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Pricing and Distributors


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This may seem like a dumb question, but I am considering being completely open about my pricing strategy with distribution partners I am courting.  This includes my complete COGS and expected margins.  Does anyone with experience on the wholesale side have any advice or recommendations for full disclosure vs holding more internal details private?

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2 hours ago, Patio29Dadio said:

This may seem like a dumb question, but I am considering being completely open about my pricing strategy with distribution partners I am courting.  This includes my complete COGS and expected margins.  Does anyone with experience on the wholesale side have any advice or recommendations for full disclosure vs holding more internal details private?

Interesting question. My question to you would be why? I work my suggested sell price backwards with 30 pts for the retailer and 30pts for the distributor. I then tell the distributor my sell price to them and my suggested retail. I let them decide how much they make and how much the retailer makes. This equation gives me my margin on every product the distributor sells. 

 

Personally, I don't want me distributor to know my COGS. I think it is a recipe for them to squeeze every possible penny out of you by giving you an explanation that retailers need more.  Just my opinion.  

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1 hour ago, Naked Spirits Distillery said:

Interesting question. My question to you would be why? I work my suggested sell price backwards with 30 pts for the retailer and 30pts for the distributor.

Interesting.

It can get a bit convoluted with the math for margins vs markup, but it sounds like you are doing a simple 40/30/30 based on the MSRP? 

So if you have an aged rum or whiskey with total COGS of $10.50 including federal excise tax and your target MSRP is $40 your price to the wholesale/distributor is $16 and your gross profit is $5.50.  Assuming 30/30 wholesale-retail split their gross profit would be $12 each.

Do I have that correct?

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17 hours ago, Naked Spirits Distillery said:

Interesting question. My question to you would be why? I work my suggested sell price backwards with 30 pts for the retailer and 30pts for the distributor. I then tell the distributor my sell price to them and my suggested retail. I let them decide how much they make and how much the retailer makes. This equation gives me my margin on every product the distributor sells. 

 

Personally, I don't want me distributor to know my COGS. I think it is a recipe for them to squeeze every possible penny out of you by giving you an explanation that retailers need more.  Just my opinion.  

I know virtually nothing about distribution of spirits. But I am a salesperson by trade and can say with conviction that you do not want your customer knowing your COGS under any circumstance. You lose a lot of leverage, ability to negotiate price, and gain little in return. 

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We're pretty guarded about what our spirits actually cost to produce. This is because, they all wind up roughly costing the same - but, we sell them at a variety of prices. Including, some pretty high price points - those beverages are super profitable for us and yet some of them are very inexpensive to produce. So we like the mystique - and I think, so does the customer. It makes what we do seem out of reach and therefore, desirable.

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Every distributor is different but generally will do their best to get as low a price as possible. Most do not just take your price and then slap on a markup. They want to sell and low prices move products. Sharing your costs will get them to look at you as a cost plus vendor. That's not a good position for a premium product. If you're looking to be a lower cost producer then it's a good idea. For craft folk I would highly suggest Value pricing. Take a look at what other craft spirits are selling for in your area and price in that range. For distributors you will need to understand what your end price is any where they need to be. You can also try do somethings like offering bonuses for opening new accounts and sales goals. This might make it so you can get a better price for your spirits as you're paying some of the cost of their business. After time it should work out in your favor. Just be careful as the laws in each state vary wildly and you might get in trouble for things in one area that is ok in others. 

https://hbr.org/2018/07/when-cost-plus-pricing-is-a-good-idea

https://www.investopedia.com/terms/v/valuebasedpricing.asp

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