# Paying A Distributor?

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I realize that every distribution contract is different. But we are just venturing into these waters and I don't know what to expect. How are most distributors paid? A % of the sales they account for? A flat rate per case sold? Incentives for sales goals? I'm trying to better understand their position in all of this before I get into any serious discussions.

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You're correct, every contract is different, but there are some general guidelines.

Here in California, distributors of small-volume products like to see about 1/3 of the price they sell the product to the retailer for as their margin...so they want to pay 2/3 of that wholesale price as the price they buy it for. They're paid on the spread between what they pay for the product, and what they can sell it for. Once he buys the product, he's in control of the price from there on.

The retailer would like to get the same kind of 1/3 margin on their sale at retail, so they want to pay about 2/3 of their retail price...which will be "street price" not "MSRP." Like the wholesaler, they determine price, not you.

So, let's work backwards:

Let's say MSRP is \$40, and let's guess that "street price" will be \$35.

\$35 * .66 = \$23.10 - this is the price the retailer wants to pay for the product.

\$23.10 * .66 = \$15.25 - this is the price the wholesaler wants to pay for the product.

These figures allow each of your channel partners to "hit the numbers." In some cases, they'll take less margin, but rarely less than 25%.

\$15.25 / \$35 ~= 44% - this is your selling price as a percent of street price.

1/.44 = 2.3x -- this is the channel markup, it's an interesting number - it expresses how much the channel costs to operate as a function of your sell price.

1-.44 = .56 or 56% this is the channel margin - it's another interesting number...but I digress.

A more immediate question is: "what will the distributor do for the money?"

They do plenty, but they never do enough. You'll still have to be the leader of the sales and marketing effort. That said, they will:

(1) pay you for the product, so in 30 days, you'll have cash. That's important.

(2) they'll pay the state tax. Here in CA, it's \$0.66 per bottle. That doesn't sound like much, but stay tuned.

(3) they'll do logistics for you. They will make the product appear at the retailer's location.

(4) they'll keep regular contact with your retailers, and get repeat orders.

(5) they'll provide scalability.

If you find a good distributor, he will make you feel like you're sitting on top of a Saturn 7.

Good luck,

Will

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A Saturn '7'? That _would_ be impressive.

The points will vary somewhat. In WI, I pay state excise tax.

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Our distributor works on about a 27% mark up. Then they allow a 30% to 35% mark up for the liquor stores and restaurants. So when you come up with your selling price to the distributor you need to work it backwards from the retail price. You need to set the retail price high enough so that when every one else takes their share you need and must make a profit. Without making a profit in any business you will fail. No one should work for nothing. Coop

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The first distributor I contacted told me (to my face) that I should sell to him at cost, since making money from his hard work would be immoral.

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The first distributor I contacted told me (to my face) that I should sell to him at cost, since making money from his hard work would be immoral.

This is the exact kinds of distributors I was referring to in my other post. Not real distributors. Coop

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• 10 months later...

The first distributor I contacted told me (to my face) that I should sell to him at cost, since making money from his hard work would be immoral.

Charles, I was told the same thing by a distributor in Milwaukee so I said, "No, Thanks for your time", turn him down and walked away and got a better distributor. I am located not too far from you.

Po

Lo Artisan Distillery, LLC

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• 7 months later...

Will,

Your post of 18 months ago was very helpful for me. I have built a simple spreadsheet with your numbers that allows me to play with the MSRP and the resulting price that the distiller receives for the product, with the resulting question: can it be produced (with a profit) for this price?

I understand that you are presenting a hypothetical example and that one should be driving for the best deal possible but in your numbers you show a 12.5% differential between MSRP and Street Price. Is this typical in the spirit trade? Would you consider Binny's prices as MSRP or street prices?

Thanks for any feedback. I'm just trying to figure this all out.

Best wishes for a Happy New Year.

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