Distributor margin, profit and retail price in FMCG and other industries

If you are a manufacturer or supplier, and you want to sell your products to consumers, you will have to find distributors and retailers, both in your home country and abroad.

The margin for a distributor may range from 3% to 30% of the sales price, the margin for the retailer may range from very little to 60%. This all depends on the type of product and who pays for the marketing activities.

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Not all distribution margin is profit

You know the cost price for your goods, and you should have an idea of the sales price for the consumer, excluding any taxes. Anything in between is margin that you will have to share with your distributors, retailers or value added resellers.

Manufacturers Sales Price in relation to Retailer Margin and Distributor Margin

However, not all margin is profit. In order to earn the margin, distributors and retailers have to make costs, for example for shipping, storage, financing and of course selling the goods. They also have their overhead, leaving only part of the margin as their profit. When negotiating with the parties further in the distribution chain, you will have to take this into account, as a part of good distributor management.

Average retail margin and distribution margin

Product category Distributor Retailer
Fast moving consumer goods 3-10% 8-40%
Clothing and apparel 15-30% 20-50%
Electronics like mobile phones 3-7% 3-7%
Cars 5-15%
Furniture 30-50%
Jewelry 30-60%
Electrical equipment and lights 5-7% 15-25%

Distributor price and retail price

Your distributors and retailers should be able to cover their costs and make a small margin. Therefore the next step is to list their activities and add a value to it. These activities could include:

  • Transportation
  • Packaging and unpackaging
  • Storage
  • Financing
  • Marketing
  • Sales, either in personal sales or by putting the product in their shops

Adding up the estimated costs of these activities will give you a good basis for negotiations. Discussing the list will also help to clarify expectations, which is especially important if you work with foreign distributor.

FAQ about Distributor margins

Distributor margin refers to the percentage of the sales price that a distributor earns from selling a manufacturer’s products. This margin can range from 3% to 30%, depending on the product type and the tasks performed by the distributor, such as physical distribution, marketing, and sales efforts.

Improving distributor margin can involve several strategies:

  • Streamlining operations to reduce costs (e.g., optimizing transportation, packaging, and storage).
  • Enhancing sales strategies, such as improving the ordering process and providing quality sales documentation.
  • Collaborating closely with distributors to understand and support their needs and challenges.
  • Implementing effective marketing and promotional efforts to increase product demand.
  • Negotiating better terms with suppliers to reduce the cost price of goods.

Use the following formula:

  1. MSRP − Cost Price = Gross Margin
    • MSRP (Manufacturer Suggested Retail Price) is the price at which you intend to sell your product to the end consumers.
    • Cost Price is the total cost of producing your product, including manufacturing, labor, materials, and overheads.
  2.  Available Margin = Gross Margin − Other Expenses
    • Other Expenses include additional costs like transportation, packaging, storage, financing, marketing, and any hidden costs like damages or losses.
  3. Distributor Margin = Available Margin × Distributor Share Percentage
    • Distributor Share Percentage is the agreed-upon percentage of the available margin that the distributor will receive. This percentage is negotiated between the manufacturer and the distributor.

Distributor management in FMCG refers to overseeing the companies that help get your products from the place they are made to the customers who buy them. This includes making sure these companies, called distributors, have the right amount of products, understand your products well, and sell them effectively. It’s about working closely with these distributors to make sure your products reach the right places on time and are well-received by customers.

Available retail and distributor margin calculation

How to calculate the distributor margin or retailer margin? First calculate what margin is available and which part of it should go to your distributors.

Start with a good cost calculation

The process begins with determining the cost of your goods. Be clear about which units you sell your products in, and be consistent in you calculations to take that as a basis.

What should the retail sales price be?

The next step involves establishing a Manufacturer suggested retail price (MSRP). This determines the margin that you, the distributor and the retailer can share.

Build in room for discounts

Distributors and retailers typically get discounts on the MSRP in exchange for selling your products on behalf of you. The bigger the orders, the larger discount is expected.

Anticipate hidden costs

Also anticipate hidden costs. Damages or product losses could occur during shipments. To avoid this, you should ensure quality containers which would require additional costs. Include it in your calculation of unit sales to adjust your margins.

You can then divide the margins along the distribution chain, e.g. between you, the distributor and the retailer. Keep in mind the work that each party has to do and the risks they take. In general the profitability of a product is lower for the distributor than for the retailer but distributors have more sales due to the sheer volumes that they deal with. Try to determine with what transfer prices it still is interesting for your distributor and when applicable your retailer to sell your products.

Listing fees and slotting fees

The space in a retail shop is limited. And it is already fully optimised. This means that if you want your product on the shelves, the category manager has to remove another product that currently is making margin for them.

To offset this risk, supermarkets and other retail chains may ask you to pay a fee to be on the shelves, on top of the margin they make. This is a listing fee or slotting fee, and it may be a substantial percentage of your own margin, especially if your product does not sell so well.

Articles on FMCG Distributor Management

Whether you’re a manufacturer or a supplier, understanding how to effectively manage your distribution channels is crucial for success. From enhancing distributor relationships to optimizing supply chain processes, our post covers a wide range of topics that are essential in the FMCG sector, such as:

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