One method for determining channel margins when you are not able to talk with industry insiders




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This post answers this question I received on Quora:

Does the manufacturer of robotic kits for kids have a potential to enter markets overseas by offering a 50% discount on MSRP to importers? Will the importer have enough space to markup the price before CE retailers markups his own purchasing price?

The answer is unknown without direct knowledge of the margins amongst the various intermediaries (importers, distributors, retailers/resellers) involved in the sale of products in your category.

It is hard to pin down using general industry rules of thumb because margins on consumer electronic products varies quite substantially not just between categories, but within categories, between channels and retailers and possible also based on the maturity of the product in the category.

The best way to get this information is two fold:

Talk directly with importers/distributors and retailers/resellers to understand their margin requirements.

If this is not possible, then I would back into this number through the following sequence:

  1. Determine the MSRP of your product. This would be equal to the revenue that the end retailer/reseller makes on the sale of your product to the end consumer;
  2. Research your specific category within the consumer electronics industry from financial statements by publicly traded consumer electronics retailers. Determine their COGS, which is what they pay the importer/distributor;
  3. Assume 20% margin to the importer/distributor (this is a rule of thumb and may not be correct for your category), which lets you back into determining your wholesale cost of the product to the importer/distributor (your revenue);
  4. Assemble your P&L for the product, including COGS and all applicable operating expenses and net income. Assume a reasonable but standard net income percentage for companies like you in your category.

The goal with this exercise is to determine if you can manufacturer and sell your product at your wholesale cost with all of your P&L variables factored in for that product, based on your industry net income average, which then rolls up to the importer/distributor price, which then then rolls up to the retailer price, factoring in their COGS.

Build this sequence into a model and you will then be able to determine what margin you can deliver on your product.



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!


About the Author:

I am a startup and growth company expert: sold 1, built 5, and crashed 2. I develop, launch and grow consumer products through uncommon methods that can lead to more sales – faster – and can make a company and its products more appealing to consumers and resellers, with less risk. More about me here.

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