How to price one product for each way you sell it — direct to a store and through a distributor — by building the margin stack from your cost to the shelf, so every business in the chain makes its cut and you keep yours.
Do these first
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After this you can take one product's true cost and price it for each way you sell it — straight to a store, or through a distributor — building up the stack of margins that sit between your dock and the shelf, so every business in the chain makes its cut and you still keep yours.
The price on the shelf is almost never the price you get to keep. Between your loading dock and that tag sit one or two other businesses, and each of them has to make its own margin on your jar before it reaches a shopper.
There are two common ways your product travels. You can sell it at a straight to a store, which stocks it and marks it up to the shelf: one business between you and the shopper. Or you sell to a distributor, which warehouses your product and sells it on to stores, which then mark it up: two businesses. Every layer is a company that lives on the margin it takes.
That layered set of cuts is the . Price a channel without drawing its whole stack and you find out too late that a jar you thought cleared a healthy margin barely cleared its cost.
The last course left a barbecue-sauce jar that costs $2.53 to make and sells wholesale at $4.00. We price that same jar through both channels here, and watch what each layer does to the number you actually collect.
The last lesson built prices the natural way — from your cost up. Cost-plus, keystone, and the 40-percent rule all start at what the jar cost you and add to it. A sales channel turns that around. The shopper decides what a jar of sauce is worth, so the shelf price is mostly set by the market, not by you. In a channel you price the other direction: start at the shelf price a store can really get, and subtract each party's margin on the way down to see what is left for you.
Start with the store. A is what the retailer lives on. Michigan State University Extension puts a specialty-food retailer's margin in the range of 30 to 50 percent, and a distributor's at 25 to 30 percent (Pricing your food product for profit). Read those as the opening figures you will hear, not rates anyone is owed.
Say a store wants a 40-percent margin and pays your $4.00 wholesale. Working from the store's margin, the shelf price is $4.00 ÷ (1 − 0.40) = about $6.67. At that tag the store keeps $6.67 − $4.00 = $2.67, its 40 percent, and you collect your $4.00. Against your $2.53 cost that $4.00 leaves you $1.47 a jar — the same 37-percent margin the costing course landed on. One layer, and the stack closes: the store makes its 40, you make your 37. A store that keystones instead — the doubling from the last lesson — would tag your $4.00 jar at $8.00 and keep half.
Typical ranges, not fixed numbers
The margin figures here are the ranges you will hear quoted, not rates anyone is owed. What a distributor or a store actually takes swings by category, region, account size, and how a product sells — a slow mover earns a fatter retail margin than a fast one. Treat any published range as a starting point, and price against the number the buyer in front of you actually quotes.
Now put a distributor in the middle. It buys your jar, warehouses it, sells and delivers it to stores, and keeps a for the work. The trap is where that margin comes from. It is not added on top of the shelf price the shopper already decides — it is carved out of the stack, and the easiest place to carve it is your end.
Keep the same $6.67 shelf and the store's 40 percent, so the store still buys at $4.00 — now from the distributor instead of from you. The distributor needs its cut on that $4.00. At a 25-percent distributor margin, it buys from you at $4.00 × (1 − 0.25) = $3.00. Your net — the price you actually collect — just fell from $4.00 to $3.00. Against your $2.53 cost, $3.00 leaves $0.47 a jar, about a 16-percent margin. Same jar, same shelf, same store margin: the distributor layer took a dollar off every jar and cut your margin from 37 percent to 16.
You have one other move, and the market decides whether it works: hold your $4.00 net and push the extra up the stack. If the distributor pays you $4.00 and takes its 25 percent, it sells to the store at $4.00 ÷ (1 − 0.25) = $5.33; the store takes its 40 and the tag becomes $5.33 ÷ (1 − 0.40) = about $8.89. The same jar that was $6.67 direct is now $8.89 on the shelf — $2.22 more, because a whole business got added to the chain. Either your margin absorbs the distributor or the shelf price does, and a shopper comparing two jars has a vote on the second one.
Push the margins a little and a channel stops working at all. Suppose a larger distributor won't move your jar for less than 40 percent, and the store still wants its 40 at the same $6.67 shelf. The store buys at $4.00; the distributor buys from you at $4.00 × (1 − 0.40) = $2.40. That $2.40 is below the $2.53 the jar costs to make. Every jar through that channel loses thirteen cents, and no volume fixes a per-jar loss — it multiplies it.
This is the whole reason to draw the stack before you agree to a channel. Your fully built cost is the floor no channel can dip below — the same cost floor the costing course drew, the price under which every unit you sell loses money. A channel only works if the net it leaves you lands above that floor. When the stack won't close above your cost, the honest options are a higher shelf price the market will bear, a leaner cost, a smaller cut for someone in the middle, or walking away from the channel. The next lesson raises the bar further — from merely clearing your cost to clearing your cost plus the margin you refuse to sell below — but the floor starts here, at the cost itself.
Do this for every channel you sell through and you have a per-channel price list: one product, one price per channel, each derived from the same cost and the same shelf but a different stack. For the $2.53 jar the list might read:
The same jar is worth a different price to you in each row, and that is correct — each channel does a different share of the work of getting the jar in front of a shopper, and takes a different amount for it. A stack can also carry more hands than these: a broker's commission on the sale, or a one-time slotting fee a retailer charges for shelf space. Each comes out of the same shelf price, so add any that apply to your channel before you trust the margin. What every row shares is the floor: no price on the list can sit at or below what the jar costs to make. Draw the whole list before you quote a single account, so you are agreeing to a number you have already checked, not discovering the margin after the purchase order lands.
A price list with several prices for one jar sometimes worries a first-time seller: is it even legal to charge different customers different amounts? For different channels doing different work — a distributor that warehouses and delivers, a store that stocks a shelf — the answer is plainly yes, and the price just reflects the job.
The line to know sits elsewhere. The federal Robinson-Patman Act (15 U.S.C. § 13) restricts a seller from charging two competing buyers different prices for goods of like grade and quality where the effect may be to substantially lessen competition — the classic worry being a large buyer pressing for a discount a smaller competitor down the street can't get. The same law leaves room for a price difference the seller can cost-justify — a real difference in the cost of making, selling, or delivering to that buyer — and for a lower price offered in good faith to meet a competitor's. This is antitrust territory, not a labeling rule, and its enforcement has waxed and waned over the decades. If a big account presses you for a price your other accounts can't have, that is the moment to read the FTC's guidance on price discrimination and ask a lawyer, before you sign rather than after.
A margin stack turns one shelf price into a price for every channel — but only if you know the floor each price has to clear. What that floor really is, and why bare cost is not low enough to stop at, is next.
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