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Distributor Pricing New Pet Toy

Posted by Anonymous on 11/18/2009 at 3:35 PM ET 250 Points
I have a new toy manufactured for me. It costs me $3.20. It will be for sale in retail stores for $24.95. A distributor wants to buy it and is asking for his price. What is the formula to give him his price. Urgent time frame here! I'm setting at the computer trying to do a G.of G.S. statement and need ans asap post here for the 250 and send ans. to [email address removed by staff].
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  • Posted by Levon on 11/18/2009 at 4:04 PM Member
    Whatever price is going to ensure that it is worth your while..
  • Posted on 11/18/2009 at 6:12 PM Moderator
    Not sure what the norm is in the toy business, but I would think that the retailer would need 50%, and the distributor would need 5-10% of full retail price (10-20% of wholesale price).

    Of course, it depends on several factors, including what the distributor actually does for you, whether they actually take possession of the goods, how much risk they accept (for returns, for example), etc.

    My suggestion would be to have this conversation with your distributor asap, and nail down what the retail price will be, how much the retailers will want/need, how much the distributor needs to make this attractive, and exactly what they're going to do to earn their part of the mark-up.

    This shouldn't be a mystery or a taboo subject with your distributor. Just ask him/her. Also consider whether you expect the retailers to discount off the list price or to hold list price. While you can't set the retail price, you can influence it with your own pricing policy. Again, discuss this with your distributor.
  • Posted on 11/19/2009 at 9:54 AM Accepted
    I agree with mgoodman by most part.

    If a retailer plans on selling a product at $24.95 he will not pay more than $12.50 wholesale from your distributor. Some retailers, like catalog companies will want a bigger 60% margin or more. Keep in mind that the buyer from the retailer is the one that will determine if a product will sell at your suggest retail price. If the buyer thinks it will not sell for more that $19.95 at retail, he will not buy it from your distributor at the wholesale price for $24.95.

    Another consideration for future thought, if you have a sales rep working you will need to build in 15% commission to your pricing.

    The main value of a distributor to me is they buy large quantities to stock in their warehouse of similar products opening up your product to retailers that will not buy a single product (sku) from you.

    My problem with discussing costs with a distributor, i.e. letting them choose their own profit margin, is they will always choose in their favor. You may end up paying more to them then needed.

    So you do need a strategy in place for this discussion. Maybe start high and let them negotiate for a bigger slice. But I would not go below $6.50 per unit distributor price unless they buy in large quantities from you. And watch out for a "guaranteed sale" clause in their contract.
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