How do I set a price for resellers so we both earn?
Set the reseller price as a share of your retail price, then check your profit and the reseller's margin side by side so the arrangement works for both of you.
Resellers can reach people you cannot. A neighbour with a large WhatsApp group, a boutique, a college friend who sells at campus fairs. But a reseller will only stay if the arrangement pays them, and you will only stay if it pays you. Setting the price takes a few lines of arithmetic.
Start with retail and work down
Pick your retail price, the one customers pay you directly. Say a product retails at Rs 1,000 and costs you Rs 400 to make and pack.
A common approach is to sell to resellers at a fixed share of retail. Let us use 60 percent.
- Reseller price: 60 percent of Rs 1,000 is Rs 600.
Your side
When you sell to a reseller at Rs 600 your profit is Rs 600 minus Rs 400, which is Rs 200 per piece.
When you sell directly at Rs 1,000, your profit before selling costs is Rs 600 per piece.
So a direct sale earns three times what a reseller sale earns on paper. That sounds like a case against resellers, but remember direct sales come with costs.
The reseller's side
The reseller buys at Rs 600 and sells at your Rs 1,000. They earn Rs 400 per piece, which is 40 percent of the retail price.
This is the reseller's margin, and it is their reason to participate. They carry the cost of finding customers, answering questions and maybe handling delivery in their area. If their margin is too thin they will not bother, and if it is too thick your own profit disappears. Reseller margins vary a lot by product type, so test with a few people and ask what they expect.
When it still makes sense for you
Direct sales cost money: ads, shipping, packing, payment fees and your time answering messages. Say these add up to Rs 300 per direct order, which is only an example.
- Direct profit after those costs is Rs 600 minus Rs 300, which is Rs 300.
- Reseller profit stays at Rs 200 if the reseller handles those costs, or a bit less if you ship to them.
Three direct sales earn Rs 900, and three reseller sales earn Rs 600, but the reseller's sales cost you very little effort. If a reseller can sell far more pieces than your ads can reach, the lower profit per piece is worth it. Put another way, a reseller needs to move only two pieces (Rs 400) to beat the Rs 300 you keep from one direct order. If the reseller moves ten pieces a month, you earn Rs 2,000 from one relationship.
Things to agree up front
- The minimum order, so the parcel is worth sending.
- The retail price the reseller must not undercut, so you do not damage your own sales.
- Who handles returns and damages.
- Payment terms, ideally in advance.
- How you will ship, and who pays freight. shipping-across-india-what-small-brands-should-know helps with the shipping side.
Check with your own numbers
- Pick the retail price and the reseller share.
- Compute your profit per piece and the reseller's margin in rupees and percent.
- Count what a direct sale really costs you.
- Compare, and also estimate how many pieces the reseller will actually sell.
If you want to compare this with a bulk deal to a single buyer, read wholesale-vs-retail-profit-comparison. For how to think about discounts to partners who bring in sales for you, see affiliate-commission-vs-ad-cost-per-sale.