Wholesale pricing: how margins stack from your price to the shelf

When you sell through a distributor or into shops, several businesses each take a margin before the shopper pays. Work it out wrong and you end up with a shelf price that's too high to sell — or a trade price that leaves you nothing.

Indicative trading calculations, not VAT or accounting advice. Check VAT treatment and figures with a qualified accountant before making pricing decisions.

The vocabulary

Sell-in price: What you, the brand or maker, charge the next business in the chain (ex VAT).
Distributor / wholesaler margin: The distributor's profit as a share of the price they sell on at.
Trade price: What the retailer pays — the distributor's sell-out price.
Retailer margin: The shop's profit as a share of its ex-VAT selling price.
RRP: Recommended retail price, normally quoted including VAT for UK consumers.

In UK trade, margins are normally calculated on the ex-VAT selling price. VAT-registered businesses in the chain generally reclaim the VAT they pay, so VAT is added once at the end, on the consumer price. Check how your particular trading partners quote terms.

Worked example: £15 sell-in

You sell to a distributor at £15 ex VAT. The distributor wants a 20% margin; the retailer wants 40%. Standard rate VAT of 20% applies to the final sale.

Price build-up through the chain
Step	Calculation	Price
Your sell-in price	—	£15.00
Distributor sells on (trade price)	£15 ÷ (1 − 0.20)	£18.75
Distributor profit	£18.75 − £15	£3.75
Retail price ex VAT	£18.75 ÷ (1 − 0.40)	£31.25
Retailer profit	£31.25 − £18.75	£12.50
VAT at 20%	£31.25 × 0.20	£6.25
Shelf price inc VAT	£31.25 × 1.20	£37.50

Your £15 product needs a shelf price of £37.50 for everyone to hit their margins. If your target RRP is lower, something has to give: your sell-in price, the partners' margins, or the product cost.

The common confusion: markup instead of margin

Asked for "20%", many sellers simply add 20%: £15 × 1.2 = £18.00. That's a 20% markup, which gives the distributor only a 16.7% margin — less than agreed. Repeat the mistake for the retailer and the shelf price comes out at £25.20 ex VAT instead of £31.25, with both partners earning less than they expect. That's a recipe for awkward conversations or delisting.

Working backwards from an RRP

Often you start with the shelf price the market will bear. Reverse each step: RRP £45 inc VAT ÷ 1.2 = £37.50 ex VAT; × (1 − 0.40) = £22.50 trade price; × (1 − 0.20) = £18.00 is the most you can charge the distributor. Then check that £18 covers your unit cost, delivery to the distributor and your own overheads.

Try the wholesale quick check with your own sell-in price and partner margins. It shows each step and the markup comparison.

Open wholesale check

Things that change the real numbers

Settlement discounts, promotional funding and retrospective rebates reduce your effective sell-in price.
Carriage paid terms mean you cover delivery to the distributor.
Zero-rated or reduced-rate goods change the final VAT step — check HMRC guidance for your products.
If you aren't VAT registered, you can't reclaim VAT on your own costs; build that into your unit cost.

Limitations

This shows a simple two-step chain with standard-rate VAT. Real trade terms vary and some sectors quote margins differently. Treat it as arithmetic support, not accounting or VAT advice. New to the terms? Start with margin vs markup.