Questions

What's a reasonable profit margin on merchandise?

I have a dynamic community & active following online & they've been asking me for merchandise (Tshirts, mugs etc); I'm trying to figure out what's a reasonable profit margin on such merchandise?

5answers

Are you the manufacturer or reseller? If you are the reseller, typically about 40-50% above cost. Use the MSRP as an indicator.


Answered 5 years ago

A dynamic community and active following sounds like you may have the opportunity to drive revenue with the merchandise. That being said, my advise would be to start with the right margins so you don't have to adjust your retails as you scale. At the very least, start with a 50 pt margin. I suggest a 60pt margin - you will encounter costs you weren't expecting and this will help you maintain profitability. The correct way to calculate this would be the following example: let's say you can have a mug produced for $5. Your retail price should be about $12. Take $5 / .4 = $12.50 then round down to $12, leaving you with a 58 pt margin.

If you have ideas about wholesaling, then you would have to adjust this strategy slightly to allow for aligned retails between you and your retail customers. Normally adding a 35 pt margin to the cost price and then calculating the 60 pt margin on top of that would suffice.


Answered 5 years ago

It's not about how much one could eat, but what's the optimum amount to stay fit. Too less can lead to undernourishment and too much to obesity. Either way you aren't going to stay fit.

Likewise, there's no such established rule to decide a reasonable profit margin on merchandise. You should start with calculating your cost, both direct as well as indirect, and then decide how much mark-up above the cost do you intend to earn. Again, there could be some expenses that may arise at future date, more like a business expense than direct expense related to the product/merchandise, and you may need to consider them as well.

As a matter of fact, in my decade of experience working with businesses across the globe, I have found pricing strategy to be the less priority item on list. And, that's where a business makes the first level of mistake towards suffocating the brand value and equity. Do let me know if there's something I could help you out with. I am just a clarity away for further clarity. All the best!!


Answered 5 years ago

I know there's multiple answers already, but I wanted to add to your info.

Although there are financial calculations you can do to reach that, a laymen approach is to simply work the market price backwards and aim for lowest cost margins possible. Every business and its product in its own distinctive industry (type or focus of service or product) and market (area) is either a price taker or a price makers.
A price taker- market determines just how much a service should cost, typically due to high level of options, simplicity of work, etc. like a non brand tee would go for about $10 typically at any venue.
A price giver- is a highly leveraged firm or product due to beanding or resource capability or due being limited that a product can fetch more. Examples are Nike selling great shoes and leveraging their brand to sell regular screen printed tees for $30ea.

They work the margins backwards, through bulk manufacturing/ordering you can achieve lower fixed and variable costs increasing your yield, all without necessarily increasing your sales price. Once you sell more and your brand or product gains popularity then you raise prices little by little to account a small margins increase in revenue but mainly to help fund the growth with funds for marketing. :)

Hope my piece adds to your tool box! :)


Answered 5 years ago

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