photo credit: Stephen Di Donato instagram @sdidonato
Wholesale is when a retail store purchases your manufactured goods directly from you to resell to their customers. 50/50 split is the standard split in the wholesale game. This means that you sell your goods to a retail store for 50% of your suggested retail price. After the retailer purchases wholesale from you, there should be no restrictions placed on the resell price as the product now belongs to the retail store and the retailer knows their customers the best. This will allow for the retailer to maximize all the tools they have on hand including holding sales events and still make a profit.
Why 50%? Simply because you as the manufacturer are not risking anything when you are selling wholesale. The retailer is the one who is risking everything. After your product is delivered to the retailer, the wholesale manufacturer’s job for that order is complete. On the other hand, the retailer’s work has just begun. It is the retailer’s job to set the prices for items they purchased wholesale, bring customers to their store, and to make the sale.
Selling on consignment is a whole different game then selling wholesale. In the consignment game, you are taking most of the risk. In consignment, both you and the retailer are responsible to help bring customers into the door of the places you consign with. It is a shared responsibility, so the commission split should be less for the store owner and more for the manufacturer. Good consignment splits should typically be 60/40 or 70/30 in the manufacturers favour.
Rent plus Commission
Rent plus commission is the third type way that manufacturers sell through retail stores. In the rent plus commission game, the manufacturer is pretty much risking everything and the retailer risks nothing. The manufacturer is on the line to pay for a spot in the market, thus paying a wage to the retailer as well as paying the retailer’s rent and utilities. In the rent plus commission game a manufacturer also has to fill their shelves with goods to be sold and often has to take care of their own displays. A good rent plus commission structure is 90/10 or 85/15 in the manufacturers favour. The commission fee is extra incentive for the store owner to make money and promote your product.
There are those rental spots that do not charge commission on top the rental fees – be very wary of these as it often means that the retailer is doing nothing for you. In these cases they often use manufacturers to pay their rent and their utilities so that they don’t have to do anything at all other than ring in sales that may happen. In this situation a manufacturer risks absolutely everything and has to do all the retail side of things including bringing in customers, marketing and advertising.