How to Set Up B2B Pricing Tiers
A wholesale price that allows profitable resale below your retail price will be used that way. Tier design is mostly about ensuring each level has enough margin to operate and not so much that it can undercut the level above.
Design for the Whole Stack
This guide is for supplement, Ayurvedic and herbal brand owners setting wholesale and distributor pricing in India.
Pricing tiers are often set by working down from retail with a discount at each level, chosen by what feels reasonable. The result is frequently a structure where the bottom tier can profitably sell at or below your retail price, which is an invitation rather than a risk.
The better approach is to design the whole stack at once: your landed cost, your margin, each intermediate level’s required margin, and the retail price. Then check whether any level can undercut the one above it while still making money.
If it can, the structure will produce channel conflict regardless of what your terms say, because the economics point that way.
What Each Tier Needs
Work out the required margin at each level.
| Level | What They Need Margin For |
|---|---|
| Retail or direct | Your own marketing, fulfilment and service costs |
| Online marketplace seller | Platform commission, shipping, returns and their margin |
| Retailer or stockist | Shelf space, staff, stock risk and their margin |
| Distributor | Their onward margin to retailers plus logistics and credit risk |
| Institutional or bulk buyer | Usually no onward margin; different logic applies |
The distributor level is the one most often underprovided. A distributor needs enough margin to give a retailer a workable margin and still earn their own, which means the gap between distributor and retail has to accommodate two margins.
Volume Breaks
Set them so they are earned rather than assumed.
- Base each break on a quantity that genuinely changes your cost, such as a production or packaging tier.
- Make the break conditional on the quantity actually ordered, not promised.
- Keep the number of tiers small, since complexity invites negotiation on every order.
- Avoid a break so large that the top tier can undercut lower tiers.
- Decide whether breaks apply per order or across a period, and state which.
- Review breaks when your own cost tiers change.
Preventing Undercutting
Terms help; structure helps more.
Price Structurally
If the wholesale price does not allow profitable undercutting, the problem largely does not arise.
State Permitted Channels
Explicitly, including whether online marketplaces are allowed. Ambiguity is read as permission.
Set Expectations on Retail Price
State your recommended retail price and your position on selling below it, taking professional advice on what you may require.
Record Batches by Buyer
So stock appearing in an unexpected channel can be traced to its source.
Obtain professional advice on what you may and may not require of a buyer regarding resale pricing, since there are limits on this and they vary.
What to Put in Writing
Per tier.
- The price and what it includes.
- Minimum order quantity for that tier.
- Volume break thresholds and whether they are per order or per period.
- Permitted channels, explicitly including online.
- Territory, if any.
- Payment terms and advance proportion.
- Minimum remaining shelf life you will supply.
- Returns policy, including near-expiry stock.
- Claim discipline and required use of approved materials.
- Notice period and end-of-relationship stock terms.
Checklist
Before publishing a tier structure.
- Calculate your full landed cost.
- Design the whole stack at once rather than discounting down from retail.
- Establish the margin each level needs to operate.
- Check the distributor gap accommodates two onward margins.
- Test whether any tier can profitably undercut the level above.
- Base volume breaks on your own cost tiers.
- Keep the number of tiers small.
- Make breaks conditional on quantity ordered, not promised.
- State permitted channels explicitly, including marketplaces.
- Obtain professional advice on what you may require regarding resale pricing.
- Record batch numbers by buyer.
- Put all tier terms in writing.
- Review the structure when your own costs change.
Need Accurate Costs to Build Tiers From?
Share your product and volumes and our team will quote at each tier with components itemised.
Frequently Asked Questions
What is the most common pricing structure error?
Working down from retail with a discount at each level chosen by what feels reasonable, which frequently produces a bottom tier that can profitably sell at or below your retail price. Design the whole stack at once instead.
Which tier is most often underprovided?
The distributor level. A distributor needs enough margin to give a retailer a workable margin and still earn their own, so the gap between distributor price and retail has to accommodate two onward margins rather than one.
How should volume breaks be set?
On quantities that genuinely change your own cost, such as a production or packaging tier, conditional on the quantity actually ordered rather than promised, and few enough that complexity does not invite negotiation on every order.
How do I prevent undercutting?
Structurally first: if the wholesale price does not allow profitable undercutting, the problem largely does not arise. Then state permitted channels explicitly and record batch numbers by buyer so unexpected stock can be traced.
Can I require a minimum resale price?
There are limits on what you may require, and they vary. Obtain professional advice on what you may and may not stipulate regarding resale pricing before writing it into your terms.