Why the same product costs twice as much
Between your factory cost and what a consumer pays in another country there are six to ten layers of cost, and each one is calculated on top of the previous one. Percentages do not add up: they compound. That is why a 30 % distributor margin and a 40 % retailer margin are not 70 %, they are a multiplier of 1.82.
Working it out before quoting changes the conversation. If you know your product lands on the shelf at €14.90 and the local competitor sits at €9.90, the problem is not your selling price: it is that you do not fit that channel with that Incoterm and that margin. You find that out in a spreadsheet, or you find it out six months later.
The layers, in order
- Industrial costRaw materials, direct labour and the share of overhead you allocate. It is the real floor: below this there is no deal, only loss.
- Cost of adapting to the marketLabelling in another language, certificates, lab analysis, approvals, a format change. It is allocated per unit by dividing over the units you expect to sell, and on a small first order it can weigh a lot.
- Ex-works priceIndustrial cost plus adaptation plus your manufacturer margin. This is the number you quote if you sell at the factory gate, and the basis for everything that follows.
- Cost to the borderInland haulage, export clearance, terminal handling and, if the Incoterm includes them, main freight and insurance. Add it up and you have your FCA, CPT or CIF price, depending on how far you go.
- Entry chargesDuty is calculated on the customs value, not on your invoice. On top go local fees and, in many countries, VAT or its equivalent applied to the already-dutied total.
- Channel costThe importer wants their margin, the distributor theirs and the retailer theirs. Each applies their percentage to what it costs them, not to your price.
A worked example
A bottle of olive oil with an industrial cost of €3.00, sold CPT to an EU importer. The percentages are illustrative; the mechanics are real.
| Layer | Calculation | Running total |
|---|---|---|
| Industrial cost | — | €3.00 |
| Adaptation (label and analysis) | +€0.18 | €3.18 |
| Manufacturer margin 25 % | × 1.25 | €3.98 (EXW) |
| Transport and clearance to destination | +€0.42 | €4.40 (CPT) |
| Duty 0 % (EU market) | × 1.00 | €4.40 |
| Importer margin 20 % | × 1.20 | €5.28 |
| Retailer margin 40 % | × 1.40 | €7.39 |
| VAT 21 % | × 1.21 | €8.94 on the shelf |
From €3.00 of cost to €8.94 of final price: a multiplier of 2.98. And that is with zero duty; at 12 % the shelf price goes to €10.01.
Before quoting a price
- I have asked for a real transport price, I have not estimated it
- I know the duty on my heading at that destination and whether an agreement lowers it
- I have included adaptation cost spread over realistic volumes
- I know the margin the channel asks for in that country, asked and not assumed
- I have checked what the competition charges on the shelf at destination
- If I invoice in foreign currency, I have put a validity date on the quote