Two phrases come to mind as I write this: “Knowledge is power,” and “What you don’t know can hurt you.”
I believe in abundance, honesty, transparency, and strength in numbers. I also believe that it’s time for interior designers to rise up. We deserve to be on equal footing with the other players in our industry, to have a seat at the table and a voice that is heard.
One of the first steps toward that goal is the empowerment of interior designers through knowledge — specifically the understanding of how pricing in this industry works.
Unfortunately, there are many people in the furniture and design world who truly do not want you to understand the ins-and-outs of pricing. That’s because it’s in their own financial interest to keep you in the dark. But I think it’s time for this to change.
So I’m going to do my best here to explain the fundamentals of pricing, because I believe that we should all understand how our business really works.
The most important concept to grasp is “tiered pricing.” What this means is that most furniture manufacturers offer different levels of pricing to resellers based on the volume of the goods they purchase within a single year, with a required minimum dollar amount for your first purchase in order to qualify for the better tiers.
Understanding this system can be complicated, because no industry standards exist. Instead, each manufacturer is able to decide for themselves how to set up their pricing structure — with some companies offering up to four (or even more) levels of pricing.
But in a nutshell, each progressive tier offers better pricing, meaning that you can make the greatest profit on an item when you are able to buy it at the lowest/best tier. For most manufacturers, this lowest tier is called “Stocking Dealer.”
Here, in descending order, are the basic pricing tiers used by most manufacturers:
The price at which the public consumer purchases an item.
The manufacturer’s suggested retail price. In other words, the price recommended by the manufacturer for the resale of an item in a retail outlet. Another name for retail.
The price that a reseller must agree to as the minimum advertised price of a particular product. For example, if a furniture company sets a MAP price of $500 for one of its best-selling chairs, then no reseller (including brick-and-mortar stores and online vendors) may advertise that chair for a price lower than $500.
A set percentage off the retail price — typically between 10% and 50%, depending on the individual manufacturer. No minimum purchasing requirements are involved; the percentage remains the same for any trade professional with a resale license. Also known as “Trade Discount” or “To-the-Trade.”
The sale of goods in quantity to resellers for resale. In most cases, the wholesale cost of an item is 50% off the retail price. So to figure the wholesale cost, you would divide the retail price by 2.
Example: Retail is $200, so wholesale is $100.
This refers to receiving the wholesale cost of 50% off the retail price, plus an additional 10% off of that. Note: This does not equal 60% off.
Example: Retail is $200, so 50% off is $100. Another 10% off that $100 brings the final cost to $90. (60% off would have lowered the cost to $80).
This refers to receiving the wholesale cost of 50% off the retail price, plus an additional 20% off of that. Note: This does not equal 70% off.
Example: Retail is $200, so 50% off is $100. Another 20% off that $100 brings the final cost to $80. (70% off would have lowered the cost to $60.)
This tier is offered to resellers who are able to place a large opening order (i.e. their first order with that manufacturer) and maintain a yearly minimum of goods purchased, usually starting at $20,000 – $50,000 per year. This is the best price point offered in our industry to those who are not buying bulk truckloads at one time (which is a scenario that only works for large retail stores).
Stocking dealer cost is typically one-third of the retail price.
Example: Retail is $3,000, so stocking dealer would be $1,000.
Some manufacturers have come up with additional tiers like “Boutique Pricing” and other random names that I’m convinced are designed primarily to confuse. But for the most part, the above list includes all of the commonly used terms for pricing levels in our industry.
Here’s the bottom line: The more you are able to purchase from a manufacturer who uses a tiered pricing system, the better the price you will get. Requirements for opening orders are kept high (and yearly minimums even higher) for two reasons: to limit the number of accounts and to keep competition low.
In addition, some manufacturers even require resellers to maintain a retail storefront in order to gain access to their best level of pricing.
This complicated system has been around for a very long time, and it made a lot more sense before the Internet came along.
But now, many of the same companies who throw up obstacles for designers trying to secure better pricing are actually selling their products directly to those designers’ clients via the Internet — in many cases, at lower prices than the interior designer can offer because of those aforementioned obstacles.
That doesn’t seem quite fair, does it?
That’s why many interior designers have decided to join The Designers Collaborative. By banding together, our members have been able to get and keep the best pricing levels available from over 200 of the top manufacturers in our industry.
Like I said, knowledge is power — but only if that knowledge leads to action. Take action today. Invest in your business by joining The Designers Collaborative. You’ll be amazed by the profit that awaits you! Join today!