Stumped re margins

[mrsdoc]

I just have a brain block on margins.
If the product retails at £1 then the VAT is 20p and the retailer wants to get 40p. So of the 40p from the selling price, how much would go to a distributor and how much to the manufacturer?

 

[ecoleman]

How could you possibly deduce that from the information you have provided.
If the retailer wants 0.40p, then that leaves 0.60p to split between the manufacturer and distributor, how much they get is up to them.

 

[japancool]

I just have a brain block on margins.
If the product retails at £1 then the VAT is 20p and the retailer wants to get 40p. So of the 40p from the selling price, how much would go to a distributor and how much to the manufacturer?

If the final retail price to the consumer is £1, the VAT is 16.67p (17p), not 20p.

How much goes to the distributor and how much to the manufacturer will depend on the agreements between them!

 

[mrsdoc]

If the retailer gets 40p and the taxman gets 20p then there is 40p left between manufacturer and distributor.

Just wondering how much the distributor will take

 

[mrsdoc]

ok. thought that the vat rate was 20%

 

[mrsdoc]

If I start from the other end, if I say to a distributor for £1, what will they sell to a retailer for and what will a retailter retail at?

 

[japancool]

ok. thought that the vat rate was 20%

The VAT rate IS 20%. 20% is added to the sale price to give the final price to the consumer.

If you pay £1 for an item, then the price is made up of 83p + 20% of 83p.

For the VAT to be 20p, the buyer would have had to pay £1.20 - assuming they are a consumer. Depends whether the £1 is VAT inclusive or VAT exclusive.

 

[japancool]

If I start from the other end, if I say to a distributor for £1, what will they sell to a retailer for and what will a retailter retail at?

Well, surely that's up to them? But I've heard other people here suggest that a retailer would be looking for a 50% margin, or was that a 100% margin.

 

[fairdealworld]

It is up to everyone involved but obviously the retailer won't buy unless they can add on enough to the price at which they buy to make it worth giving the product shelf space.

Mark up varies according to the type of product involved. Food and confectionary products are often sold at a lower mark up on the basis of swift and high turnover. My own margin on chocolate for example is much less than on jewellery or giftware but we sell a lot of chocolate and we sell it at speed, in contrast a piece of jewellery or a gift type product may be with you for much longer until the customer comes in who thinks it is just right for themselves or for a recipient.

Mark up also varies according to the type of store involved. Supermarkets tend to sell overall at a remarkably small margin but they make that margin on huge numbers of sales per day. Such sellers are very powerful and may demand all sorts of support from the wholesalers such as periods of very low special offer prices and an agreement to take back and refund for all unsold stock even if damaged during display in the store.

For non food items e.g. jewellery, accessories, carvings, etc I as the owner of a small shop would look to multiply the non VAT price by 2.4 but like many shops I'm moving to having price points so I may sell some items at slightly more than that multiplication and some at slightly less to meet those price points. I don't like price points but customers are so addicted to them that they'll pay more for what looks to them like a proper price and object to 'funny' prices even if less.

Rents and other costs for shops vary widely across the country. Some of my suppliers have told me that if I was in x or y hugely popular town I'd have to multiply the ex vat wholesale price by 3.4 to have any chance of survival.

 

[Talay]

Funnily enough, I don't pay any attention to "price points" or margins per se and simply charge as much as I think they buyers either a) can pay or b) can be induced to pay.

I would not think of charging £495 if I thought I could charge £995 whether it cost £0.50 or £250.