A pricing ladder starts at the shelf price and works backward through the retailer's margin, the distributor's margin, freight, and taxes to your FOB price, then subtracts federal excise tax and cost of goods. If the result doesn't support your marketing and overhead, change the price tier or the cost structure before launch.
The terms you need
- FOB price: what the distributor pays you per case, before freight.
- Laid-in cost: the distributor's total cost per case, including freight and state taxes.
- Wholesale (frontline) price: what the distributor charges retailers.
- Shelf or menu price: what the consumer pays.
- Margin vs. markup: margin is a share of the selling price; markup is a share of cost. To price from a target margin, divide cost by (1 − margin).
Work backward from the shelf
Start with the shelf price your positioning requires, because that's where consumers compare you. Then:
- Retailer margin: shelf price × (1 − retailer margin) = wholesale price per bottle.
- Distributor margin: wholesale price per case × (1 − distributor margin) = laid-in cost per case.
- Freight and state tax: laid-in cost − freight − state excise tax = your FOB price per case.
- Federal excise tax: FOB − federal excise tax = your net revenue per case.
- Cost of goods: net revenue − cost of goods = gross profit per case, before marketing, programming, and overhead.
A worked example
The assumptions below are illustrative only. Margins, freight, and taxes vary by state, distributor, channel, and price tier, so replace them with your real numbers.
Assumptions: 750 ml bottle at 80 proof, 12 bottles per case, $34.99 shelf price, 30% retailer margin, 28% distributor margin, $8.00 freight per case, $5.00 per gallon state excise, federal excise at TTB's reduced rate of $2.70 per proof gallon, and $7.50 cost of goods per bottle.
| Step | Per case | Per bottle |
|---|---|---|
| Shelf price | $419.88 | $34.99 |
| Wholesale price (after 30% retailer margin) | $293.92 | $24.49 |
| Laid-in cost (after 28% distributor margin) | $211.62 | $17.64 |
| Less freight | −$8.00 | |
| Less state excise (2.38 gal × $5.00) | −$11.89 | |
| FOB price to distributor | $191.73 | $15.98 |
| Less federal excise (1.90 proof gal × $2.70) | −$5.14 | |
| Net revenue | $186.60 | $15.55 |
| Less cost of goods | −$90.00 | −$7.50 |
| Gross profit before marketing and overhead | $96.60 | $8.05 |
Two things stand out. First, the brand keeps well under half of the shelf price. Second, the federal rate matters: at the general rate of $13.50 per proof gallon, federal excise on the same case would be $25.68 instead of $5.14. See the TTB's current rates for which rate applies to you.
Pricing ladder calculator
Change the inputs to model your own brand. Results update as you type.
- Wholesale price per bottle
- Laid-in cost per case
- FOB price per case
- FOB price per bottle
- Federal excise per case
- Net revenue per case
- Gross profit per case
- Gross margin on net revenue
For planning only. Confirm taxes and margins for each state and distributor.
Control states and on-premise pricing
In control states, you typically quote a price to the state, and the state applies its own markup formula to set the shelf price. Build those formulas into your ladder market by market.
On-premise accounts think in cost per drink, or pour cost, rather than shelf price. Check that your wholesale price lets a bar hit its drink price targets for the cocktails you want to be in.
Finally, remember programming. Depletion allowances, discounts, and incentives come out of your revenue too. Destino builds full pricing models as part of go-to-market strategy and spirits brand consulting.
Common questions
What's the difference between margin and markup?
Margin is profit as a share of the selling price; markup is profit as a share of cost. A 30% margin on a $10 cost means a selling price of $10 ÷ 0.70 = $14.29, which is a 42.9% markup.
Which federal excise rate applies to my spirits?
The TTB publishes a reduced rate for the first 100,000 proof gallons a qualifying producer or electing importer removes in a calendar year, and a general rate above that or for spirits that don't qualify. Check TTB's current tax rate table and confirm eligibility with your compliance advisor.