General Retail Business Issues/Re: Markups on Products

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QUESTION: Dear Stu:

I'd appreciate your answer to the following:

I've been in contact with a company in the Philippines who'd like me to distribute their products in Canada.  From what I can determine the product is now being brought in from the U.S. and retails between $2.00-$3.00 Canadian.  In making my calculations, can I assume that the retailer would mark up 100% on the wholesale price or is this too high?  Generally, what percentage should I as the middle man get?  I would be trying to find clients for the manufacturer overseas. I wouldn't be handling the import/export of the product itself.

Best Regards,
Howard

ANSWER: Hello Howard

You have not specified the cost of the product, so to answer your question on a more holistic level, yes, retailers want to double their money on products. Depending on volumes you are selling (eg, National chains), they may also want some form of marketing support.

A general percentage for middle man doesn't really apply - ultimately in business, your goal is to maximize your margin while providing a service that is a win for the other parties in the chain. If you can deliver a good margin for your retailer (eg, they can double their money) and you can make 35% margin, that is an excellent position for you. IF you only make 10%, then you don't have a viable business, as you have no buffer for currency variations, freight increases, returns, damaged stock, etc.

Hope that helps

Stu

---------- FOLLOW-UP ----------

QUESTION: Dear Stu:

Thanks for your answer.

I'll add more detail.  The product is baby wipes.
I figure that if I made a 35% margin, the product's price would be more or less equivalent in price to what the national chain is getting from the U.S.  The retailer would definitely double their money.
The manufacturer in the Philippines wants a minimum order of 50,000 packs.
He tells me that the payment from the client would be 70% upfront and 30% upon delivery.  I have no idea if this is standard from a client's viewpoint.
Delivery time would be around 3 months.

If after reading the above, you think it is a go, then who in the national supermarket's head office to I go after?
How should I go after him:  by sending a letter of introduction with some samples, or by making an appointment to go see him...

I look forward to hearing back from you.

Best Regards,
Howard

Answer
Hi Howard,

If you can make 35% margin, and the retailer can double their money, you will have a winning product - if you are approaching supermarkets, be aware FMCG work on different systems and margins than specialty retail. Lower margins actually, which can be to your benefit. But they expect help moving product, marketing support etc.

AS such, don't go in with your best price! If say, the retail is $3, then try them at $1.80 first, not $1.50. They will eventually squeeze your margin down.

You should make an appointment and go see the buyer for sure, but first, I would try and find out your competitors pricing model so you can ensure you aren't wasting your time. And when you do meet, have clear pricing, samples, and ensure you anticipate and can answer all their questions!

And like everything, ensure it is all in writing before you proceed, or you will own a lot of baby wipes!

Stu

General Retail Business Issues

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Stu Jordan

Expertise

Simply put, I help Retailers make more profit! You will NOT hear me talk about excessive stock control mechanisms, specialized POS software, or sales training. Instead, I am available to answer questions relating to retail fundamentals - the art of buying and selling - and making a healthy profit along the way. Areas of specialty include: - CASHFLOW - how to keep your business in the black (or get it out of the red!) - PRICING - strategies, margin, mark-up, wholesale to retail, etc. - PRODUCTS - what to buy, what to avoid. - PRESENTATION - the science of product placement! - SALES - how to grow these fast, and keep the cash register ringing. - AGED STOCK - a silent profit killer! How to manage this area of your business - SUPPLIERS - leveraging these relationships so you get more from them! - MARGIN EROSION - and how to prevent it. If you have any general or specialized retail issue, I am happy to help you out. Also happy to talk to manufacturer/wholesalers who are looking for advice on breaking their products into the retail market. Follow me on Twitter @retailguru, or check out my blog for other useful advice (free!) retailprosperity.com

Experience

15+ years experience in the Retail industry - unlike many experts, I have made my money from my own retail ventures, not from selling my advice! Over ten years of my retail life was as a troubleshooter - my job was to fix the messes! I have worked with a huge variety of retailers to turn their struggling businesses around, and have found there are a number of principles that apply to all types of retail businesses, from luxury boutiques through to 2nd hand stores. I own a successful retail business in New Zealand, which has recently been franchised. My success comes in retail from the same strategies I am happy to share with you. I am also the author of The Retail Prosperity System - a handbook for Retailers who want to make more money from their retail businesses. This outlines the strategies I have developed and used in retail myself.

Organizations
A number of Retail Associations, including NZRA, BNI (you would be amazed how networking can improve your revenues!), EMA, New Zealand Franchise Association

Publications
Author of The Retail Prosperity System, various forums and blogs.

Education/Credentials
Studied Law at Otago University, and let's be honest - nothing beats 15 years real experience in the retail world, including building my own successful retail chain from scratch!

Awards and Honors
New Zealand TOP SHOP finalist - 2010

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