Hello, this is Brandtribe. In today’s newsletter, we’re discussing retail versus e-commerce margins, and where the money actually goes in each channel.
Many founders compare channels by revenue. Online brings in $100 a unit, and a retailer brings in $50. So online must be twice as good.
Not so fast. Revenue isn’t profit, and each channel takes its cut in a different place.
A quick note before we start. By “retail,” we mean selling your products through other stores at wholesale prices. Running your own stores adds rent and staffing, which is a different calculation.
Same Product, Two Different Prices
Online, you sell at full price to the customer. In wholesale, you sell to a retailer at a discount, and the retailer sets the shelf price.
Retailers often buy at around half of the shelf price, though the split varies by category and by deal. That gap is how the store pays for its space, staff, and profit.
So a unit that earns you $100 online may earn you $50 from a retailer. The question is what each dollar costs you to get.
Where the Money Goes Online
E-commerce gives you the full price, but it also hands you the bills a retailer would otherwise cover.
Customer acquisition. Ads, influencers, and promotions to get people to your site. This is usually the biggest cost.
Shipping and packaging. You pay to send one order at a time, often with free shipping built in.
Payment and platform fees. Card processing, your store software, and your apps.
Returns and discounts. Online shoppers return more and expect promo codes.
The margin looks big at the top. A lot of it leaves before you see it.
Where the Money Goes in Retail
Wholesale gives you a smaller price per unit, but it removes some of the costs above.
The retailer’s share. You give up the gap between your price and the shelf price.
Promotions and markdowns. Retailers often expect you to fund sales, ads in their flyers, or price support when products don’t sell.
Chargebacks and compliance fees. Late shipments or labeling mistakes can lead to deductions.
Payment terms. Retailers often pay weeks after delivery, so your cash waits.
Sales and account costs. Reps, trade shows, samples, and the time to manage buyers.
You skip most customer acquisition costs, since the store brings the shoppers. But you pay in other ways.
A Worked Example (With Made-Up Numbers)
Take a product with a $100 shelf price and a $30 cost to make. These figures are illustrative, and yours will differ.
Online: You collect $100. Subtract $30 for the product, $10 for shipping and fulfillment, $3 for payment fees, $25 for acquiring the customer, $5 for returns and discounts, and $3 for software and apps. You keep about $24.
Wholesale: You collect $50. Subtract $30 for the product, $2 for shipping in bulk, $4 for promotions and deductions, and $3 for sales and account costs. You keep about $11.
Online earns more per unit in this example. But the wholesale order may be hundreds of units at once, with no ad spend needed to get it.
Margin Isn’t the Whole Story
Looking only at profit per unit misses several things.
Volume. A retailer can move far more units than your site can reach on its own.
Cash flow. Wholesale orders are big, but payment comes late. Online pays you almost immediately, though you fund the ads first.
Customer data. Online, you own the customer relationship. In retail, the store does.
Risk. Retailers can cut orders, return stock, or drop you after one slow season. Online costs can climb if ad prices rise.
Neither channel is safer. They carry different risks.
Check Your Own Numbers
Build a simple profit sheet for each channel. List every cost per unit, from production to returns to deductions. Then calculate the profit per unit and the profit per order.
Include the cost of cash tied up while you wait for payment, and the cost of the extra stock you’d need to carry. Many brands find that one channel quietly earns far less than they assumed.
If you can’t fill in a number, that’s a sign you need better tracking.
Final Thought
Online usually offers the higher margin per unit, with more control and more cost to win each customer. Retail offers less per unit, with reach and volume that are hard to build alone. Most strong brands use both on purpose, and they know what each channel really earns.
Don’t ask which channel has the bigger margin. Ask which one gives you the most profit you can actually keep.