Wholesale Pricing / Margins

[jamiedolan]

Hello;

I've been in business before, but have been in business that were primarily service based. Recently I've been trying to get into a business selling dog chews. I've purchased some through a vendor that takes a few cents off their regular retail pricing(1%) with a larger order about $1.80 per dog chew. When I sold these, I was able to make very little money because there just was not that much room, they commonly sell for $2. I got a little more than that for the ones I sold, but still very little money after palpal fees.

I contacted this vendor about better prices if I bought a larger quantity. They said they are a manufacturer of this product and the best they can do is %2 off of retail, they said that they had customer that bought $50,000 a year worth of product and that(2%) was the largest discount they gave to them or anyone else.

I searched for other vendors / importers and contacted a number of them. I found one importer that would sell them cheaper, $1.35 each FOB, minimum order 10,000 ($13,500 + Freight). So lets say my cost would be $1.40 each with shipping. If I sell these for $2 each, that gives me 60 cents, subtract paypal or other credit card fees and I am down to $.50.

I can't see how you can start and run a business with margin this low. At this price I make a little more money, but the trade off is that I have to tie up $14,000 in inventory.

I know that starting out in any business your not going to have the best prices from the vendors, but these prices don't even make sense to me. I don't see how I could realistically operate with a margin so low.

Do you think I have just not found the right vendor yet or does it typically require a even larger cash outlay to get better margins than this?

I've had people tell me that in retail sales you should always have at least 100% markup, I am not sure how accurately that statement applies to all businesses. It does seem like it would be quite difficult to run a business with a margin that is a lot smaller than that.

I am having a lot of trouble figuring out how someone gets products cheap enough to be able to afford to start up a new business.

Thank You,

Jamie Dolan

[billbenson]

2% is rediculous. Just starting out, I'd say 10% to 15% would be expected. You can't make much money eve at that, but you try to build up volume.If you want to stick with dog bones, find some other vendors. If they only offer 2%, they want to sell direct and not through distributors IMO. I consider 25% to 30% a good number in most cases.

You will probably need to start out selling through a master distributor initially. Once you can show volume, you could try to go direct to the manufacturer.

Unless you are stuck with the dog bones for some reason, look for companies who want to sell through distribution channels. Find something that you feel you can market and has good margins.

At 2% they are just saying screw you. They either want to sell direct or don't like you!

It takes research.

[dynocat]

It most likely varies with the industry. What I've seen in housewares and kitchenwares, is typical keystone pricing, where your selling price is double the wholesale price. In other words, the manufacturer has a suggested selling price (MSR) with a wholesale price to the retailer of 50% of MSR.

With some products the market may be really tight with a lot of competition, so you might do only a 40% markup. With some harder to find products you might be able to sell with a 60% markup. There are a lot of variables.

Most wholesalers I've dealt with have a minimum order. Some are as low as $100 while others may be $500. Again it just depends on the manufacturer.

There are also some that have a minimum first order. Some give a volume buyer discount after you've reached a cumulative purchased dollar amount.

I'm only guessing but in a low price item like dog chews, there may be little wiggle room for the manufacturer. 2% sounds awfully low though. Why bother?

[Steve B]

I deliver dog food and the margin is about 30%.

You can PM me and I'll give you the name of my supplier - they sell all kinds of dog related products. You have to have a $400 min.

[Business Attorney]

What I have seen across many types of retail businesses is that gross profit margins generally range from 20% to 50%.

To make money at the 20% gross margin end of the spectrum, you need to keep your general, selling and administrative costs (GSA) very low. That typically means low inventory (or high turnover) and little labor.

If you have slow moving inventory or a lot of labor costs, making money even at the 50% rate can be tough. Stamp and coin dealers, for example, often need to make more than a 100% mark up because particular items may sit in inventory for months or even years before the right buyer comes along, plus there is a lot of personal attention that has to go into each sale.

I cannot imagine any business even surviving on a 2% margin. I find the manufacturer's claim that even its best customer buy at 98% of retail so unlikely that I would question the truthfulness of the statement. Who would shell out $50,000 to buy, store, handle and sell 25,000 individual items to make $1,000 gross profit? That amount could not possibly cover even a small portion of the direct GSA needed to move those items in and out of inventory.

[jamiedolan]

I cannot imagine any business even surviving on a 2% margin. I find the manufacturer's claim that even its best customer buy at 98% of retail so unlikely that I would question the truthfulness of the statement. Who would shell out $50,000 to buy, store, handle and sell 25,000 individual items to make $1,000 gross profit? That amount could not possibly cover even a small portion of the direct GSA needed to move those items in and out of inventory.

If the company is being truthful, the only thing that makes and sense would be that the customer has found a way to sell these for a higher retail price, so they make more than the 2%.

Such a small discount does sound so absurd that it makes me question if the company is being honest. I see no reason for them to be dishonest with me however, I've been a customer for several years and have spent at least a couple thousand dollars with them. I was willing to place a minimum order that was several thousand dollars or more, if the discount was realistic and I could make money on them. The more I think about it, the 2% seems rather insulting to even be offered, if they don't want to offer wholesale, then just don't offer it.

Thanks,
Jamie

[jamiedolan]

Unless you are stuck with the dog bones for some reason, look for companies who want to sell through distribution channels. Find something that you feel you can market and has good margins.

I am not completely stuck on this, and will have to move on if a better price is not found.

The reason I am trying to stick with this is because I have a mailing list and places to advertise at low or no cost where I already have a reputation with the people. There are some online communities for raw feeding dogs that I am pretty well known in and I know those people will buy from me.

Thanks,
Jamie

[jamiedolan]

With some products the market may be really tight with a lot of competition, so you might do only a 40% markup. With some harder to find products you might be able to sell with a 60% markup. There are a lot of variables.

Most wholesalers I've dealt with have a minimum order. Some are as low as $100 while others may be $500. Again it just depends on the manufacturer.

I'm only guessing but in a low price item like dog chews, there may be little wiggle room for the manufacturer. 2% sounds awfully low though. Why bother?

2% or even 10%, I agree, it just works out to be too low to bother with, there is no profit to be made. The numbers you mention sound more like what I would expect to hear. I even don't mind placing a much larger minimum order if it got me a 40% markup.

I did consider that this may just be too competitive and there isn't the wiggle room. They are a little more of a specialty item, they are called bully sticks. I would not be competing with the volume of chews sold at walmart, but it is still a substantial size market. (Bully sticks are mainly sold in specialty pet stores and online, rarely in mass retailers) I may end up just having to look at other industries for a product.

Thank You
Jamie

[dynocat]

Jamie, I'm curious if you have approached small manufacturers of dog chews.

There are several in the "natural" category which sounds like a good fit for your niche. There a quite a few B&M stores and manufacturers that make natural, organic dog chews, cookies, etc. In return for a good size order they might give you a much better deal.

For kicks, I did a search for "natural dog treats" and Bully Sticks is #1.

[huggytree]

on the supplys & fixtures i buy for my business i get 42% off list price

i mark them up 35%...but this is with items which run from $100 to $10,000

with small items i mark up 100%...i find i spend as much time ordering small items as large ones and without a larger markup its not worth your time.

something to consider is that the dog chew market may not be a good profitable market...choose something else!

if it doesnt work why fight it...let the idea fail and move onto a more profitable item...

i think small-low priced items in general arent going to make you much...your fighting over 50 cents!!!...fight over $100 or $1000 yea, but to make 50 cents is not worth the effort...

is it better to make 1 $1000 sale or make 1000 $1 sales? which is easier and more profitable.

if your competing with Walmart to be the lowest priced dog chew your going to fail

if your competing with Walmart to have the superior dog chew you may succeed. people will pay more for quality(not all, but some will)

[jamiedolan]

i think small-low priced items in general arent going to make you much...your fighting over 50 cents!!!...fight over $100 or $1000 yea, but to make 50 cents is not worth the effort...

is it better to make 1 $1000 sale or make 1000 $1 sales? which is easier and more profitable.

Thanks again for the responses and suggestions. This past week, I've been looking for products with a higher price point and or a better margin. I came across an item related to my gardening hobby, plant marker tags, and found a wholesaler that will give me a good price on them with just a couple hundred dollar order. They sell retail in 20 packs on ebay for about $14 and 20 would cost me $5 wholesale. If I could make a dollar or two on shipping and handling I would at least have the potential to make close to $10 on a sale.

I agree bout the higher price item, I would much rather deal with a few big dollar sales than all these small auctions. I am not sure how many of the businesses on ebay survive, I can't imagine the margins are that high on many items, and even if they are, so many auctions are such low sales (i.e. $5). They must have to sell a lot of volume to do a decent business. (unless they are just hobby sellers that don't care that much about margins).

So far, I have not come across any large(r) ticket items that I can find for purchase at wholesale prices, it seems very hard to compete with people that have buying power like Amazon and the big box stores.

I'll keep searching and brainstorming. Thanks again for the feedback.

Jamie Dolan

[dynocat]

Thanks again for the responses and suggestions. This past week, I've been looking for products with a higher price point and or a better margin. I came across an item related to my gardening hobby, plant marker tags, and found a wholesaler that will give me a good price on them with just a couple hundred dollar order. They sell retail in 20 packs on ebay for about $14 and 20 would cost me $5 wholesale. If I could make a dollar or two on shipping and handling I would at least have the potential to make close to $10 on a sale.

I agree bout the higher price item, I would much rather deal with a few big dollar sales than all these small auctions. I am not sure how many of the businesses on ebay survive, I can't imagine the margins are that high on many items, and even if they are, so many auctions are such low sales (i.e. $5). They must have to sell a lot of volume to do a decent business. (unless they are just hobby sellers that don't care that much about margins).

So far, I have not come across any large(r) ticket items that I can find for purchase at wholesale prices, it seems very hard to compete with people that have buying power like Amazon and the big box stores.

I'll keep searching and brainstorming. Thanks again for the feedback.

Jamie Dolan

Have you checked out drop shipping? Most online retailers who sell higher ticket items, like electronics, computers, tools, etc., do the selling while the manufacturer does the shipping.

[huggytree]

does the $10 you will make cover your e-bay time to list it? also time to package and ship it?

doesnt it take 15-30 minutes total of your time? if so thats $20 per hour before expenses. i dont know what your expenses are, but they exist...

[rebelnetworks]

Sound like company offering 2% discount does not understand the value of resellers, or wholesale marketing - they would be better off providing 30% margins and getting 1000 people to sell to them than have to hire 1000 sales people -