Working from SRP (Suggested Retail Price) backwards, I see the following for FMCG profit margins:
- Anchor price/SRP: Start with SRP to your most expensive channel – which represents your top-most anchor price. The markup from you as vendor to retailer is 50-60% to the specialty/top priced retailers. For non-specialty channels – like drug, mass, grocery, club, figure 45%, 30%, 35% and 14% respectively.
- Tradespend: But, you have to figure an additional 13.5% average of your wholesale price in tradespend fees that you pay to the retailer (payment terms, damaged product allowances, in-store marketing allowances, etc). That is average across all channels. It will be highest in drug and lowest in club/mass.
- Broker fees: If you use them, then it will be as low as 5%, or could be as high as 12% of your wholesale price, depending upon the channel and if you are a startup or new brand, they will be on the high side.
- Distribution: I assume 30% of wholesale price, but that may come down depending on the channel.
- Co-manufacturer: If you manufacturer through a co-packer (you contract it out), assume they want a 20% net profit margin. So, take your cost of goods sold (COGS) and figure 20% of that is net profit margin to the manufacturer (product and packaging).
- Transportation: Assume 5-7% domestically of your wholesale price, but this is if you know how to optimize your logistics, otherwise, assume 10-12%. For international shipping, I assume another 3%.
- Warehousing: assume 1% of your wholesale price.
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I post what I see and do in consumer products. But I am just one person with my own perspective. I want your opinion and observations from your point of view. Please comment below so I and others can learn. Thank you!
Hi Ed,
Thanks for then really informative article.
What is the distinction between distribution and transport?
Transport is getting product from your warehouse to the next point in the chain to the end consumer. That could be a consolidator/wholesaler that handles distribution to the reseller/retailer or a reseller/retailer’s DC (distribution center). I classify distribution as a consolidator or a wholesaler that sits between you and the reseller/retailer.
Hi Ed,
I learned a lot from this article. The estimates were very helpful.
What commission is appropriate for an e-commerce partner that offers in store pickup to their users?
Just to clarify, this partner sells online and has store locations. Do they sell your product in store as well? Or, is your product only offered online through their website but they do not sell in store? Or, are you selling it online for the user to pickup in store? As a rule of thumb, any affiliate-level/drop ship sales for physical products are in the 5-10% range. Selling online or in-store by a reseller who takes inventory of your products generally ranges from 14% up to 65%, depending on the channel (https://edsoehnel.com/retail-margin-markup-consumer-packaged-goods-cpg-consumer-products-infographic/). If you are doing the selling but they are in essence your warehouse for the customer to pickup, then I have never seen that kind of arrangement so do not know what a commission would be.