Retail Markup Percentages

General Questions
#1

Is there any standard markup rate that retailers try to adhere to?

For instance, I’m working with a small startup company that has a product with a suggested retail price of 19.99. If it gets sold to the retailer for 14.99 that would be a 25% gross profit and a 33% markup rate. Is this high enough? What do retailers expect to get markup wise? I also understand that if a supplier bought huge quantities they would expect a lower price but I’m just looking for a general rule of thumb if such thumb exist.

If it makes any difference this is a specialty tool used in the HVAC-R, Automotive and a few other smaller industries and geared mostly to professionals but there are some diy people out there who would buy it.

#2

There isn’t a rule of thumb. It is a complicated science/art. I have worked at the headquarters of a few major retailers including a supermarket chain that sold over 50,000 individual items. There are standard markups by product category but even those aren’t consistent across all products in the category. Merchandisers constantly adjust prices to fine tune them to their target market. Go too high and the item will not sell in sufficient quantity or go too low and you leave money on the table or hurt your brand by looking like a discount item. It can range from negative for loss leaders to over 100% for specialty items that are slow movers yet still sell.

There isn’t a specific answer other than you have to do your research on what your competitors are doing and either try to beat them on price or have similar prices but better service or more customer appeal.

#3

OK, thanks. That’s kind of what I got reading out on the web. We are priced in line with comparable products except our product works better ;). And when I say specialty it’s for one specific task but it’s something that every a/c and commercial refrigeration technician will want in their tool bag. At least according to the feedback we’ve already received.

#4

It does make a huge difference. You should try to research your market area as others will vary greatly and not be relevant to your business.

Try to approach the problem from multiple angles, too. They should all line up to relatively similar answers. No one answer is reliable enough.

For instance, look at gross margins on competitors (i.e. either publicly traded or industry averages). What kind of gross margin does $14.99 imply you’ll be making? If it’s higher than average that probably implies you won’t be able to sell it for that much. (if anything your unit costs will be higher than established firms, so if $14.99 and your costs imply you’ll be more profitable than them there’s a good chance your price is wrong)

Are you sure you’ll be able to sell direct to retailers? Can you afford an additional layer of margin for a distributor if you need to sell to distributors? If you’re tacitly assuming you’ll sell to a distributor who sells to a retailer then I think you’re not leaving enough money for markup. Overall my impression is your price to the retailer is a bit high but you should do research on your own and decide.

#5

To support the position that there is no rule of thumb: I used to work in retail software, and once got to see a report on gross margin on products sold by a kitchenware retailer. The range ran from a loss up to over 90% gross margin.

#6

We have been getting feedback from supply houses. Originally the tool online sold for 14.99 and I told him that it was too low for a stainless steel tool and people would perceive it as cheap. Then someone from a supply house said you need to price it higher. Sometimes I have to let him make small mistakes in the beginning when they are less costly.

As far as the 14.99 price that would just be for small, direct sales to retailers. And yes, it can be done. As far as to supply houses and distributors we’re looking at 10.99 - 11.99.

Finally, just so you don’t think this is as haphazard as it sounds (because it is) the guy who started the company is a 20 year a/c and commercial refrigeration specialist who hated all the tools on the market for this one task and he, after several years of trial and error, invented a new tool in the built a better mousetrap variety. He just has no idea how to price things until people convince him. So I was just looking for data.

#7

One “rule of thumb” I’ve seen for things you make and sell is to sell at twice your cost, but that’s just a jumping-off point. If the costs to make this HVAC dingus is $4, and someone said that $15 for a stainless steel tool is perceived as too cheap, then you need to adjust. Conversely, if your costs are $20, will you be able to sell at $40 if the market wants to buy them at $25? Will you be able to survive on $5 each?

There are a couple of HVAC techs on the board, and no shortage of ardent DIY-ers. We may be able to “crowdsource” a bit on the pricing if we knew what the thing is.

#8

Hell, a relative of mine was a buyer for a large upscale retail department store and told me markups of 400% were not uncommon for high end items like designer scarves and shoes.

#9

I’m kind of hesitant to post it because I don’t want it to look like spamming also because of the discussion at hand.

If you want I can pm you a link to the site.

#10

For HVACR prices, I’d suggest using a Grainger catalog as your guide. They’re a bit pricey but they have damn near everything in stock, at every location, all the time, so they’re the go to place for most things. Unless your customer service is freakin’ awesome, you have products that Grainger doesn’t or you’re open on Saturday you can’t afford to be be more expensive the Grainger if there’s one within a 20 minute drive.

But like I said, they tend to be expensive so I’d guess that it shouldn’t be a problem to match their prices.

#11

We know what the prices are that are out there. This guy has been doing this stuff for 20 years now and lives in the Chitown area so he has access to several supply houses. According to him the best product out there is a Flintstones version compared to his.

I’m only involved in this peripherally and it’s no one’s day job. Not yet anyway. I was just looking for retail sales markup info. And, as it’s been explained, it’s basically a crap shoot and we’ll find out when either we get orders or the door slammed in our faces :smack:.

#12

If it’s “The Best” product don’t be afraid to charge a premium price.
For Christ’s sake, they sell a $220 hammer…
http://www.amazon.com/Stiletto-TB15MS-Ti-Bone-Titanium-Straight/dp/B00006K158/ref=sr_1_1?ie=UTF8&qid=1342558518&sr=8-1&keywords=B00006K158

#13

That’s my opinion too. I also tried to explain to him regarding pricing that selling it on the web is one thing but in order to do big sales he’s got to price it to factor in distributors, retailers etc. And, that he needs to sell it at the same price on the web as the retail price in the stores or they aren’t going to buy it because he’s undercutting them. It’s a slow process esp since he’s in Chicago and I’m in Tampa. Plus he’s been really busy at his day job because I heard it was hot up there this summer.

#14

Have you guys actually done a first production run?

#15

You might ask some end users, after trying it out, what they would **expect **to pay for such a product 1) in a store 2) online 3) from a distributor. That will help you gauge a recommended end user price and you can set your wholesale prices accordingly.

In my experience an industrial supply distributor would like to have a chance at doubling whatever his cost is. Margin is especially critical when you are asking him to take on a new product that will cannibalize some of his current sales (you would like him to push your product in place of whatever he’s profitably selling to his customer base right now - even if it’s a marginally inferior product).

#16

We have 1000 in stock and another 1000 on order (or they might be in by now, I don’t know).

#17

I’ll bring this up. I do know that he’s sold them at car shows and the like for between 20-30 bucks when he first started.

#18

Did he sell two per show or two hundred?

#19

No, he sold about 5-6 per show. He’s not a sales person as he gets too nervous, but he’s getting better.

#20

Given that these were car shows instead of building/contractor/HVAC trade industry shows, 5-6 per show isn’t all that bad.
If they’re the best thing since sliced bread, I’d almost be tempted to make some great youtube videos, get an expert in the field to endorse them, make them really pretty and price at $40.
If it’s the best, why not charge the most?