What factory price can I afford from China?
Your maximum factory price is the goods budget left after subtracting channel costs, required contribution and separately calculated import and setup costs from expected net sales revenue, divided by the quantity ordered. Recalculate price-dependent import charges before accepting a quote. Cambridge China Bridge can review the sourcing brief.
Start with revenue you expect to keep
Choose the order quantity and a sales period. Forecast revenue from the units you realistically expect to sell during that period, allowing for discounts and refunds. Exclude any VAT charged to customers from the revenue used in this calculation. Use your selling price to the retailer or distributor if that is your customer, rather than their shelf price.
For this method, net sales revenue means sales after discounts, refunds and sales VAT, but before channel costs. If you start from a marketplace payout that already deducts fees, identify those deductions before subtracting channel costs again. Keep unsold stock visible; do not assume every unit ordered will generate revenue within your chosen period.
Subtract channel costs and required contribution
List the costs of making those sales: marketplace commission, payment processing, fulfilment, customer delivery, advertising, storage and returns handling. Use the fee basis in your actual channel agreement, including whether fees apply to delivery charges or the VAT-inclusive selling price. Separate fixed charges from costs driven by orders, units or revenue.
Required contribution is the amount you want left after goods, import and channel costs to cover business overheads and profit. Set it explicitly as a money amount for the forecast, or calculate it from your chosen share of net sales revenue. Do not substitute a markup on factory cost or a gross-margin target that leaves channel costs unpaid.
Build the ceiling at order level
Calculate the order budget before dividing by units. This keeps freight, setup costs and unsellable goods from disappearing into a misleading unit-price comparison. Revenue uses expected sales; the factory-price divisor uses every unit you will pay for. For a conservative first-order test, charge the order with all setup costs unless you deliberately document another allocation.
Build the separate import-cost schedule using the landed-price guide. Include only costs outside the supplier quote, and put samples, tooling, testing and inspections in the setup budget where relevant. Give each cost a named place in the calculation so that it is neither omitted nor counted again elsewhere.
| Line | Calculation or input |
|---|---|
| Net sales revenue | Expected sales receipts less discounts, refunds and sales VAT |
| Budget available for goods and importing | Net sales revenue less channel costs and required contribution |
| Factory goods budget | Available budget less separately calculated import and setup costs |
| Maximum factory unit price | Factory goods budget divided by units ordered |
| Decision check | Recalculate import costs at the candidate factory price and check the contribution remaining |
Recalculate import costs at the candidate price
Separate import costs from the factory price, but do not treat them all as fixed. Customs valuation includes transport, insurance, loading and handling connected with delivery to the UK border. A change in goods price can therefore change the duty calculation. Use the customs-value guide to build the relevant value rather than applying duty to the factory invoice alone.
Start with a candidate factory price, calculate the import charges, then put those charges back into the worksheet. Adjust the candidate until the required contribution is retained. Include unrecoverable import VAT as a cost; keep recoverable import VAT in a separate cash-flow plan after confirming your treatment. The import VAT guide explains that distinction.
Turn the ceiling into a buying decision
Test a weaker selling price, slower sell-through, more returns and dearer freight using assumptions you can explain. Record which change makes the order fail your contribution target. A positive contribution forecast still needs a payment and stock-holding cash-flow check; it does not show whether you can fund the order.
Compare the ceiling with a quote for the same specification, packaging, quantity, currency and delivery scope. The supplier-quote comparison guide helps resolve missing scope. If the quote exceeds the ceiling, revisit the product, channel costs or sales assumptions before committing. Send Cambridge China Bridge the brief, quote and cost worksheet so its staff in China can clarify what the factory offer includes.
Frequently asked questions
How do I work out my maximum factory price?
Subtract channel costs, required contribution and separate import and setup costs from expected net sales revenue. Divide the remainder by units ordered, then recalculate import charges at that price.
Can I use the marketplace payout as net sales?
Yes, if you reconcile it. Identify fees, refunds and other deductions already taken from the payout so that the worksheet does not subtract them again.
Should I divide the goods budget by units sold?
Divide the factory goods budget by units ordered, because you pay for them all. Use expected sales to forecast revenue, with unsold and unsellable units shown separately.
What if the factory quote is above my ceiling?
Check the quote scope and unresolved costs first. Then revisit specification, packaging, channel costs or sales assumptions. Do not raise the ceiling merely to make the supplier's price fit.