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My supplier promised 40% profit at the recommended retail price; why does the calculator show less?

Because the supplier most likely quoted profit as a percentage of your cost, which is markup, while the calculator's margin is a percentage of the selling price. Enter the wholesale price and the recommended retail price and you see both: a 40% markup on cost is a margin of under 29% of the price.

Published · 3 min read

The offer as it reaches you

A skincare distributor invites you to stock their range: 'Wholesale is 100, recommended retail is 140, so you make 40%.' The sentence is true in one sense and misleading in another, and the calculator shows the difference at once.

Enter the two figures

Worked example

In the Profit margin calculator: cost 100 and price 140.

Profit 40.

Markup 40%, which is what the distributor meant.

Margin 28.57%, which is your actual share of every unit the customer pays.

The difference matters because you will compare this product with the rest of your range and work discounts and platform fees off it, and all of those are measured on the selling price. Treat the margin as 40% and a 35% discount looks safe; in reality it puts you into a loss.

And if you really want a 40% margin?

The price you need is the cost divided by 0.60, which is 166.67. Check it in the calculator: cost 100 and price 166.67 give a margin of 40.00% and a markup of 66.67%. So to get what you heard in the distributor's pitch, you need a price about 27 above their recommendation, or a lower wholesale price.

Questions to ask before you agree

  1. '40% of what?' Ask outright: of the wholesale price or of the retail price? The answer settles which figure you compare.
  2. Is the wholesale price inclusive of VAT or not, and is the retail price? Both must be on the same basis before you enter them.
  3. Who pays shipping from the distributor to you? If you do, add it to the cost.
  4. Are you allowed to sell above or below the recommended price? If it is fixed, your margin is set in advance, so work it out before signing.
  5. Is there a volume discount? Try a lower wholesale price for the larger quantity in the calculator, and weigh the margin against what storing that quantity will cost.

Then: is anything left after your own costs?

A 28.57% margin before payment fees, shipping and ads can become a small number after them. If you will sell through a marketplace that takes a percentage of the price, enter that rate with your cost in the Selling-price calculator to see whether the recommended price is enough for the margin you need.

Common questions

So is the supplier lying?

Not necessarily. Markup on cost is a common way to talk about profit. What matters is knowing which percentage they mean before you build on it.

Which percentage goes in my plan?

Margin on the selling price, because marketplace fees and discounts are also calculated on the price, so they add up cleanly.