Margins

[onlineK]

Well hoping i can get some advice on what % online retailers and standard retail shops are looking to make?

I have a ladies fashion accessories product that I have just started to manufacture. Now my selling price on my website would be about R600. What would an online retailer be looking to purchase these items for, and what would a standard mall shop be wanting to pay. This assuming they also sell for R600.

Any advice greatly appreciated.

K

 

[matt_za]

you need to give the cost of product all in not the sale price

 

[Arthur]

Remember, there's a difference between markup and margin. People often confuse the two.

Say your cost is R100.

A 20% mark-up means you sell it for R120.

A 20% margin means you sell it for R125.

Markup is the percentage you add to the cost. R100 + 20% = R120.

Margin is the percentage profit you take on every Rand you sell it for. In the above example, if your markup is 20% then your gross margin is 16.666%. To make 20% gross margin, you need to sell it for R125, ie R100 / 0.8.

 

[Arthur]

About 95% of hundreds of graduates that I've interviewed flunk the above question, by the way.

 

[onlineK]

Matt_za,
Thanks, but knowing the cost is not the problem as I know it. The problem is i have direct sales via our website of R600. Now i have approached 2 other online shops and 2 Retail shops who I have meetings with next week in connection with also selling my product. My cost is very low so have a big markup when selling via direct sales. What i'm trying to work out (as previously i come from a completely different industries) what sort of price i should be offering these 2 types of stores so that they retail also for about R600 so that they would make there required markups.

Thank you Arthur, this always gets me, great explanation. Any advice on above.

 

[Dr Who]

Hi here is a run down:

retails tend to want between 30% - 50% GP they never talk about Mark up as that is a higher value as per above. Large retail stores also look at 2 types of discounts that being front margin and back margin.

Back margin ranges from 10 - 12 % and is added to the front margin ( or trade discount ).

Depending on where you are landing your product ( store ), risk of obsolesce and category/market will determine what margins are acceptable. Hope this helps.

 

[Dolby]

Remember, there's a difference between markup and margin. People often confuse the two.

Say your cost is R100.

A 20% mark-up means you sell it for R120.

A 20% margin means you sell it for R125.

Markup is the percentage you add to the cost. R100 + 20% = R120.

Margin is the percentage profit you take on every Rand you sell it for. In the above example, if your markup is 20% then your gross margin is 16.666%. To make 20% gross margin, you need to sell it for R125, ie R100 / 0.8.

Hi Arthur,

How'd you work back?

I sell something at 480.00 and paid 450.00 - so assuming the margin is 6.25% ((GP/sales)*100)

But working back 450 + 6.25% is 478.12?
Wouldn't I want 6.666% to get to 480?

 

[Se@n]

Hi Arthur,

How'd you work back?

I sell something at 480.00 and paid 450.00 - so assuming the margin is 6.25% ((GP/sales)*100)

But working back 450 + 6.25% is 478.12?
Wouldn't I want 6.666% to get to 480?

Theres a formula for both, anybody got it on hand?

 

[Hamish McPanji]

Theres a formula for both, anybody got it on hand?

This?

http://support.apple.com/kb/TA43046?viewlocale=en_US

 

[Se@n]

This?

http://support.apple.com/kb/TA43046?viewlocale=en_US

Yup, thanks, should not have been so lazy and looked myself!

 

[TEXTILE GUY]

Well hoping i can get some advice on what % online retailers and standard retail shops are looking to make?

I have a ladies fashion accessories product that I have just started to manufacture. Now my selling price on my website would be about R600. What would an online retailer be looking to purchase these items for, and what would a standard mall shop be wanting to pay. This assuming they also sell for R600.

Any advice greatly appreciated.

K

Another way to look at this is simply - what would someone pay. How elastic is the selling price.

Give you an example - Denim jeans. Unbranded or branded, both made at HLM factory.

The distributor marks them up differently and sells them onto the retail chain. At the end of the day, with claims and returns vs sales, the distributor will get around 15% GM on the unbranded and 45% on the branded.

The retailer will then sell the unbranded Jeans as (his) cost plus 20%, for turnover, and the branded items at (his) cost plus upto 100% for profit.

We are prepared to pay for Levis, Cavalli and the like - so they are priced at we expect them to be.

In the US, people are ''baited'' into brands by stores such as Ross and Burlington Coat Factory. They sell the real deal but in limited stock and sizes - (usually old stock, returns and over runs) to ''float'' the brand.

So, if you can make 10% - go for it, if you can make 100% better.

Once you have some sales data, you can find a ratio of sales to price and calculate your optimal price to fit demand and you ability to supply.

Hope this helps.

 

[Mickepicton]

you need to give the cost and discount of product all in not the sale price

 

[Markd]

The simple answer is retailers want as much money as possible. How they get it is another story.

In fashion in particular you'd probably find that the expectation is for the margin to be larger than for other kinds of products. If you gave them a 100% markup that might be acceptable in the fashion industry? I'm not in that industry so I'm not sure. If you look at the tech industry (computer parts etc.) people frequently work with margins of around 5%-8%, but the items sell for 1-4 thousands bucks. In other industries it can vary greatly depending on the product from anywhere between 10-40% gross margin.

There are some very large online retailers who apply a set markup in most cases - e.g. they'll say cost + 30% + VAT = selling price, irrespective of the actual product (which makes them very price competitive when rrp is cost plus 50% for example). So you could say your product can be bought by them for x or y, and if it's an attractive product that they think their customers will purchase, they'll take it, and slap on their formula. In this case its more about how much of a fit they perceive your product to be for them. The downside here is smaller online retailers might not take your product because they don't feel they can compete with the markup the big retailer is working with on your product.

The only way you are going to get a solid idea is to engage with these companies and arrange to go and see them/chat to them. you should have a good idea of who your product might be "right" for, and you should also expect to be ignored if you are a smaller brand, or if your product isn't super steller. People are making all sorts of stuff which they are trying to get out there - can be hard work!

 

[Arthur]

Hi Arthur,

How'd you work back?

I sell something at 480.00 and paid 450.00 - so assuming the margin is 6.25% ((GP/sales)*100)

But working back 450 + 6.25% is 478.12?
Wouldn't I want 6.666% to get to 480?

Sorry, only saw this now.

Remember, Gross Margin is a percentage of your selling price, ie the percentage of profit you make on the money you get in from customers from the selling price.

Markup is always an expression based off the cost price. A 10% markup on an item costing R100 is
= Cost + (Cost x percentage markup)
= R100 + (R100 x 10%)
= R100 + R10
= R110

Making R30 gross profit (R480 sales less R450 cost = R30 gross profit) is a gross margin of 6.25%

= 30 / 480 x 100 = 6.25

If you have only your cost price and want to work out what your selling price should be if you want to make say a 6.25% gross margin, then the formula is:

Gross margin = Cost price / (100 - margin) x 100

= 450 / (100 - 6.25) x 100

= 450 / 93.75 x 100

= 480

To see what the markup percentage is, you need to know cost and selling price.

Markup % = (Gross profit / Cost price)

However, marking up by say 6.25% (using your figures) means you add 6.25% to the cost of your product - and that will always be less than a 6.25% margin.

450 marked up by 6.25%
= 450 + (450 x 6.25%)
= 450 + 28.125
= 478.125

 

[Arthur]

While we're on the subject, a Discount is the same as margin. Important to remember when you're calcing costs, sales and profit.

If your cost is a percentage discount off the SRP (Suggest Retail Price), then that discount is your gross profit, and therefore the discount percentage is your gross margin (assuming you sell at SRP). This Gross Margin (Discount percentage) will always be smaller than the Markup Percentage.

 

[HavocXphere]

lol - no dude you can't boil it down to a simple percentage.

Here's 20 pricing strategies...

http://en.wikipedia.org/wiki/Pricing_strategies

Somewhere in that maze of info you need to find one that is applicable to your product...or perhaps how this hypothetical retailer would view your product if you aim to see things from their perspective.

Its all over the place. e.g. Target pricing is appropriate for manufacturing wheel barrows but not for fashion accessories. So...start reading or take a guess at a margin percentage...and pray that luck is with you (lol).

As far as quick answers go...Textile guy's first sentence is as close as you'll get to the "truth" in the pricing game....not much use at the actual implementation stage though.