Markup Calculator for Wholesale & Distribution
Distribution runs on thin margins and high volume, which makes markup discipline more consequential than in any retail setting. A distributor at 22% gross margin who gives away three points on a large account has just surrendered nearly a seventh of the gross profit on that business, and the volume rarely makes it back.
Use the calculator for any single line, then work through the tier structure below. The mistake most distributors make is not setting the wrong markup — it is building a discount ladder where each step costs more margin than the incremental volume returns.
Percentage added on top of your cost.
Markup to margin reference
| Markup | Margin |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 50% | 33.3% |
| 75% | 42.9% |
| 100% | 50.0% |
| 150% | 60.0% |
| 200% | 66.7% |
Selling price
$16.00
$12.50 cost plus 28.0% markup.
- Profit per unit
- $3.50
- Markup applied
- 28.00%
- Actual gross margin
- 21.88%
The share of revenue you keep — always lower than the markup.
Markup is applied to direct cost only. Make sure yours is large enough to cover overheads such as rent and salaries as well as leaving profit.
Starting values are set for a typical wholesale scenario — change any field to match yours. Need the plain version? Markup Calculator.
Building a tier structure that pays for itself
Every discount tier should be justified by a real reduction in your cost to serve — full pallets instead of mixed cases, longer lead times, prepayment, or fewer deliveries. A tier that only rewards size transfers margin without recovering anything.
| Tier | Price | Margin | What justifies it |
|---|---|---|---|
| List / single case | $18.75 | 33% | Full service, mixed cases, short lead time |
| Tier 1 — 10+ cases | $17.50 | 29% | Reduced picking, single SKU |
| Tier 2 — full pallet | $16.25 | 23% | No repacking, direct handling |
| Tier 3 — full pallet, prepaid | $15.60 | 20% | No credit risk, no collection cost |
| Tier 4 — container / drop ship | $14.40 | 13% | Never touches your warehouse |
Cost to serve varies more than price does
Two accounts buying identical volume can have very different profitability. Distribution margin analysis that stops at gross margin per line misses most of what determines whether an account is worth having.
- Order frequency. Twenty small orders cost far more to pick, pack and deliver than two large ones at the same total volume.
- Mixed versus full cases. Breaking cases is labour that never appears in the cost of goods.
- Delivery requirements. Timed windows, inside delivery, liftgate service and multi-drop routes all carry real cost.
- Payment behaviour. An account at 60 days is consuming working capital that a prepaid account is not. At a 12% cost of funds, 30 extra days on a $50,000 balance costs roughly $500.
- Returns and claims rate. Some accounts generate disproportionate credits, and the administrative cost exceeds the credit value.
- Rank accounts by gross profit after these costs, not by revenue. The largest account is regularly not the most profitable one.
Protecting margin in a low-margin business
- Set a floor price below which no salesperson can go without approval, and enforce it. Discount authority delegated without limits is the most common cause of margin erosion in distribution.
- Review price lists on a schedule against supplier cost changes. In an inflationary market an annual review means selling half the year at margins you no longer have.
- Charge for freight explicitly rather than absorbing it into the price. Free freight thresholds should be set from actual shipping cost, not competitor copying.
- Use minimum order values to stop small orders consuming the margin from large ones.
- Track margin by account and by SKU, not just overall. A healthy blended margin can conceal a set of accounts sold at or below cost.
Frequently asked questions
- What is a typical wholesale markup?
- Distribution markups commonly run 20% to 50% on cost, giving margins of roughly 17% to 33%. Fast-moving commodity lines sit at the bottom of that range, specialised or slow-moving products at the top. The right figure is whatever covers your warehousing, delivery and selling cost with profit left over.
- How do I set wholesale versus retail prices?
- Work down from the retail price rather than up from cost. If an item retails at $40 and retailers expect a 50% margin, your wholesale price is $20. Your own margin at $20 then determines whether the product is viable. Setting wholesale from your cost first often produces a price that leaves no room for the retailer.
- Should I discount for volume?
- Only where volume genuinely reduces your cost to serve — full pallets, single SKUs, longer lead times, prepayment. A discount that rewards size alone gives away margin without recovering anything. Tie each tier to a specific behaviour you can point to.
- How do payment terms affect my real margin?
- Materially. Extending 60-day terms means financing the customer's inventory. At a 12% annual cost of funds, an extra 30 days on a $50,000 balance costs about $500 — often more than the discount you would have needed to offer for prepayment. Price terms as a cost, not a courtesy.
- Why is my biggest customer my least profitable?
- Usually a combination of the deepest discount tier, the most demanding delivery requirements, the longest payment terms and the highest claims rate. Large accounts accumulate concessions over years. Recalculate profitability after all cost to serve — the ranking often changes completely.