Typical retailer mark-ups

[azurbusinessangel]

I'm looking into the viability of supplying a range of baby teethers and dummies to retailers but before going ahead I would like to get an idea of the typical mark-up percentages retailers aim for. Can anyone give an indication?

 

[Philip Hoyle]

It will depend on lots of factors.

For example, you'd get lower margins accepted if you sold on a sale or return basis, offered longer credit terms, or provided free in-store marketing such as posters, display stands, etc.

It also depends on the volume of stock needed and how quickly the stock will sell. A retailer will want high margins for stock that takes up a lot of store space and stock which sells relatively slowly. However, something that is small, takes up little space, but sells very quickly will be attractive and therefore a retailer will accept lower margins.

You may find some retailers would want a mark up of up to 100% - i.e. you sell to them at £1, then sell at £2, especially for slower moving, luxury items. For faster moving stock, then maybe a mark up of 50% may be achieved - i.e. you sell to them for £1 and they sell for £1.50.

Offer sale or return, or longer credit terms, or marketing freebies, and you can bring the mark up down as the risks to the shop are less.

 

[azurbusinessangel]

Hello Philip and thanks for your response.

I do not want to prejudice any other replies so will resist the temptation to comment at this stage - but thanks again.

Any other views out there?

 

[Dave Kinnel]

At the price range your talking about (£5 or less I presume) it'll be an absolute minimum x2.4 mark up (50% POR) including the VAT. So £1 cost to retailer will sell at £2.40

 

[azurbusinessangel]

Philip/Dave,

there seems to be something of a difference of opinion (50% - 240%) which makes a big difference to the viability of any project. Is there anything that either of you can offer to "validate" your %'s - whilst Philip has provided some explanation, the 2.4x figure from Dave seems very precise. Moreover, if there is anyone who has specific experience in low value baby products I would be interested to hear from them too. In particular, anyone with experience of selling to "Shoes" the Chemist (if you see what I mean), would be especially welcome.

Thanks to P, D and anyone else who can offer a view.

 

[Esk247]

Mark ups vary dependent on volume purchased, lead times (in some cases), exclusivity, first to market advantage etc etc.

Percentage markup can vary quite a bit on those circumstances anything from a minimum 100% markup to 400% markup completely depending on the product you are offering in comparison to what the company already stocks.

I'd guess that they would sell at 3 times the purchase price per unit. But it's a guess from what i've bought and sold items for myself in the past. Wholesale £2.50 sold at £7.49. (give or take 50p)

 

[Jeff FV]

Dave's got it pretty much spot on.

x2.4 is the factor we use in our sector (cards/gifts/stationery etc.)

A retailer will sell for at least 2.4x the price he buys for. This means he doubles his money after paying the VAT man e.g. shop buys at £1 (ex VAT), sells for £2.40. He (the shop) keeps £2 and sends 40p (20% of £2) to the VAT man, meaning he makes a profit of £1 on his £1 purchase.

When you're an industry leader you may be able to strike a better deal, but as you're starting out (I guess) I'd suggest you set your rrp at 2.4 times what you sell to the shop for. (or work backwards from this figure - if a dummy sells for £2 in the shop, divide this by 2.4 to give 83p - this is the maximum you can charge a retailer for the dummy.)

HTH

Jeff

 

[chiggs]

I agree with x2.4. I sell my low cost baby products (they retail at under a fiver) to independent baby and nursery stores around the UK, and that's what we work on! No experience with the large company you mentioned though

 

[fairdealworld]

If you are selling to 'Shoes' then presumably this is a central buying set-up from which their stores are supplied. So there may be just one mark-up leading to one RRP which applies nationally. I don't KNOW that this is the case as I rarely shop in 'Shoes' much less compare prices between branches, it just my assumption.

Certainly in my own rather specialised sector you are generally looking to use the 2.4 factor mentioned by others at least as a basic guideline on non-food items, but if selling to individual stores or small localised chains of stores, they may use a very different calculation based on the area, commercial rents in that area and incomes in that area. Running a shop in a sort of 'middle of the road' area I tend to use the 2.4 idea as a basis for my thinking about non-food pricing though it may then be varied according to factors mentioned by others such as how many I think I'll sell and how quickly. If my shop was in some areas of the country (posher, more touristy especially international touristy, etc) with much higher commercial rents I might be looking at something like 3.4 merely to survive.

 

[Philip Hoyle]

Philip/Dave,

there seems to be something of a difference of opinion (50% - 240%) which makes a big difference to the viability of any project.

No, I don't think there is. I suggested 100% mark up, i.e. they buy at £1 and sell at £2. His illustration is the same, buy at £1, sell at £2. I assumed VAT would be added to the £2, i.e. £2.40, but didn't include that in the reply as I was talking "net" figures. The difference is the terminology. I'm saying add a 100% markup, i.e. double the cost price. He's saying multiply the cost by 240% applied to the cost price, i.e. double plus VAT. I think we're saying the same thing! The only difference is the VAT, but that depends on whether you're VAT registered and whether the seller is VAT registered - I deliberately ignored the VAT to avoid further confusion.

I suggested a reduction to 50%, i.e. buy £1 sell £1.50 if you could make it more attractive to the retailer, i.e. SOR or other marketing support.

 

[Dave Kinnel]

I agree with Philip agreeing with me agreeing, so with the other replies is seems we all agree! There are products in my shop that I work on x3.6 or some even at x4.8, these are food items though and I wouldn't imagine apply to very many non-date sensitive product. At the same time I know a lot of sectors that work on nothing less than x2.4 on items costing many £100's and £1,000's.

OP, out of curiosity what mark up/POR are you expecting the retailers to take?

 

[josor]

I usually work on a 2.5 - 3 markup on cost item

 

[azurbusinessangel]

Folks, this is all interesting (and useful) info. It will help me significantly in deciding what production costs I need to aim for in order to make a reasonable margin myself. I may well come back to this posting once I have had time to reflect on my "next moves". Thanks to you all (for the time being).

 

[mdjo]

Hi
I used to sell baby products to 'shoes' and other major mults (drug and grocery) back in the day (about 12 years ago).
Firstly the price will be the same regardless of your store distribution profile. We used to provide their own label range for a particular baby line (more commodity than you are looking at)
Back then margins were c. 45-55%.. I'd imagine that since then this has been 'improved' to about 50-55%. I'd suggest that you would be looking at about 48-50% for your product as RSP is higher than the products we made and as such the cash margin will be greater.
All these exclude VAT - I would exclude VAT from all your calculations when presenting to the mults and also refer to margins in respect of POR rather than mark-up.
Also, 'shoes' tended to have greater margin expectations than say it's main high-street competitor but on a par with the major grocery multiples. (only by a few margin points though)
In addition to a cost+ pricing strategy, you could maybe consider other pricing strategies (i.e relative to the competition and/or value based pricing (backed up with price sensitivity research if you were doing a 'belt and braces' exercise))

 

[azurbusinessangel]

Thanks MDJO, this specific info is very helpful indeed. Does anyone know of any more recent examples of dealing with "shoes" and similar suppliers?