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Question :
markup %

Hi everyone, another question from me. I am a startup business manufacturing healthy dry baking mixes.

Can anyone tell me what is the standard markup (if indeed there is any standard) for retailers? My understanding is that 30% is standard, however this is only from reading and not from actual experience in the market as I haven’t yet started trading. I am just wanting clarification so I can ensure that my wholesale price and RRP are realistic.

Thank you!
Shayna

Question submitted 23/05/20 @ 08:41pm
Industry: Funding & Finance
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  • Morena Shayna – I does vary from industry. Let me talk from the food production for FMCG space – what I have found for the manufacturer ie the maker we try and make Gross Margin of 50% of more – below you can still run a business, but as you scale it gets really a lot harder. We started at 35% and found ways to improve to 55% other than when we went to promotion. Then if I translate that to what the retailers would do, ie their margin – I have seen a range of 20% margin up to 35% roughly – sometimes they will go for more if they can and have leverage of scale for you.

    But short answer, I don’t think there is a ‘standard’ – but there is a range – and retailers need to make enough like you to stay in business.

    It is really hard to get pricing right – what I have done sometimes is ‘work out what I think is the pricing elasticity’ for my product in the end market, and then work back from there to the retailer with that ‘average’ margin of 35% and then back to what my selling price will be – and then compare that to what it costs me to make – that is one way. The other way is you start with your costs, add your margin, retailers margin and get a retail price.

    Both ways work, the preference is always to consider the pricing in the hands of your ultimate end-user – and building in good margin for you and for your retail partners.

    Have a great day – Andy

    Andy is on the money… there is no standard industry norm as it varies by category and also ultimately what uniqueness your brand brings as a solution to the consumer and the retail customer your partnering with. My rule of thumb is aligned to Andy’s last point… always always work back from your end ‘consumer why’ and what would they pay and also likely pay in the future too as your brand grows and the dynamics you initially bring ie. unique value consumer benefit etc change over time with the category.

    So work backwards from the cost of getting your brand in your consumers hand! plan for the worse but execute for the best outcome and be prepared for surprises!

    One last piece is I always layout my plans based on; again working backwards

    Brand – Pack – Price – Channel – Occassion

    – This helps me think about what is the occasion the consumer is buying my product for?

    – Am I in the right channel (best customer type to sell thru) to deliver and get it into their hands?

    – What’s the price they would pay based on shopping in this channel? Also good to see how you compare to other choices they have?

    – Finally how does the pack format deliver in meeting their occasion and also align to the channel requirements to connect consumers to it and ultimately bring your brand to life in the best way to tell connect your WHY with your consumer!

    As you work through different scenarios it also helps your finalise your pricing and go to market strategy!

    So to Andy’s point always work backwards from your consumer! Look forward to seeing what you come up with!

    Thank you Andy and Craig – that is really helpful!! My husband has already ‘worked backwards’ in regards to pricing/margins/cost projections etc, so it’s good to know we’re on the right track, especially in regards to possible retail margins.

    Thank you again!
    Shayna

    After working out cost of goods, you then have to include overheads, ie power, phone, www, eftpos, staff, etc etc, and then add on your own cost…, so I would think 30% would not cover all that, but rather 60-70% might. Cheers, TGB

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