Forums: Discussions for entrepreneurs and small business.

Hi all.

 

Need a bit of help with this topic.

 

I have an automotive distributor that might be interested in carrying my product, vehicle mirror covers, who raised a couple of issues:

 

1 The salesman wanted to know if I had a two tier pricing structure in place (I don`t).

 

2  He questioned my ability to produce large quantities of my product.

 

Second question first:  I have a manufacturer who is pricing out my sample coverfor various quantities. They can handle packaging too So, they`ll quote me a price at various numbers. Once I have that info in hand I can address the first question:

 

First question: How does pricing for distributors work? I read about a general 50/25/10 rule. My retail price is $15. Is there some sort of formula I can apply to give the distributor a price? A set automotive category formula?

 

Thank you. 

 

 

 

 

The pricing rule your referring to I think is a pricing discount structure given to customers that buy a lot of product from a supplier.  The 50 represent a basic price discount of 50% off retail ( 50% off would be your general distributor cost per item ).  The 25 would be an additional 25% off the distributors cost after the 50% were factored in.  this would be for a larger than normal order from the distributor.  the 10 would be yet an additional discount of 10% after the first two discounts are factored in.  Again, this would be for large orders. 

Example:

 

Retail price for one item is $100.00

 

Standard distributor discount = 50% or $50.00 off retail.  Distributors cost is $50.00 per item.

 

But your distributor places a large order so you add an additional discount of 25%.  25% off of $50.00 = $25.00.  Your distributors cost per item is now $25.00.  If your distributor places an extra large order, you might give him an additional 10%.  Or knock another $2.50 off the unit cost.

 

You can also offer your distributors a discount for early payment of the invoice you send them. This is generally net 30/2 (2% discount if paid within 30 days). 

 

 

If $15.00 is your Retail price, you might have a problem if you take on distributors.

 

As stated above, a distributor is going to want to pay no more than $7.50 a pice for these (so they can make a 50% mark up). How much money are you going to make selling these at $7.00 a piece to distributors? even if your cost is .25 each...you`ll need to sell a whole lot to make any `real` money. I don`t know what the die cost is for these, but in my industry they can be thousands of dollars.

 

So, I am wondering if you are better off selling directly and not employing a middle man?  OR...is there any way to add value to the product and raise the Retail price, so that taking on a distributor is worth it?

 

 

Nevada, Def.

 

Thanks for the feedback, very helpful. Once I get a price quote from a manufacturer, I`ll have an inkling of what I can charge, hopefully, considerably lesss than $7.50.

 

Thanks.