The price ladder

The idea

One packet has several prices, one for each hand it passes through. Line them up from the top and they form a ladder: MRP at the top, then the price to retailer, then the price to stockist, then what the company finally keeps. The gap between two rungs is the margin of the person standing on the lower one. We call this the price ladder.

The rungs

Where a super stockist sits between company and stockist (chapter 3.2), there is one more rung, sometimes called the price to super stockist.

At the counter: one ₹10 packet

A glucose biscuit, MRP ₹10. In this example GST is taken as 18% so the numbers are easy to follow — your product's rate may be different; check the current rate on the GST portal. All prices below include GST, the way the price list usually shows them.

A case holds 96 packets. The stockist buys a case at ₹787.20 and sells it at ₹835.20.

The margin that stays in your hand

The GST inside those prices is not yours. It passes forward to the next hand and finally to the government (chapter 1.15, the relay race). So the real margin is the gap before tax:

• Retailer keeps ₹8.47 − ₹7.37 = ₹1.10 per packet, not ₹1.30.
• Stockist keeps ₹7.37 − ₹6.95 = ₹0.42 per packet, not ₹0.50. On one case, about ₹40.68.

That is "pennies, fast" (chapter 3.1): 400 cases a month gives about ₹16,000, before salesmen, van and godown.

Margin on what?

The same rupees can be quoted as different percentages. ₹1.30 is 13% of MRP, but 14.9% of PTR. Companies usually quote retailer margin on MRP and stockist margin on PTS or PTR — but not always. When a company says "your margin is 6%", ask: 6% of which price, with GST or without? Write the answer down.

Where the ladder bends

The printed ladder is only the start. Schemes push the real prices down:

• A trade scheme gives the stockist an extra 1% on reaching a slab. His real PTS falls.
• A retailer scheme — say 6 packets free per case — lowers Ravi Stores' real PTR from ₹8.70 to about ₹8.18.
• The company pays for both. Its net price falls below the PTS.

How schemes change margins, and how to make sure the money actually reaches you, is chapter 3.12. How to claim it back from the company is chapter 3.13.

Common mistake

Selling below PTR to win a retailer, and calling it "using my margin". A stockist who gives Ravi Stores a 30-paise discount per packet has given away more than two-thirds of his 42 paise. If a company scheme was meant to fund that discount, it must appear on the bill as a scheme line, or the claim will be rejected. If no scheme funds it, it comes straight out of his profit.

Where you'll use this

Chapter 3.12 adds schemes to the ladder. Chapter 3.13 shows how the company pays back what the stockist gave away under a scheme. In Part 4, the price list in the software must hold MRP, PTR and PTS for every product, and a price change must update all three on the same day.

Check yourself

1. A packet has MRP ₹20 and PTR ₹17.40. What is the retailer's margin in rupees, with GST?
2. Why is the stockist's real margin 42 paise and not 50 paise in the example?
3. A company says "8% margin". What two questions should you ask?

Answers

1. ₹2.60 per packet (13% of MRP). Before GST it will be less.
2. Because 8 paise of the 50 is GST that passes forward to the government. Only the gap before tax stays with the stockist.
3. 8% of which price (MRP, PTR or PTS)? And with GST or without?