Dealer Margin vs Markup: A Worked Appliance Pricing Example

A dealer who buys an appliance for ₹8,000 and sells it for ₹10,000 earns a 20% gross margin, not 25%. The 25% figure is markup on purchase cost. Confusing these two measures can derail a pricing discussion before the first order is placed.

The figures in this article are illustrative, exclude tax, and describe gross trading economics. They are not a claim about standard margins available from any appliance brand.

Start with the realised selling price

Use the price the retailer actually collects after an immediate customer discount. MRP is a reference price; it is not necessarily the denominator for the retailer's realised margin. Keep tax treatment consistent across purchase and selling values, and ask the finance team to confirm the treatment of credits and recoverable taxes.

• Gross trading profit = net selling price minus net purchase cost.
• Gross margin percentage = gross trading profit divided by net selling price, multiplied by 100.
• Markup percentage = gross trading profit divided by net purchase cost, multiplied by 100.

For the ₹8,000 purchase and ₹10,000 sale, gross trading profit is ₹2,000. Margin is ₹2,000/₹10,000 = 20%. Markup is ₹2,000/₹8,000 = 25%.

Test the discount before promising it

Suppose the dealer discounts the same appliance to ₹9,500. Gross profit falls to ₹1,500, and margin becomes approximately 15.8%. A 5% reduction in the selling price has removed 25% of the original gross profit. This is why a seemingly small consumer promotion can become contentious in a thinly funded channel.

If the brand agrees to fund ₹300 of that promotion, show the support separately until the claim is approved. Record the eligible SKU, invoice period, evidence requirement and expected settlement date. An uncollected claim should not be treated as cash available to pay the next supplier invoice.

Move from gross margin to contribution

The ₹1,500 is not take-home profit. Delivery, installation, payment charges, sales commissions and warranty handling can consume part of it. Deduct costs attributable to that sale to estimate contribution; then assess whether total contribution covers rent, staff and other operating expenses.

Build the same calculation for entry, mid-range and premium products. A healthy average can hide an unprofitable fast seller. Review the model whenever the selling price, freight responsibility or financing arrangement changes.

Questions to settle with each partner

Ask whether the quoted percentage is on MRP, invoice value or realised sales. Confirm whether schemes are already included, who pays delivery, and when rebates become earned. Put one worked example into the commercial sheet so both parties use the same definitions.

For broader channel design, see the distribution margin guide. If partners disagree on the economics, review the pricing structure before expanding the network.