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Product Margin and Selling Price Calculator – How to Import Successfully
“When considering importing from China, it’s essential to plan what you’re doing”,
….before making the commitment to even begin to source your product. How do you know what you’re trying to achieve with your sourcing if you don’t have goals for quality and price.
Have you thought through what you need to be selling your imported product for? Exactly how much the product will cost to land? What costs in your business you need to cover from the product profit? What distribution channel you’ll be using to sell the product? What costs you’ll incur using that distribution channel?
You’ll need to be able to answer these questions before you start the sourcing process. Why? – Because you need to have a target in mind when you’re sourcing from China. There’s little or no point canvassing Chinese suppliers for a product idea if you don’t know how much you have to spend per unit.
So what is that price you intend to sell at? This is affect by a number of factors.
What you need to sell the product at to be competitive is a good start.
So it’s pretty obvious right, you need to price your product competitively so it’ll actually sell. Do you research on the market you’re trying to enter. Who are the major players? Where do you want your product to sit in terms of value and perception? If you want it perceived as higher end product, you may need to consider how you develop the brand and packaging to support this objective. This will cost more to achieve, but the result will be better.
What do you expect will be the landed cost of the product?
All of the costs incurred to land your product need to be factored into the cost of goods, which ultimately guide your gross margins and resulting selling price. There’s no point living in la-la land and not factoring in all the expenses you incur to get the product to market when ultimately you in this to make some money. You’re looking at importing from China to get involved in a seriously lucrative market. Do you research on your product properly, ensure you factor in all the landed costs you’ll incur so you have an accurate idea of the profitability of your intended product, before you start sourcing. When you start getting prices in from Chinese suppliers, it’s always diligent to cost in prices 10-15% higher than those the suppliers have quoted you. In 9 out of 10 cases the supplier will raise the price before you’re purchase order is signed off by them. They lock you in with sampling costs and then they move the goal posts. It’s the way it goes.
What distribution channels do you intend to use?
This is determined by more than just pricing competitively and what its cost you to land. You need to think about how you intend to sell the product, what distribution channel you plan to use.This may be online, such as Ebay, it may be that you hope to sell to retailers as a wholesaler. Different means will have grossly different implications on your price structure. For example, the ever growing in popularity means of selling is online. The margins are good, it’s easy to set up and there are low overheads. It would be remiss of you to forget however; you’re up against a million other people that have the same idea. Barriers to entry are low, and you’ll be facing a battle to have your product stand out and be noticed. The retail price for the end user is lower as there are fewer parties involved in the distribution of the product, leading to lower mark ups along the way.
If you’re consider selling as a wholesaler direct to retailers, the retailers will need a margin. They need to make a profit just like you do. The margins retailers demand is different in different industries and products. They also vary significantly by type of retailer. If you’re considering attempting to sell to the big chains (e.g. Woolworth, Coles, Bunnings etc) you will need to drop your own margin (profits) to do so. You’ll also have a nasty thing called ‘trading terms’ to deal with – an obligation to contribute to advertising, give rebates for on time payments of invoices and you’ll need give them credit. Don’t expect them to pay for goods when you supply them – credit is an expectation. At the other end, if you’re looking at independent retailers, their expectation for margin will be lower and you’re not going to be negotiating trading terms. They don’t have the buying power and they need you brand new product just as much as you need them. If you head this way your margin will be higher, but it’ll be far more time consuming to generate the same amount of sales that can be picked up if you can break into the majors.
Other considerations may include, rep agents, merchandisers for you product in store and distributors to store and sell your product.
“You can’t cost out your product effectively without knowing your landed costs”,
…..what a competitive price to sell at looks like and how you plan to sell your product. These areas all have a significant effect on the end selling price of your product and hence your ability to make a profit. Know them before you start sourcing your product in China to ensure you have a target price. If the supplier can’t meet the target price at the quantities you want to order you have a decision to make. Do you increase your selling price which gives you more to spend to land the product? DO you decrease your margin and resulting profitability? Do you increase you investment in opening stock to meet higher order quantities to get the price you need?
Be realistic in your goals and talk to as many people you can who know have managed product sales utilising the distribution channels you’re considering.
Download our free ‘Selling Price and Margins Calculator’ for Excel, to help you work through some of the considerations discussed in this article. Completely automated or you control the inputs and allow the calculations to be made for you, it also goes into more detail how to calculate your gross margin/mark up and includes an example of a business Profit and Loss Report to help you understand how gross margin affects your business.
- Landed Cost Calculator for China Imports
- Want more answers regarding that burning question, ‘How Do I Import From China?’
- How do I Import From China? – Know the China Sourcing process and timeline
- What to consider when importing from China – Your Landed Costs!
- Importing from China? How to package your product to sell and specify what you want.