Pricing Scenario: Shipping Through Distributor or Direct

If you own or manage a business that produces products or services (like essay writing where students are in search of where to pay to write essay ) that sell through a retail channel, there are two pricing scenarios that you need to develop so that you can determine what your selling price will be to either the retailer and the distributor that will sell to the retailer and within these two scenarios, two additional scenarios for a pick up price (at the manufacturing or warehouse location) or delivered price.  Potentially, you can have multiple delivered prices (full truck load, limited truck load, etc.) as illustrated below:

Pricing Scenarios

Because of the above, in order to sell efficiently as a small business owner or manager you should be creating two separate price lists if you sell your items both direct to retail or through a distributor (who then sells to the retail) – one price list for direct customers and another for distributors.  On each price list you should provide one set of prices quoted as both FOB (AKA pickup) and delivered for all of your products.  Although this is not really what I want to cover in this article, the benefits of separate price lists are:

  1. Easier to manage your targeted SRP by adjusting your sell price.  Typically, your selling price to distributors should be less than that to direct customers because ideally you want your SRP to be one price at any retail location (this will be further discussed below)
  2. Since more margin is added when going to distributor vs. direct, which results in two different sell prices, it becomes easier to manage your profitability by have P&Ls for direct customers and P&Ls for distributors
  3. Custom programs.  Some distributors are not properly educated on your product benefits.  Paying extra money for placement in their catalog so that you can drive messaging and awareness to the local reps within the distributor company could be the difference of a distributor pushing your product vs. not pushing it

Now going back to the original point of the article: how to develop the two separate pricing scenarios.  Let’s assume that the average retail margin is 40% and the average distributor margin is 10%.  Let’s also assume that at a sell price of $1.50/unit, you will be hitting your targeted profit margin.  Below are the SRPs for Direct and Distributor based on the above:

Direct Customers: $1.50/(1-.6) = $2.50 SRP

Distributor: ($1.50/(1-.9))/.6) = $2.78 SRP

As you can see from the above, you pricing structure will not be consistent in stores that ship through distributor vs. stores that ship direct from your plant.  In order for the Distributor pricing to lead to $2.50 SRP, the sell price would need to be $1.35 as opposed to $1.50. Or, your Direct price should bump up to $1.67 to deliver a $2.78 SRP.  You might be wondering what this has to do with marketing?  Well, if your direct price is the same as the distributor price then good luck trying to sell to large customers.  They will know and recognize that you aren’t giving them the best deal since going through a middle man is always more expensive.  Therefore, two separate price lists is the way to go so that you can have two different pricing structures.  Furthermore, your direct customers will never see your distributor pricing and vice versa, always giving you more leverage.

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