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As originally asked by Andrew Wallis.

What is the average markup that a distributor adds on to the cost price for medical consumables?

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George Morphitis
Director
Dear Tzahi Alhough I agree with you that the Distributor knows better than anyone else the conditions and behaviour of the local market still I believe that a Distributor should have fixed price-lists for all customers but with with flexible but again fixed margins up or down depending on the nature, quantity, purpose etc. of the deal. These fixed prices are usually “suggested distribution prices” by the Manufacturers on an International or Regional application. This is a very sound and healthy approach for international or regional uniform prices and it will also protect all Distributors from the cursed Parallel Trade which I call “pirate trade”. As for Public Tenders these are usually referred to the Manufacturers/Suppliers for special prices and because of the envisaged competition the Distributor’s profit is usually extremely low.

Tzahi Zagorski
Medical Devices Specialist – Business, Projects, Product expert, Technical, Applications, Service, Support
Andrew,
A manufacturer/supplier should have full confidence in his distributor and let him decide on the sales price.
The distributor knows best of the market, competition, tenders, expenses for delivery and storage etc.
The price for a certain product can vary from one customer to the other, from one deal to another.

Andrew Wallis
Director at Innovgas Pty Ltd
Sorry Tod, medico is short for medical practitioner, doctor, MD.

Todd Staples, MBA
Account Representative, GYN at Medtronic
can you define “medico” Andrew? I don’t think I have heard that term before with regards to a career or profession.

Andrew Wallis
Director at Innovgas Pty Ltd
Hi Tzahi, we are a fledgling medical device company with, hopefully, several new products coming onto the market over the next 12-24 months.
I am a medico by profession and am trying to gain a working understanding of marketing/distribution in the medical device area.
Regards Andrew

Greg Lustig
Executive Chairman
The major national distributors work on 20- 30% margins depending on the their competition.Smaller distributors and repackagers work on whatever the market will bare which can range from 15-80% margins depending again on competitors pricing.

Steven Wray
Vice President Sales and Marketing at Micropoint Bioscience, Inc.
Andrew, I agree with many of the comments all ready scripted above. Especially Todd. With ASP. The market will settle on the ASP based on the benefit to the end-user.

A distributor may often add $ (loads) on to your suggested list to compensate for discounts, marketing programs, commission structures, and an entire host of internal costs. Many industries utilize a straight distribution cost and let the distribution partner establish an appropriate selling price point vs. a List Less supply agreement.

The value of distribution is not only AR, but the access to the distribution channel – This access is extremely expensive to build and may take years to accomplish market penetration results. With a properly designed and executed program distribution/manufacture partnerships can accomplish amazing results – It is important to realize what distributors are. Many manufactures make the mistake of saying “XYZ is distributing my product” all I have to do is keep my eye on manufacturing and supply of the product. Nothing is farther from the truth.

Tzahi Zagorski
Medical Devices Specialist – Business, Projects, Product expert, Technical, Applications, Service, Support
Good answers by Debra and the rest.
My question is why do you – Andrew – need to know that? Are a manufacturer? are you a beginner distributor?

Todd Staples, MBA
Account Representative, GYN at Medtronic
This conversation certainly has alot of opportunity to diverge into 100 different tangents, especially considering that when you say “distributor” here in the US there are probably a dozen different definitions for that. Being that your company is international, this only complicates things, so I prefer to get back to basics and simply ask, what is the ASP of this product? You already mentioned it is a consumable, so the assumption is that the cost point is fairly low and a distributor will need to make their money on volume. The next question I always ask is commodity or innovation? If you are a commodity, or even perceived as a commodity in the eye of the customer, this will greatly impact the sales channel you choose, and potentially the margin you offer as well. If there are contracts in place with GPOs or other price negotiating bodies already out there in the market, then any margin you offer distributors should be taken from these previously established minimum prices. In general, margins on consumables that are not commodities and fall into FDA Class 1 will usually range from 20-30% for distributors, at least in my experience. I am sure there are examples of some that fall outside that range, perhaps on very expensive consumables that have low sales volume.

I agree with the other comments here however that distributor selection is critical to building a channel that reflects the core value of the product and the company that produces it.

Mike Menard,MSc
Sr Director Corporate Accounts at Cooper Vision
Thanks Ted- great advice. I agree with your all your points especially about the perceived value the end user sees in the service delivered from the distributor that enables them to common a higher premium. This is a tricky situation for the manufacturer when the perceived value the distributor brings to the end user isnp wrapped inside general support they provide all manufacturer lines they distribute. Even more complicating is if they do some OEM. Food for thought on whether the distribution channel is the right choice for your product.

Edward (Ted) Reesor
Healthcare executive trying to make a change in global healthcare delivery one organization at a time.
An excellent summary by Debra. When seeking a distributor, one has to consider their strategy and product expertise which will determine their markup. Some are huge corporations that may offer your product at a low price/PM but then you become lost in their millions of SKU’s. Your product may add negligible value to their bottom line and they can’t detail the sale. Or, you could go with a company that specializes in your area, offers exceptional customer support yet commands a higher premium. At the end of the day, one has to ask if customers are willing to pay a premium for your product (and if so, how much).

One bit of advice if you are seeking a distributor: don’t mix the two as human nature demonstrates that buyers tend to use the latter company as a resource, then run off to find the lowest price with the former. What happens is your champion will drop you since they burn resources and receive no sales.

Andrew Wallis
Director at Innovgas Pty Ltd
Thanks Debra, it does.

Debra Pollock
🌎 MedCepts Independent Network↔★Top Linked ★ | ✔ 30+ Yrs Healthcare | Medical | Sales & Marketing ★ Recruiter Network
The age old question, Andrew, that doesn’t have a definitive answer. This is a question brought before me at least a dozen times a week and I’ve written endless articles relative to this topic. Bottom Line: There is no standard flat rate, standard markup, percentage or easy answer – notwithstanding, there are a multitude of considerations to assist in determining same. I’ll provide you an example of just a few, leaving room for discussion from other group members… (note: for each item listed below there are typically two perspectives to be considered – the supplier/mfg’s view and the sales partner’s view.)

Considerations by the mfg/supplier related to the sales channels (distributors/reps):
1. Size of the distributorship
2. Volume of sales, market share
3. Stocking / non-stocking
4. Exclusivity – Single / Multiple Contracted distributors
5. Sales teams/ Managed groups e.g. Are the team members direct (salary) employees, trained, managed, – does the distributor provide: supplies, lead generation, such as marketing, or is there expectations for company (mfg) assistance (See below)
6. Licensing, branding, co-branding
7. Sales (territory) Coverage / international / Regional (fees/costs incurred)

Considerations by the sales partner (distributor) related to the mfg/products:

1. Company Brand
2. Company Support
3. Marketing, lead generating, creating product demand (The average blockbuster product is backed with a marketing budget that is more than 200% higher than the average small brands – sales lower than $500 million.)
4. Market presence – Is the company or product well branded and already with strong market presence or does the product(s) mostly count on the relationships the distributors have with their customers?

Bottom Line – reward appropriately for the distributors’ efforts.

Reality: Nothing motivates sales better than an attractive reward.

I hope this helps some.