Getting your distributor pricing right

I have a new client in the hairdressing industry that imports a product from overseas and distributes the product to hair salons around Australia. They were approached by a person wanting to distribute their products.

Apart from “what is the difference between and agent and a distributor?” which is the usual first question and one I have dealt with in past blogs, the next question was “how much should we sell the product to the distributor for?”

That is a tough question for a lawyer who knows nothing much about pricing, but the general rule is that you have to think about what price you would like the end consumer to pay for the product.  So in addition to pricing up from the price you pay to the manufacturer (which is important for your own profitability), you need to price back from the recommended retail price, taking into account the margins each party in the chain would want to maintain.

General rule is that the retailer in Australia would want to place at least a 100% mark up on product, but may put more.  The wholesaler/distributor would want to place approximately a 40% mark up on product.

So your table would look like this:

RRP       $199
Wholesale price to retailer    $ 99.50
Distributor price to wholesaler   $ 59.70
Supplier price to you    $??????

Then you have to factor in how much you pay for the product at the beginning of the chain and determine what you want your margin to be, taking into account the actual cost to you of having the product manufactured. 

So say you buy the product from the manufacturer in the above example for $30, then you have approximately a 100% margin and you are doing OK, given the distributor is doing all the running around.

The top mistakes clients often make are to fail to price back so that product is overpriced in the shops and then doesn’t sell, or they may fail to price up, so that they are not taking into account the actual cost to them of having the product made. 

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Lynda Slavinskis is an outgoing, intuitive and commercially savvy lawyer. She has worked in-house at Sussan Corporation and Tattersall’s and now assists small and medium businesses with import, export, leases, franchising, employment and general business advice as principal solicitor of Lynda Slavinskis Lawyers & Consultants. Lynda is on the Victorian State Government’s Small Business Advisory Council.