I’m sure this varies, so I’ll be happy with a range. Lets say I’m selling some biochemical kit for use by scientists. I can sell it directly, or I can go through distributor like ThermoFisher.
What would ThermoFisher expect as a discount off of the list price for them to sell the kit in their catalog? If I sell the kit for $100, would they want their cost to be $60? $80? $90?
Thanks for your informed input!
It varies quite a bit.
The distributor has to make a profit. If you aren’t making at least 5 percent profit, you’re better off shoving all your money into investments. Some companies aim for closer to 10 percent profit. If you can make more than that, great, but competition tends to drive it down into that range.
Volume also affects the price. If you sell ten thousand widgets per month, the margins can be a lot narrower. If you only sell one widget per month, you need to make more of a profit on it for it to be worthwhile. Biochemical kits probably won’t be selling by the tens of thousands, so I’d expect the distributor to want a lower price.
How big the item is and how heavy it is also plays into it. Larger items take up more space in the warehouse and lager and heavier items cost more to ship.
For something that is low volume like that, I’d expect the distributor to want a cost somewhere closer to that $60 mark, otherwise it’s not worth the warehouse space and overhead costs to sell it. At $90, they probably wouldn’t make any profit off of it.
Distributors want 100% markup or more. What they get depends on a lot of different factors. A major concern is the minimum volume of an order, the more the distributor needs to buy the greater the profit they want from each sale. If the distributor only has to pay for the product they move they’ll take less, but won’t have as much incentive to push the product. How the product is positioned in the market price-wise makes a big difference.
The 5% you’re using here is an annual rate of return I assume as you’re comparing it to an investment and those are typically stated in annual terms. If so, you have to consider how long the distributor takes to sell. If they have the item for two months and sell it for 2% above their cost, then their profit is 12% per year on their investments (ignoring compounding). If it takes you 6 months to sell you’d have to sell it at 6% above cost to make the same annual return on your investment.
We give 20% to our distributors to sell and support our widgets. We do expect them to assist with support, but that doesn’t always happen. Some of our distributors try to mark up 100%, but they’re rarely successful. The best strategy, for those that can afford it, is to sell at our list price (adding tax, importation, etc) and keep the 20% as their profit. I could get into a deeper discussion of why the various percentages are what they are, but that may be inappropriate for GQ (too many variables).
On the other side, we typically get between 10% to maybe 30% off list prices for products of which we are a distributor. Oftentimes, this discount is based on last year’s sales volumes. If we meet our projected volumes we can keep or increase our discount. If our volumes are significantly less than projected or history, our account will be reviewed and the discount may be lessened.
Not sure if distributors equals retailers for the sake of this conversation but when we were buying athletic apparel (Nike, Adidas, Puma, etc.) to sell through our athletic club chain we were paying 50% of the ticketed MSRP so the markup was 100% if we didn’t have a sale.
We only had 10 small locations so I’m sure larger retailers like Kohls and others with more buying power were buying for much cheaper.
A lot depends on turnover and lead times. Many years ago I was involved with some people who were running a boutique. We would initially mark the wholesale price up by at least 200%. After a while we would have a sale and reduce the price to maybe 150%. If still not sold, the items would go on the bargain rack for a mere 100% markup.
If we still couldn’t sell them, we had a guy came round once a month who would take anything for a knock down price - maybe 20% of the purchase price.
This was the fashion industry though where normal rules don’t apply. When I worked in a factory, the spare parts that we bought in and re-sold, were marked up at 120%.
I’ll mention that your list price has nothing at all to do with ThermoFisher would pay you. Their price will be based on what you charge them, and how long it will take and how much money they think they can get for your product.
A cousin of my mother’s had a contract for the distribution of some brand of electric razors in Philadelphia in the 50s. What he did was collect orders, collate them, and send them to the manufacturer who delivered them directly to the stores. So he didn’t deal directly with the merchandise, didn’t lay out any money, and his only expense was a bit of paperwork. He was happy to get a 2% commission. Not sure why the company was happy to pay him that.
He was a salesman, pure and simple. 2% commission and no benefits or overhead sounds like a steal for the company. The “gig” economy is not as new as all that.