I am involved with a product and have finalized the SRP and the wholesale price . We have been approached by a distributor that has a large niche customer base that would like to distribute the product . He is wanting us to provide a price to him . For example purposes : Lets say COGS is 1 and SRP is 10 Which is great for B2C . We will be selling to Retailers for 5 . What is the norm for a mid point distributor between COGS and retailers price ? Thanks for the help.
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In "general", the distributor would sell to its retail customers at 50% off retail like in your case 5. The manufacturer would sell to the distributor at around 55-60% off retail or 4-4.5. The distributor gross margin would 5-10% off the retail price or .5-1. Depending on the quantity involved the distributor discount could be higher. |
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As other people have said, it depends entirely on the market, and you need to do some research around this and the distributor's position in the chain. Many markets have both two-tier and three-tier distribution chains. I have some experience in the hand tools market, where two-tier would be you selling to Sears, which sells directly to the consumer, and three-tier would be you selling to a regional distributor which sells to local stores who sell to the consumer. In the hand tools industry, you give a three-tier distributor a better price than a two-tier distributor/retailer. And it's a real gaffe to give a two-tier distributor/retailer pricing as if they were a three-tier distributor. They'll be happy to take it, and they'll think you're an amateur. Then if you later get a real two-tier distributor, it's going to make things awkward and you'll probably wind up taking a hit on your price to them. You also have to watch out for people who claim to be three-tier distributors but are really either two-tier or even three-tier retailers. It's a common ruse to get better pricing. So you need to find out what this customer really is, and what the normal percentages are for the distribution chains in your industry, and stick to those. That will probably take some social engineering. You might find out if there are any regional sales rep organizations in your industry, and talk with them. Those are folks who will go around and knock on doors for you for a few percent of sales in their territory, but aren't distributors because they don't carry stock. You just give them a slice of anything that gets sold into their geographical area without checking to see if they were involved in the sale. They can give you a lot of insight into how the chain works in your industry. |
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This varies enormously by category and by geography. However, as a rule of thumb I would equate a niche distributor with a large reseller - both in the value they're adding and the terms that are appropriate. (It's also sometimes the case that a 'distributor' will turn out to be either the back end of a retailer or essentially a group buyer, who is offering you convenience but not a true distributor value-add). So I would start out with the question, what (if any) additional discount off SRP would I offer a major reseller? That gives you the likely initial offer, and a suitable basis for negotiating if the niche distributor wants (and can offer) more. |
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