Cost of Distribution in 3 Tier Model

[findia]

Hi,

I am trying to do some analyses prior to making investments into the craft brewing arena, specifically a craft brewer. In looking at various facets around revenue and associated costs, one thing which was not easily apparent, especially in a 3-tier distribution model, was the cost associated with driving sales through distribution. I.E. for every dollar of revenue, is there an average percentage of that dollar devoted to "channel enablement" through the distributor(s)? In other consumer based markets, especially those that are volume based through distribution channels, there are average percentages of cost required to drive revenue through that distribution channel for every dollar earned....

Hope that makes sense.

[dhdarden]

Interested too...what can a brewer typcially sell their 6 pk to the distributor for?

Let's assume a fictional $9 6 pack of microbrew the end consumer buys at their local liquor store.

How much of that $9 typically will the brewer receive ?


Thanks,

Dan Darden

[SMiller]

Figure 30% margin every time it changes hands.

[redlodgesam]

close to 30% mark up

It used to be 25% mark up per tier, now it is much closer to 30%

So a $20 case sold by the brewery to a distro sells to a retailer for $28.57. The case goes on the shelf for $40.82 or $10.20 per six pack.

Sam

[BrewPuppy]

Margin vs Mark -Up

It used to be 25% mark up per tier, now it is much closer to 30%

So a $20 case sold by the brewery to a distro sells to a retailer for $28.57. The case goes on the shelf for $40.82 or $10.20 per six pack.

Sam

In the example above, the calculations are done based on Margin, not Mark-Up. At least that is my understanding. In that example, the Mark Up is 42.85 percent!
Margin is price difference divided by their price (MG = (b-a)/b)
Mark-Up is the price difference divided by your price (MU = (b-a)/a)
The danger is that many folks get the two terms confused and you could lose a bunch of money in the process (rarely will any of us be the beneficiary of math errors!!). I am going through this myself right now and it is tough to get everyone to acknowledge that the terms are not interchangeable. Make sure that whatever you wind up calling the percentage (Margin, Mark-Up, cut, juice, etc), all parties agree on the math equation behind it.

your price = a
their price = b
Margin reduces to b = a/(1-MG)
Mark-Up reduces to b = a*(1+MU)

If Margin: b = 20 / (1-.3)
b = 20/.7
b = 28.57

If Mark-Up: b = 20 *(1 + .3)
b = 20 * 1.3
b = 26

That subtle difference can add up REAL fast.

[redlodgesam]

In the example above, the calculations are done based on Margin, not Mark-Up. At least that is my understanding. In that example, the Mark Up is 42.85 percent!
Margin is price difference divided by their price (MG = (b-a)/b)
Mark-Up is the price difference divided by your price (MU = (b-a)/a)
The danger is that many folks get the two terms confused and you could lose a bunch of money in the process (rarely will any of us be the beneficiary of math errors!!). I am going through this myself right now and it is tough to get everyone to acknowledge that the terms are not interchangeable. Make sure that whatever you wind up calling the percentage (Margin, Mark-Up, cut, juice, etc), all parties agree on the math equation behind it.

your price = a
their price = b
Margin reduces to b = a/(1-MG)
Mark-Up reduces to b = a*(1+MU)

If Margin: b = 20 / (1-.3)
b = 20/.7
b = 28.57

If Mark-Up: b = 20 *(1 + .3)
b = 20 * 1.3
b = 26

That subtle difference can add up REAL fast.

Margin, mark up, whatever you want to call it. My example is how it's done in my neck of the woods.

sam