I recently wrote a post about Gross Profit vs Gross Margin, it was nice. Piggybacking off that topic I want to explain the differences between Markup vs Margin. More specifically, what it looks like at different points in the supply chain. In the margin vs markup game, margin wins….always. Distributors and Retailers work off margin. Margin is the amount you have leftover to pay your bills after the product is sold. Businesses try to hold on to as much margin possible for as long as they can. Currently, at retail, I see margin slipping because prices are slowly decreasing. There are a million factors which contribute to a price decrease, we need to save these for another post. For now, let’s “follow the dollar” from brewery to retailer.
Facts:
Beer: ½ BBL of Pale Ale
Cost: $48
Price to distributor: $110
Price to retail: depends on distributor margin
Brewery —> Distributor
$48 x 2.3 (230% markup) = $110 or a 56% margin
Distributor —> Retail
Typical distributor deal starts at 30% margin with most now creeping up to 35% margin.
$110 x 1.44 (44% markup) = $158.40 or a 30.56% margin
$110 x 1.54 (54% markup) = $169.40 or a 35.29% margin
Reference chart:
30% Markup = 23.0% Gross Margin
33.3% Markup = 25.0% Gross Margin
40% Markup = 28.6% Gross Margin
43% Markup = 30.0% Gross Margin
50% Markup = 33.0% Gross Margin
75% Markup = 42.9% Gross Margin
100% Markup = 50.0% Gross Margin