough rule of thumb is retail = 4-5x manufacturing cost. Retailers in my sector expect to be getting close to 50% margin. You are getting something less than 10x if you sell direct to end customers.

At the end of the day you charge what the market will pay. The biggest mistake is to start out selling direct at too low a price that doesn't allow you to later build in margins for others n the supply chain. It's a lot easier to reduce prices than increase them.

 

[Mr D]

At the end of the day you charge what the market will pay. The biggest mistake is to start out selling direct at too low a price that doesn't allow you to later build in margins for others n the supply chain. It's a lot easier to reduce prices than increase them.

+1
Yes its easy to start off low price because you think people won't pay more. Hinders the business growth and until a business tries for itself it cannot know what people will pay.

 

[saton]

The price of your item should be in line with the market price. This is a significant factor that influences the decision to buy a product

 

[Mr D]

The price of your item should be in line with the market price. This is a significant factor that influences the decision to buy a product

No one knows what the market will support until someone tries that price though.

Someone else's price can be considerably different - and their business be considerably different.
Use amazon price when paying double or more what they pay wholesale for the product if you want. Just don't expect to make much profit.

 

[Guy Incognito]

We set our prices too low when we started so I can definitely agree with this! Means we only sell direct to consumers but that does have some advantages too.

We increased prices quite substantially over the last couple of years - first to add on VAT and then to increase profit margin. Orders have still grown hugely so if you have a product people want they will pay!