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Rob: Today we’re taking a closer look at what is a real wholesale price with Codi Hall and all the details that go into that real wholesale price. Codi is the CEO of www.DropshipDirect.com.
Rob: Codi, we really appreciate having you on the show. We just got through talking about how you determine what a wholesale cost of an item is and I want to go back to it a little bit more. Essentially we’re saying that a manufacturer will make suggestions as to what resale prices should be, or retail prices should be, and even increasingly there’s this MAP price. And it’s funny you brought that up today, I got the same question at eBay University this past Friday when I was giving a speech. The etailer asked me, do I have to stick to the MAP price? And the answer that I gave him was yeah, absolutely. I mean, that’s what protects the supply chain. So what else goes into determining that cost of a wholesale item?
Codi: There are a number of variables and it obviously starts with the origin of the item. So going back to the manufacturer cost there’s both fixed and variable costs associated with producing any item that’s actually being distributed within the marketplace. But obviously, and this is one challenge within the supply chain, the more hands that touch that product naturally the more vulnerable its pricing is going to be. So that’s why it’s so imperative that the manufacturer, the distributor, the retailer, and the end consumer, that current structure which is a typical supply chain, be maintained. Because again, there are a lot of opportunities for gray market distribution of merchandise out there which can tend to greatly inflate the wholesale price levels to the point that they’re more retail level. But specifically when it comes to price controls basically the manufacturers have, because it’s the inventory that they’re manufacturing, they have the ability to simply reserve the right not to have certain merchandise resold through certain retailers, which is the MAP that you were referring to. And we as a distributor obviously have to honor that agreement and that contractual relationship we have with them. And really, the philosophy behind it is that it’s going to benefit everyone involved in the marketplace. So we’ve found that to be consistently true, but again, some industries tend to have fewer pricing controls than others, so I think it just depends on the marketplace that you’re looking at whether it’s automotive or home décor or sports memorabilia, sports collectibles. Anything that’s collectible is naturally going to have price control.
Chris: I wanted to ask the grocery store question and just for everyone’s benefit here. I’m sure, Rob, both you and Codi know what this is, but you ask someone how much money they think a grocery store makes on the products they sell and they’ll say 15%, 20%, oh, my grocery store, 30%. But grocery stores operate typically on what, about a 1% margin, maybe 1 to 1-1/2% margin. And the wholesale business is a lot like that, isn’t it? If you get a 7% or 8% margin on something you’re doing pretty well, aren’t you?
Codi: (Laughter) Yeah. Well, I think that once you’ve absorbed all your overhead costs, absolutely.
Chris: Right, exactly.
Codi: You end up, whether it’s having sales representatives, or again, your warehousing costs, a lot of your fixed expenses that relate to managing that inventory, they certainly do eat up your margin. So it’s very common to realize a margin of anywhere between 5% to sometimes 25% or 30%.
Chris: Yeah, on certain key priced products. Every once in a while the key priced products you get from a manufacturer, say you have a key account with a manufacturer or something like that, and they’re able to give you larger discounts on some products, but small discounts on most of your products. So you’re operating at a lower profit margin most of the time, but you have a few products that have a higher profit margin for your company and that’s kind of how you keep things rolling, right, the combination of those two things?
Codi: Correct.
Chris: Okay. This is where we get into inserting a middleman causing a real big problem. Let’s talk about this when we come back after the break. We do have a lot more to talk about with Codi Hall when we return. If you want to listen to any of our past shows, read written transcripts, and more, visit us at ProductSourcingShow.com.
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