Target landed cost for wholesale and retail
Calculate a landed-cost ceiling for each channel from its net selling price and required gross margin. Separately check what remains after channel costs and your required contribution. Use the lower channel ceiling if both must meet their targets independently. Cambridge China Bridge can review the buying ceiling with you.
Start with the selling price you actually retain
Build separate wholesale and own-shop columns for the same product. Use realised selling prices after discounts, rebates, refunds and expected markdowns, rather than the trade list price or shelf ticket. Base repeat-order assumptions on your own sales records. Keep revenue and costs on the same sellable-unit basis.
For VAT-registered sales, exclude applicable output VAT from the selling price used for margin planning. The UK standard VAT rate is 20% on most goods and services; check the rate for your product. Keep recoverable import VAT in the cash-flow plan rather than the landed-cost ceiling, as explained in Understanding your landed price.
Calculate the ceiling without confusing margin and contribution
Gross margin is gross profit divided by net sales, whereas markup measures profit against cost. Multiply each channel's net selling price by its required gross-margin rate to find the gross profit to retain. Subtract that amount from net selling price to obtain the gross-margin landed-cost ceiling, assuming landed cost is the only cost of sales. Deduct any other costs classified as cost of sales too.
Then run a separate contribution check: subtract channel costs and the required contribution towards overheads and profit from net selling price. The permitted landed cost is the lower of the gross-margin ceiling and this contribution ceiling. If your stated target is already a margin after channel costs, use the contribution calculation directly. Deduct each cost once.
| Calculation | Method |
|---|---|
| Gross-margin ceiling | Net selling price less required gross profit and any other cost-of-sales items |
| Contribution ceiling | Net selling price less channel costs and required retained contribution |
| Permitted landed cost | The lower ceiling, measured per sellable unit |
Put the right costs in each channel
Wholesale allowances might include customer delivery, picking, trade packaging, commissions, settlement discounts and expected credit losses. Own-shop allowances might include warehouse-to-shop transport, payment fees, selling labour and stock losses. Use your accounting policy to decide which belong in cost of sales and which sit below gross profit. Do not deduct refunds or discounts again if they already reduced net selling price.
Keep shared overheads visible. Either reserve a contribution to cover them or allocate them consistently; do not do both for the same expense. Separate factory or inbound defects already allowed for in landed cost from losses after stock reaches the channel. For shared inbound freight and handling, use a consistent product allocation before comparing ceilings; see Shared shipment costs per product.
Choose a buying limit for shared stock
If wholesale and own shops must each meet their targets independently, use the lower permitted landed cost as the common buying limit. A product can pass the retail test and fail wholesale even when the factory quote is unchanged. Transfers between your warehouse and shops are internal movements, so do not treat the transfer price as additional external sales revenue.
A blended ceiling is an alternative only if you deliberately accept cross-subsidy. Weight each channel's permitted ceiling by its expected share of sellable units, then add the results. Record the assumed mix and any channel shortfall explicitly. Test a shift towards the less profitable channel using Stress-test China landed costs, and check volume separately with Product-range break-even sales.
Turn the ceiling into a repeat-order buying brief
Give procurement the approved ceiling, product specification, delivery endpoint, channel assumptions and cost-allocation method. Compare that ceiling with the full landed cost per sellable unit, including allocated samples and tooling, rather than with the factory unit price. If the quote exceeds the ceiling, review selling prices, commercial terms, packing, specification or channel allocation before committing. For comparison with domestic sourcing, see UK wholesale prices versus China landed costs.
For a cost review, bring recent sales realisations, returns, channel costs and the current landed quote. Cambridge China Bridge's own staff in China can check sourcing assumptions against factory discussions. Our own-brand sourcing and retailer sourcing services can use the approved ceiling in the buying brief. Refresh it when prices, costs or the channel mix change.
Frequently asked questions
How do I calculate my maximum landed cost?
For each channel, calculate the gross-margin ceiling and a separate ceiling after channel costs and required contribution. Use the lower result, on a sellable-unit basis.
Should I use wholesale or retail margin to buy stock?
Calculate both. If each channel must meet its target independently, the lower permitted landed cost sets the common buying limit.
Can I average wholesale and retail landed-cost targets?
Only with an explicit decision to accept cross-subsidy. Weight the ceilings by expected unit sales, record channel shortfalls and test a less favourable sales mix.
Do I deduct shop costs from my gross-margin target?
Keep gross margin and post-channel contribution separate. Deduct shop costs in the appropriate calculation, and avoid deducting costs already included in cost of sales again.