Question about retail margins

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poppy767

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#208108 27-Jan-2017 00:08

Hi all,

I have a product I am trying to get into retail stores.

The main retail chain I am trying to stock with like my product, but they said they need me to lower my price so they make more of a margin.

The RRP for the product is $34.99. The price I proposed and which they want me to lower is $19.99. They said they need to make a 60% margin, whereas if they accepted my current price of $19.99 they would only make a 34% margin.

I'm confused because I thought they would be making a 43% margin at a price of $19.99.

I don't really want to go back to them asking this because I will look like an idiot...I am new to all this.

Can anyone enlighten me? How exactly is margin calculated?

TIA :)

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#1710383 27-Jan-2017 00:31

GST - looks like you have forgotten they need to pay 15% of the RRP

Goosey

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#1710390 27-Jan-2017 07:10

This is a good GM and GP Calculator.

Remembering both are different !

Handle9

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#1710402 27-Jan-2017 07:36

Margin is calculated like this.

(Sell price - cost)/(Sell Price)

In your case Sell price is $30.42 ($34.99 / 1.15) to get the gst exclusive price.

($30.42- $19.99)/$30.42 = 34% gross margin

sbiddle

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#1710405 27-Jan-2017 07:43

It's also very common to refer to two very different things in the retail space - mark-up and gross profit/gross margin.

scottjpalmer

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#1710406 27-Jan-2017 07:43

Handle9: Margin is calculated like this.

(Sell price - cost)/(Sell Price)

In your case Sell price is $30.42 ($34.99 / 1.15) to get the gst exclusive price.

($30.42- $19.99)/$30.42 = 34% gross margin

While it provides a close approximation in this low value case, dividing by 1.15 isn't the correct way to calculate the GST exclusive amount

http://www.kiwitax.co.nz/infobase/165/how-to-correctly-work-out-the-gst-content-from-a-gst-inclusive-figure

richms

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#1710412 27-Jan-2017 07:55

scottjpalmer:

While it provides a close approximation in this low value case, dividing by 1.15 isn't the correct way to calculate the GST exclusive amount

http://www.kiwitax.co.nz/infobase/165/how-to-correctly-work-out-the-gst-content-from-a-gst-inclusive-figure

Yes it is,

$115 / 1.15 = $100 which is the correct ext GST amount.

what is wrong which I see many people do is pressing $115 - 15 % on their calculator, which gives $97.something

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Handle9

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#1710414 27-Jan-2017 07:59

scottjpalmer:
Handle9: Margin is calculated like this.

(Sell price - cost)/(Sell Price)

In your case Sell price is $30.42 ($34.99 / 1.15) to get the gst exclusive price.

($30.42- $19.99)/$30.42 = 34% gross margin

While it provides a close approximation in this low value case, dividing by 1.15 isn't the correct way to calculate the GST exclusive amount

http://www.kiwitax.co.nz/infobase/165/how-to-correctly-work-out-the-gst-content-from-a-gst-inclusive-figure

Sorry but both methods will always give exactly the same result. 3/ 23 is the same ratio as 0.15 / 1.15 therefore my formula is the same, just quicker.

sbiddle

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#1710419 27-Jan-2017 08:15

richms:

scottjpalmer:

While it provides a close approximation in this low value case, dividing by 1.15 isn't the correct way to calculate the GST exclusive amount

http://www.kiwitax.co.nz/infobase/165/how-to-correctly-work-out-the-gst-content-from-a-gst-inclusive-figure

Yes it is,

$115 / 1.15 = $100 which is the correct ext GST amount.

what is wrong which I see many people do is pressing $115 - 15 % on their calculator, which gives $97.something

I've seen plenty of retailers to this over the years when advertising a "GST free sale". They simply deducted 12.5% / 15% rather than actually deducting the true GST component.

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#1710435 27-Jan-2017 08:47

Oops, my bad. My apologies. Yep it's the subtract 15℅ I was thinking of.

xpd

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#1710438 27-Jan-2017 08:51

Company my wife used to work for supplied product to places like Briscoes and Warehouse, she said Warehouse was bad (she was making fek all on the product but relied on quantity), but Briscoes got to the point where they wanted the product almost for free, and turn around and sell it for 300% profit. Soon told Briscoes to get stuffed....

Getting into retailers is a sod depending on who it is and what you're selling with you both being happy....

XPD / Gavin

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#1710446 27-Jan-2017 09:10

xpd:

Company my wife used to work for supplied product to places like Briscoes and Warehouse, she said Warehouse was bad (she was making fek all on the product but relied on quantity), but Briscoes got to the point where they wanted the product almost for free, and turn around and sell it for 300% profit. Soon told Briscoes to get stuffed....

Getting into retailers is a sod depending on who it is and what you're selling with you both being happy....

If you get something at Briscoes for 60% off you're still being ripped off these days.

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poppy767

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#1711395 29-Jan-2017 17:30

itxtme:

GST - looks like you have forgotten they need to pay 15% of the RRP

Oh yeah...forgot the GST...whoops

poppy767

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#1711396 29-Jan-2017 17:31

xpd:

Company my wife used to work for supplied product to places like Briscoes and Warehouse, she said Warehouse was bad (she was making fek all on the product but relied on quantity), but Briscoes got to the point where they wanted the product almost for free, and turn around and sell it for 300% profit. Soon told Briscoes to get stuffed....

Getting into retailers is a sod depending on who it is and what you're selling with you both being happy....

Agree. I'm trying to get my product into Whitcoulls. Won't be making as much as I had hoped, even if the product does well!

mattwnz

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#1711405 29-Jan-2017 17:56

Have you thought of selling direct to the customer. eg Website, trademe, facebook, a stall/shop, markets etc. One issue you may find with some retailers, is that they want exclusivity, and won't allow you to sell via other means. Also some retailers may want to on it on sale or return which is usually not a good idea. It probably all depends on the product, and whether you know how well it will sell, because if it is a good seller, then you will make the money from it on quantity, and you will be able to get economies of scale in manufacturing.

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#1711413 29-Jan-2017 18:13

Ouch - so they want you to drop your price from $19.99 to $12.17?

A 60% margin isn't unusual in retail.

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