Furniture cost and profit breakdown

Hi all.

I was hoping to get some feedback on some pretty open ended estimations.

If some of you more experienced members can ratify these estimations it would help me (and many others) with their business negotiations with furniture manufacturers.

This is my brainstorming. tell me if it sounds right…

Case 1:

Designer sells domestic product to manufacturer with retail branches e.g. Artimede, iGuzzini, Euroluce, etc.

Designer design, prototyping, legal etc. Royalty :1.5% of retail value (mid-high turnover product)

Manufacturing company Total costs and profit 35.00% profit, 65.00% costs

Cost breakdown:
Development, legal and other costs 5.00%
manufacture and delivery to base 25.00%
Warehousing and distribution to retail location 10.00%
Retail inc. overheads 25.00%

any others??

Notes:
Typical exclusivity arrangements
There is a trend towards transferring liability to designer. Contracts need to be carefully managed


Case 2:
Designer sells to manufacturer who manages distribution without retail branches e.g. Vibia,
(this is also the case when manufacturers with retail branches decide to push the product through more outlets
Some companies exchange risk associated with having retail outlets for a broader distribution and sales base.
this can be useful for medium-low cost designs that sell in high volumes.

Designer design, prototyping, legal etc. Royalty :1-1.5% of retail value (mid-high turnover product)

Manufacturing company Total costs and profit 20.00% profit, 35.00% costs

Cost breakdown:
Development, legal and other costs 10.00%
manufacture and delivery to base 25.00%

Retailers Total costs and profit 25-30.00% profit, 25.00% costs

Cost breakdown:
Warehousing and distribution to retail location 5-10.00%
Retail inc. overheads 20.00%

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tell me what you think…

and regarding distributors, how much of the wholesale value do they typically charge per product if you manage manufacture yourself? (particularly interested in business to business contracts)

mh… 1.5% of retail sounds really low to me… I believe percentages around 3-5% are more in the ball park.
This is very different from country to country though. I don’t know about the Italian market.

1,5% of retail is not unheard of, as “design” get’s less an less exclusive. But, as these fees
are agreed upon between two business partners they can vary a lot. 1,5% of a large turnover
might be interesting and just. But 1,5% of 5.000 is only enough to cover like 2 days of work.
As these 750 bucks in “royalty” would not be worth the hassle in accounting, it would in this
case be much better for both sides to agree on other payment terms.

Thanks for the feedback so far…

Yes it think that if the total product sold is less than 1 million dollars, then it is not really worthwhile. This would be the case when a $200 product sells 5000 units per year giving the designer a royalty turnover of 15 000. But is a product in this price bracket likely to sell over 5000 units a year? and which companies would make this turnover?

I understand that the designer is often offered 3-5% of WHOLESALE, but of course that equates to between 1.5 and 2.5% of retail.

also are there any comments on the other figures listed?

thanks for the interest so far…