From lot price to shelf margin

The price on a stock-lot offer is only part of what the stock will cost you. Freight, duty, handling and the units you can't sell all add up. Working out the full cost before you buy tells you what margin is really left, and what you can afford to pay.

Step 1: Work out the landed cost

Landed cost is the total cost of getting the stock into your shop, ready to sell. It usually includes:

• Lot price. What you pay for the goods.

• Freight. Shipping from where the stock is held to you, by air, sea or road.

• Insurance. Cover for the goods in transit.

• Customs duty. Charged by your country on imported goods. In the UAE, most goods carry 5% customs duty on their value including shipping and insurance. Other countries charge different rates by product type, so check with your customs broker.

• VAT or sales tax. In the UAE this is 5%. If you are VAT-registered you may be able to reclaim it, so treat it separately from your cost.

• Clearance and handling. Customs broker fees, port or airport charges, and delivery to your store or warehouse.

• Preparation. Any work needed before the stock can go on sale, such as re-tagging, steaming or repacking.

Add these up and divide by the number of units. That gives your landed cost per unit.

Step 2: Allow for what won't sell at full price

Not every unit in a lot sells at your planned price. Some sizes or colours move slowly, and you may mark them down to clear them. Make an honest estimate based on your experience with similar stock.

A simple way to do this is to estimate your sell-through: the share of units you expect to sell at your planned price. If you expect to sell 80% at full price and clear the rest at cost, plan your margin around that.

Step 3: Set your shelf price

Decide what your customers will pay for each style. A common starting point is a set discount from RRP, so your customers can see the value. Check the result against what similar items sell for in your market.

Step 4: Work out your margin

Your gross margin per unit is your shelf price minus your landed cost, divided by your shelf price.

An example

Say you buy a lot of 1,000 units. All figures below are illustrative.

Cost	Amount (AED)
Lot price	60,000
Freight and insurance	6,000
Customs duty at 5% (on 66,000)	3,300
Clearance and handling	2,000
Preparation	1,700
Landed cost	73,000

That is AED 73 per unit. If you sell each unit at AED 150, your margin on each unit sold is AED 77, or about 51%.

Now allow for sell-through. If you sell 800 units at AED 150 and clear the remaining 200 at AED 73, your revenue is AED 134,600. Against your landed cost of AED 73,000, that is a gross profit of AED 61,600, or about 46% of revenue.

Step 5: Work backwards to your maximum offer

Once you know your target margin, you can work out the most you should pay for a lot. Start from your expected revenue, take off your target margin, take off freight, duty and handling, and what is left is your ceiling for the lot price.

In short

Judge a lot on landed cost and realistic sell-through, not on the lot price alone. Doing the sums before you buy tells you what you can afford to pay and protects the margin you are counting on.