Navigating Retail Margins 101...
Updated: Sep 11, 2019
With the traditional bricks and mortar retail industry facing ever increasing challenges in an e-commerce world this has ultimately changed how customers shop forever and made retailers profit margins even tighter and your brand margins even more important.
The basics of pricing can all be rather daunting for a new brand to work out. Navigating margins, mark up, the cost price, the wholesale price and retail price (RRP) is all part of the journey. Setting your price list for different territories factoring in taxes, import duties and distributor margins can induce brain pain and it is crucial to get this right from the outset.
When you are setting your RRP (recommend retail price) the most important things to work out are:
Your COST price – In other words how much does it cost to manufacture your products? If you are doing this yourself this has to include your ingredients, packaging charges and any postal costs but more importantly factor in extra if you plan to outsource and scale up your manufacturing one day. Also make sure to add in extra for your own time as you will want to pay yourself something one day!
The next thing to think about which all retailers will require is your WHOLESALE price- This is what the retailer or distributor will pay you for your products. Most retailers require a margin of 50% at least or in other terminology a mark up of 100%. However, luxury stores will need more than standalone independent stores with their margins as high as 65%.
So depending what your target market is then it is important to allow for this.
Distributors on the other hand require even more of a margin. They usually work with a co-efficient of 4-5 times the cost price.
In other words if the RRP is 100 then they want to purchase that product for 20 which is a co-efficient of 5 times. However, do bear in mind you can have different pricing for distributors in their respective territories so there is room to move with your pricing and if you support with a good marketing allowance then you can negotiate further.
Finally you have to set your RETAIL price- This factors in all of the above and ultimately comes down to HOW much you think customers would pay for the product. Market research is key to setting this where you assess how much you think customers will pay for the products, where you see yourself in the market and do not be scared to put yourself in the same bracket as your competitors. Pricing yourself well below your competitors or out of your market is not always beneficial and gives potential customers more questions. If you are going to be much more expensive than similar competitors then make sure you’ve the packaging, ingredients and USP as to why.
So that in a nutshell this is just the start of what you need to consider when looking at your pricing structure. email@example.com