I got this question emailed to me by Marty:
I’m looking to find out the typical pricing markups (margins) for plastic storage containers, from manufacturing through retail. I came across your post on Quora (dated 3/16) which was helpful, but I had trouble understanding some of it. Wondering if you could clarify through an example, working backwards. So, if a consumer Retail price for a container is $100, then at a retail 50% gross margin, the Wholesale price would be $66. What would the corresponding prices / markups for the Wholesaler and Manufacturer be using this example, and the implied COGs? (assuming the percentages in your post).
I thought it would be good to post my answer because it may help clarify for others as well.
You have to work forward, not backwards, for pricing and margins. If wholesale cost is $50, and the channel operates on a 50 margin, then they markup to $100, so the margin of 50 is difference between the wholesale and retail (SRP). This is also called keystone price (2x multiple of wholesale).
Use this equation: take 1-(wholesale divided by SRP) to arrive at the correct margin.
Margin depends on channel. Club is 14%, mass is 25-30%, grocery/department is 35%, drug is 42% and specialty stores are 50% (Like The Container Store or Bed Bath Beyond). That is a rule of thumb. I’ve not sold storage containers so do not know for certain.
Note that margin does not include tradespend, which averages 13.5% of revenue across all channels.
If wholesale is $50, and COGS is 30%, then COGS is $15. That is a good rule of thumb, but storage containers, given that they are commodity durable goods, might be lower COGS than that.