Wholesale
Wholesale Pricing: Landed Cost, Margin and Markup
Margin and markup are not the same number, and the unit price on a wholesale invoice is never what a product actually costs you. Here is how to work out the figure that matters.
The short answer
Landed cost is the unit price plus freight, duties, payment fees and handling, divided by the units that actually arrive saleable. Margin is profit as a percentage of the selling price; markup is profit as a percentage of the cost. A 50 percent markup is only a 33 percent margin — confusing the two is the most common pricing error in small retail.
Price from landed cost, never from the invoice line, and check your break-even before you agree to a discount.
There is a specific conversation that happens in every small retail business, usually about eight months in. Someone looks at the bank balance, then at the spreadsheet that says the business is making 50 percent margin, and cannot reconcile the two.
The spreadsheet is almost always wrong in the same three places.
Key takeaways
- Landed cost, not invoice price, is the number you price from.
- Margin ≠ markup. 50 percent markup is 33 percent margin. Pick one convention and stay in it.
- Divide by units that arrive saleable, not units ordered.
- Payment fees, freight and shrinkage typically remove 6 to 12 points of theoretical margin.
- A volume discount you cannot sell through inside your normal cycle is a cost, not a saving.
Landed cost, step by step
Take an order of one case: 24 units at a wholesale unit price of $18.00.
| Line | Amount | Per unit |
|---|---|---|
| 24 units @ $18.00 | $432.00 | $18.00 |
| Inbound freight (share of shipment) | $38.00 | $1.58 |
| Wire transfer fee (share) | $6.00 | $0.25 |
| Receiving and shelving labour | $12.00 | $0.50 |
| 1 unit damaged in transit | — | recalculated over 23 |
| Landed cost | $488.00 | $21.22 |
The invoice said $18.00. The real number is $21.22 — almost 18 percent higher. Price against $18.00 and you have given away most of your profit before the first sale.
Note the last line particularly. Dividing by 24 gives $20.33; dividing by the 23 units you can actually sell gives $21.22. Damage is not free, and it does not average out to zero over time.
Margin and markup: the error that compounds
These two words are used interchangeably in conversation and mean different things in arithmetic.
Markup is profit expressed as a percentage of what you paid.
Margin is profit expressed as a percentage of what you charged.
| Landed cost | Retail | Markup | Margin |
|---|---|---|---|
| $21.22 | $29.99 | 41% | 29% |
| $21.22 | $34.99 | 65% | 39% |
| $21.22 | $42.44 | 100% (keystone) | 50% |
| $21.22 | $49.99 | 136% | 58% |
Suppliers quote in markup because it sounds larger. Accountants and lenders work in margin because it maps to the profit and loss statement. If you are going to be understood by your accountant, work in margin and translate when you talk to a supplier.
The quick conversion: margin = markup ÷ (1 + markup). A 50 percent markup becomes 0.5 ÷ 1.5, which is 33.3 percent margin.
The leaks between theoretical and actual
Even with landed cost calculated correctly, the margin you bank is lower than the margin you modelled. Four reasons, and they are all predictable enough to budget for.
Shrinkage and damage
Testers, breakage, expiry, and the occasional missing unit. In beauty retail, one to three percent of stock value is a realistic planning figure, higher if you allow open testers on the shop floor.
Markdowns
Not everything sells at full price. A line that needs 30 percent off to clear at month nine has, in effect, halved its margin. Assume some proportion of every buy will be marked down, because it always is.
Payment fees on the sale side
Card processing on your own sales takes roughly 2.5 to 3 percent of revenue, and marketplace commissions take considerably more — 8 to 15 percent is typical depending on the platform and category. That comes straight off margin, not off cost.
Returns
Cosmetics returns are lower than apparel but not zero, and a returned opened product is usually a write-off rather than resaleable stock.
Model these deliberately. A 50 percent theoretical gross margin commonly banks at 38 to 44 percent. If your pricing only works at 50, it does not work.
Break-even, in the form that is actually useful
Most break-even formulas are written for factories. For a retailer buying a case, the useful version is simply: how many units do I need to sell to cover what I paid for this case?
With our example — $488 landed for 23 saleable units, selling at $34.99 with a gross profit of $13.77 per unit:
$488 ÷ $13.77 = 35.4
Which is more units than the case contains, so at that price the case never pays for itself. The correct reading is that gross profit per unit must clear the landed cost across the case, so what you actually want is:
Units to recover the case = case cost ÷ retail price = $488 ÷ $34.99 = 14 units.
Sell 14 of the 23 and the case is paid for. The remaining 9 units are profit. That is the number worth writing on the purchase order, because it tells you instantly whether the buy is realistic: if you cannot see yourself selling 14 units of this product in a reasonable window, do not buy the case.
When a volume discount is a bad deal
Distributors offer tiered pricing because it moves inventory. Whether it is good for you depends on a question the discount says nothing about: how fast will this sell?
| Scenario | Unit cost | Sell-through | Verdict |
|---|---|---|---|
| 1 case, full price | $21.22 | 6 weeks | Cash recycles eight times a year |
| 4 cases, 10% off | $19.10 | 7 months | Cash locked; storage and obsolescence risk |
The second row saves $2.12 per unit and costs you the ability to buy anything else for seven months. For a business with limited working capital, inventory turnover usually matters more than unit cost. Take volume discounts on your proven best sellers; pay full price on anything you are still testing.
A costing sheet you can actually keep
Five columns is enough, and a spreadsheet you update beats a system you abandon:
- Landed cost per saleable unit — the calculation above.
- Retail price — what you charge.
- Gross margin percentage — (retail − landed) ÷ retail.
- Units to recover the case — case cost ÷ retail price.
- Weeks of cover — units on hand ÷ average weekly sales.
Column five is the one most retailers skip and the one that predicts cash-flow trouble earliest. Anything above sixteen weeks of cover is money sitting on a shelf.
Before you place the order
Ask the supplier three specific questions and put the answers next to your costing sheet: what is the freight cost for this order size, what is the case pack, and what is the policy on damaged or short deliveries. Those three answers are what turn an invoice price into a landed cost — and the landed cost is the only number that tells you whether the buy makes money.
If you are still deciding which supplier tier to buy from in the first place, our guide to how beauty wholesale works covers the structure of the chain and what each tier costs.
Frequently asked questions
What is landed cost?
Landed cost is the true per-unit cost of getting a product onto your shelf ready to sell. It includes the wholesale unit price, inbound freight, duties and customs charges, payment processing or wire fees, and any handling or repacking labour — divided by the number of units that arrive in saleable condition, not the number you ordered.
What is the difference between margin and markup?
Markup is calculated on cost; margin is calculated on the selling price. If a product costs $10 and sells for $15, that is a 50 percent markup but only a 33.3 percent margin. Because suppliers usually quote markup and accountants always work in margin, mixing the two consistently overstates profitability.
What is keystone pricing?
Keystone pricing means doubling the wholesale cost to set the retail price, giving a 100 percent markup and a 50 percent gross margin. It remains a common starting benchmark in beauty retail, but it is a starting point, not a rule — competitive categories often cannot support it and prestige lines can exceed it.
How do I calculate break-even on a wholesale order?
Divide your fixed costs attributable to the order by the gross profit per unit. If a case of 24 units costs $480 landed and you sell at $34, gross profit per unit is $14, so you break even at roughly 35 units of contribution against $480 — in practice, once you have sold about 15 of 24 units you have covered the case.
Why is my actual margin lower than my calculated margin?
Usually one of four leaks: shrinkage and damage, markdowns on slow-moving stock, payment processing fees on the sale side, and returns. A theoretical 50 percent margin commonly lands between 38 and 44 percent once these are counted, which is why pricing to the theoretical number leaves you short.
Should I take a volume discount?
Only if the cash it ties up is not needed elsewhere and the stock will sell within your normal cycle. A 10 percent discount on quantity you will take fourteen months to shift is usually worse than paying full price twice, once storage, cash flow and obsolescence are counted.
Do payment method fees affect landed cost?
Yes, and they are routinely forgotten. A wire transfer fee is a flat charge that matters most on small orders. Card processing through a third-party service typically adds around 2.5 to 3 percent to the whole order, which on thin wholesale margin is a meaningful share of your profit.
Medical disclaimer. This article is for general information and is not a substitute for personalised medical advice. If you have a diagnosed skin condition, are pregnant, or are using prescription treatments, speak to a dermatologist before changing your routine. Full disclaimer.
