Why one wholesale price isn't enough
When you sell your first case to a local grocery store, you set one wholesale price and move on. But the moment you add a distributor, a broker, or a chain account, one price no longer works.
Each channel adds a layer between you and the shelf — and each layer takes a cut. If you charge a distributor the same price you charge an independent retailer, one of three things happens: the distributor can't make margin and declines your product, the retailer pays more than competitors' products, or you eat the difference and destroy your own margin.
Pricing tiers solve this. Each tier represents a different buyer type with a different wholesale price, reflecting the economics of that channel.
The three core pricing tiers
Set up your pricing tiers in Brand Profile → Business & Distribution. Name each tier (e.g., "Direct Retail," "Distributor," "Broker Direct") and set a wholesale price per product per tier. Thello automatically generates a separate sell sheet for each tier — same product, different pricing, correct audience.
How money flows through each channel
Let's trace a $7.99 MSRP product through each tier to see where the money goes.
Direct retail channel
Your margin: $4.80 – $2.40 COGS = $2.40 (50%) · Retailer margin: 39.9%
Distributor channel
Your margin: $3.50 – $2.40 COGS = $1.10 (31.4%) · Dist. margin: ~27% · Retailer margin: ~39.9%
Notice your margin drops from 50% to 31.4% through a distributor. That's normal — you're trading margin for scale. A distributor gives you access to hundreds of stores you couldn't service directly. The question isn't "is 31% enough?" — it's "can I maintain 31% at volume and still be profitable after trade spend?"
Real pricing example
Here's how a real product (MSRP $7.99, COGS $2.40) looks across all tiers:
| Direct Retail | Distributor | Broker + Distributor | |
|---|---|---|---|
| MSRP (shelf price) | $7.99 | $7.99 | $7.99 |
| Retailer cost | $4.80 | ~$4.80 | ~$4.80 |
| Distributor cost | — | $3.50 | $3.50 |
| Broker commission (7%) | — | — | $0.25 |
| You receive per unit | $4.80 | $3.50 | $3.25 |
| COGS | $2.40 | $2.40 | $2.40 |
| Your gross margin | 50.0% | 31.4% | 26.2% |
All three channels are valid — but you need to know your numbers before you commit. If your COGS is too high to sustain 26% margin through a broker + distributor channel, you need to either raise MSRP, lower COGS, or stay in the direct channel until you can.
Use the Margin Calculator in the Toolkit to run these scenarios before committing to pricing. Input your COGS, wholesale price, and MSRP for each tier and see your margins instantly. Adjust until the numbers work for every channel you plan to sell through.
Setting your prices: a framework
Step 1: Start with MSRP
Your shelf price is anchored by the category. Look at comparable products on the shelf — what's the price range? Price too high and retailers won't take a chance on an unknown brand. Price too low and buyers assume low quality (and you'll destroy your margins downstream).
Step 2: Work backwards from COGS
Your cost of goods sold is the floor. Every price tier must leave enough margin above COGS to cover your operating costs and generate profit. If your COGS doesn't leave room for distributor pricing, you either need to reduce COGS through scale or stay in the direct channel.
Step 3: Set direct retail first
Your direct wholesale price should give both you and the retailer healthy margins. Target 40–50% gross margin for yourself and 35–45% for the retailer (the exact split depends on the category and competitive set).
Step 4: Set distributor pricing
Work backwards from the retailer's cost. If the retailer needs to pay ~$4.80 to maintain their margin, and the distributor adds a 25–35% markup, your distributor price needs to be around $3.50–$3.85. Check that this still leaves you 25%+ gross margin.
Step 5: Account for broker commission
Broker commissions (5–10%) come off your net revenue, not the shelf price. If you sell through a distributor at $3.50 and your broker takes 7%, you net $3.25. This is your lowest-margin channel — make sure it's still profitable.
These margins are before trade spend — promotional allowances, slotting fees, MCBs (manufacturer charge-backs), and free fills. UNFI alone can deduct 15–25% off your invoice through various programs. Build trade spend into your pricing model or you'll be surprised when your actual margin is 10 points lower than you expected.
Common pricing mistakes
Giving the same price to everyone
If a distributor gets the same price as a direct retailer, there's no room for the distributor to make their margin. They'll either decline your product or demand a lower price on the spot — and you'll be negotiating from a weak position.
Setting prices without knowing COGS
Surprisingly common. Brands set wholesale prices based on what "feels right" or what competitors charge, without calculating their actual landed cost per unit. Know your COGS including ingredients, packaging, co-packing, freight, and any quality testing.
Pricing too low to win accounts
Undercutting competitors on price to get your first distributor placement is tempting. But once you're locked into a low distributor price, raising it is extremely difficult — distributors have MAP agreements and pricing histories. Start at a sustainable price, even if it means slower growth.
Forgetting to update sell sheets when prices change
You raise your distributor price by $0.25, but your broker is still sending last quarter's sell sheet. Now you have two prices floating around for the same product. This creates confusion, erodes trust, and can lead to chargebacks when the invoice doesn't match the quoted price.
When you update a price in Thello, every sell sheet and web link that references that pricing tier updates automatically. No manual file management, no version confusion, no outdated sell sheets floating around with your broker.
The pricing tier checklist
Before launching into a new channel, confirm these:
- You know your landed COGS per unit (not just ingredients — include packaging, labor, freight)
- Your MSRP is competitive within the category (check shelf prices at target retailers)
- Direct retail tier gives you 40%+ gross margin and the retailer 35%+ margin
- Distributor tier leaves you 25%+ gross margin after the distributor's markup
- Broker commission is factored into your margin calculation (it's off your revenue, not the shelf price)
- Trade spend estimates are included (budget 15–25% for distributor programs)
- You have a separate sell sheet for each pricing tier (not one sheet with all prices)
- Prices are documented in one system, not scattered across emails and spreadsheets