Dear Design Doctor
‘I’m an embroidery designer. I’ve been a freelancer working in fashion and interiors for about 15 years, I have recently started to create and sell my own designs and work. I sell to a London shop who puts their 250% mark up, which makes my work very expensive. And if I sell online on my own site do I have to sell at their retail prices?’
This question is answered by Patricia van den Akker, the Director of The Design Trust:
‘You are not the only creative wondering why shops and galleries charge so much commission! This is a very popular question and many (especially) new creatives often struggle with this.
To be honest a mark up or commission of 250% or 2.5 is very standard for galleries and retailers, and not that expensive after all. Some retailers might charge less (200%) while others a bit more (300%).
What does this mean? If you sell something to a retailer then they will add their commission rate to calculate the retail price. For example if you sell a shop buyer an embroidered cushion at £80 then they will charge anywhere between £160,- and £240,- for that cushion in their shop. Most likely they will sell your cushion for £195, and yes this means that you will also need to sell it around that price on your own website or at an event.
If you want to find out more about the different price terms and how these calculations work then click here for a practical blog post.
If you want to find out how to calculate your own cost price, and from that the trade/wholesale price and retail price then click here.
So why do shops and galleries charge so much commission?
This commission rate has been in place for a long time and is not something that you can really change because it is based on what retailers need to charge to cover their own cost. The reality is that if they sell something in their shop for say £100, then they have to pay the following:
- roughly 45% goes to you the creative supplier
- 20% or £20 goes to the VAT man in tax
- 15% goes to business rates and rent/mortgage
- 15% goes to staff costs
- which means less than 5% profit!
So, no: shops and galleries aren’t raking it in! They do need to add this commission to make sure that they cover their high (overhead) costs!
What to do if you are too expensive to sell to shops and galleries?
Don’t make the mistake to undercut your potential stockists and sell your products at a rate far below that they have to charge to cover their costs! It’s the quickest way to being thrown out by your gallery or shop. Read this gallery’s perspective of what happened when a jeweller undercut her.
It is actually one of the major challenges for many new creatives to start selling wholesale because of this impact of the retailer’s markup. My advice often is that as a new maker you’ll need to focus in the first 2-3 years mostly on selling direct to consumers rather than to retailers. Build your profile and credibility, create a brand, and focus on selling at hand-picked events that are right for you and build an online presence, driving traffic to your website through regular emails and social media. Learn at a smaller scale with consumers first before going to potential stockists. And yes, that might be harder work but it will pay off.
You might consider selling to some shops that would give you increased profile for a lower profit margin for yourself, or you might consider selling only certain products for wholesale to begin with – if this makes financial sense and you use this as an investment in the future. But this is not a long term option!
Or you might consider creating and selling a collection specifically for wholesale, with these price levels in mind before you start designing.
And as you are working in textiles you also might want to consider approaching interior designers as trade clients. They often work with embroidery designers like you but they would charge a lower commission rate than a retailer has to charge. If you build up a good reputation and approach them directly you can really increase your trade orders!
Don’t despair – Your time will come, and you will learn potentially loads from the feedback you get from consumers!
Avoid these common newbie retail pricing mistakes
It is crucial that you understand how these retailer’s margins and wholesale price calculations work.
If you don’t then you will simply not be able to sell to retailers, and also it will really show that you don’t understand how business is done, which will damage your potential reputation and credibility.
Recently I noticed a new designer who I had been working with at Top Drawer, the giftware & jewellery trade show, who had a price list with a wholesale price of £60 and a RRP of £90. Any retailer would have known straight away that she didn’t know how these margins work, and would not have bought from her. Very damaging for her reputation.
Be aware that you can’t dictate what the retailer will charge.
Once they have bought from you, they can do whatever they like with it (more or less). You can provide them with a Recommended Retail Price list (RRP) but they can charge far more or far less (e.g. in a sale period) if they want to.
It might mean that there is a slight difference between the retail prices that consumers will pay between a shop in Sheffield and one in Penzance, but that doesn’t matter. Also, if your retailer would purchase a larger order then they might want to get a discount on their trade order too.
One of my clients got in touch with me in a bit of a panic because one of her stockists was selling her ceramics at a markup of 300% and she wondered if she had to increase her retail prices too? I checked with her that she had followed the principle of the 2.5 markup and she had. So indeed clever consumers could buy directly from her website, which would be cheaper than from this larger online retailer!
However, I did say to her that as this trade client was obviously being able to sell at this higher price level (as they were buying from her regularly!) it might actually be a sign for her to increase her prices too!
Don’t get cross with retailers about these margins.
The rate of 2.5 or 250% is standard across all creative retail businesses. Retailers have far higher costs than you have and need this to cover their costs!
I fairly regularly see people getting cross on social media about these rates. It might get you a few supportive comments from your friends, but most retailers and professional designers and makers will realise that you don’t know how business works. Not recommended for your credibility.
Having said that, you can always negotiate!
Especially if your are selling on a Sale or Return basis, or if you item is relatively expensive, then you can negotiate a lower commission rate.
Also, see what you actually will get in return for your commission rate. Some galleries or shops are great to increase your profile. And if a gallery or independent retailer is doing a great job in promoting you as a designer, maybe putting on a special display with your work, including you in newsletters or even organising a Private View or solo exhibition then the commission will often be worth it! Discuss with them what to expect in sales and marketing, and how you can work together.
Selling on the High Street is a challenge right now as we all know. Work together with your stockists and retailers, you need to be a team. Get feedback regularly, show them how to display your work at their best, educate them on your way of working and your interests, so that they can tell their customers.’
Did you wonder why shops and galleries charge so much commission? Has this blog post explained the situation to you and have you found a practical way forward for your own situation? If this blog post helped you then please share it with others who might find it useful too. If you have got further questions then post them in the comments box.
great article!