Many brand owners build their selling price upward from production cost, then discover the distributor and retailer have too little margin left to put the product on the shelf. The safer method is to start from the shelf price the market accepts and work down through each link until you see what remains for you. This article shows how to build that chain for an argan oil brand and which calculation mistakes are common.
Margin vs markup: a difference that changes every number
- Margin: profit divided by selling price. Buy at 60 and sell at 100 and the margin is 40%.
- Markup: profit divided by purchase price. In the same case it is 66.7%.
If a retailer asks for a 40% margin and you apply a 40% markup to their cost, the shelf price becomes 84 instead of 100. Agree on the definition in writing before discussing percentages.
Start from the shelf price and work down
- Set the target shelf price before tax, after comparing competing products.
- Subtract the retailer margin to find their purchase price.
- Subtract the distributor margin to find your selling price.
- Subtract your landed cost to see your gross margin.
- Deduct marketing, discounts and returns to reach net profit.
Illustrative example with hypothetical figures
These figures are neither prices nor market benchmarks. Margins vary by country, channel, volume and category, so verify the reality in your market.
| Link | Buys at | Sells at | Margin on selling price |
|---|---|---|---|
| Retailer | 60 | 100 | 40% |
| Distributor | 48 | 60 | 20% (12 ÷ 60) |
| Brand | 30 (landed cost) | 48 | 37.5% (18 ÷ 48) |
Those 18 units are not net profit: they fund marketing, samples, customer service and promotions.
What determines each link's margin
- Services provided: storage, delivery, collection and returns handling.
- Turnover: fast sellers accept lower margins.
- Risk: deferred payment and returns raise the margin required.
- Brand strength: a brand customers ask for negotiates from a stronger position.
- Channel: e-commerce, pharmacy, salon and large retail have different economics.
Protecting your own margin
- Start from an accurate landed cost; see landed cost for argan oil.
- Set a minimum price for distributors.
- Tie discounts to volume or commitment.
- Build the annual promotional discount into the chain.
- Review yearly, since freight, exchange rates and supplier prices change.
The type of agreement also matters: an exclusive distributor who invests and holds stock expects different terms from an open one. See exclusive vs open distribution.
Common mistakes
- Confusing margin and markup.
- Mixing prices with and without tax across links.
- Forgetting that samples cost money.
- Assuming every distributor accepts the same rate in every market.
FAQ
What margin should a distributor get?
There is no fixed rate. It depends on the market, the services and the risks, so ask local distributors before fixing your prices.
Calculate before or after tax?
Before VAT or sales tax, then add the tax at consumer price, using the same basis for every link.
Should I sell direct and skip the distributor?
You earn a higher margin but take on storage, marketing and customer service. Compare all costs first, and read our piece on unit economics for beauty brands.
To know the exact cost of each bottle before drawing your price chain, request a quote at assilouargane.com/quote with your format, quantity and target market.
