Margin maths for marketplaces, D2C and MLM, the same product, three economics

A brand decides its MRP once and then tries to sell the same product on a marketplace, on its own website, and through a distribution network.

And it discovers that a price which works in one channel destroys the margin in another, usually after the plates are made and the MRP is printed on the carton.

Because each channel takes its cut in a different place. The marketplace takes it after the sale. D2C takes it before, as acquisition cost. A distribution or direct-selling network takes it structurally, built into the price itself.

So this article is the arithmetic, channel by channel, with the line items in the order they actually hit you, and the one decision that has to be made before the MRP is printed.

This is orientation, not legal, regulatory or financial advice. Commission rates, tax treatment and direct-selling regulations change. Verify the current position with a competent consultant before you set prices or build a channel.

The number everything starts from

Landed cost per unit, which is not the manufacturer’s quoted price.

It is the quoted unit price, plus freight in, plus the amortised one-off costs, plates, artwork, development, stability study, spread over the quantity you actually ordered, plus the cost of money tied up in inventory for the period you expect to hold it.

That last term is the one brands omit, and it is substantial when an MOQ sits in a warehouse for eight months.

We have written separately about reading a quotation and comparing two of them. Everything below assumes you have a real landed cost rather than a quoted one.

Marketplace economics: the cut comes after the sale

And there are more line items than most people expect.

Platform commission, as a percentage of selling price, varying by category.

Fulfilment and storage, if you use the platform’s warehouse, per unit, by weight and volume band, and storage charged by time. A slow-moving SKU pays rent.

Shipping or weight-handling fees, which is why heavy, low-value products do badly here. A juice bottle carries freight cost disproportionate to its value, and this is a structural rather than a negotiable problem.

Payment gateway charges.

Advertising. And on a crowded supplement category this is not optional, an unpromoted listing on page four has no sales, so advertising is a cost of being visible, not a growth choice.

Returns and the cost of returned stock, which for supplements is often unsellable on receipt.

Platform-funded discounts and participation in sale events, where the funding is frequently partly yours.

And GST, remembering that your MRP is inclusive while your costs may not be.

The structural point: marketplace deductions scale with your selling price. Raise the price to protect margin and the commission rises with it, so the relief is partial.

What marketplaces give you in return is demand you did not have to create, which is the whole trade.

D2C economics: the cut comes before the sale

Fewer deductions, one very large cost.

You keep the commission. You pay customer acquisition cost instead.

And CAC is the number that decides whether D2C works, because unlike a commission it is not a percentage, it is an amount per customer, and it does not fall when your price falls.

The rest of the stack: payment gateway, shipping to the customer, packaging and inserts, returns and refunds, the platform or site cost, and customer support.

And the reason D2C can work at all is repeat purchase. If the customer buys once, CAC applies to one order and the maths usually fails. If they buy four times, CAC is spread over four orders and the economics invert.

Which means D2C is not a channel decision. It is a bet on repeat purchase, and the category decides whether that bet is sound before you make it.

The honest version of the test: would a satisfied customer reorder in 45 days without being advertised to again? If no, your CAC recurs on every single sale, forever.

Distribution network economics: the cut is built into the price

Here the structure is different in kind, not just in amount.

In a distributor-and-retailer chain, each level needs a margin, and those margins are a fixed share of a price you set at the top.

So the price has to be constructed from the retail end backwards: start from what the customer will pay, deduct the retailer’s margin, deduct the distributor’s margin, deduct any stockist layer, and what remains is your realisation.

And that realisation has to cover landed cost, your overhead, scheme costs, damaged and expired returns from the trade, and your own margin.

What you gain: the channel finds the customer, holds the stock, and gives you reach you could not buy.

What you lose: control of price, visibility of the end customer, and the ability to change anything quickly.

We have written separately about building a PCD network, which is the most common version of this in India.

Direct selling and MLM economics: the cut is the deepest

And this needs to be described accurately rather than either promoted or sneered at.

In a multi-level direct selling structure, the price has to support not one or two trade margins but a commission structure across several levels, plus the distributor’s own retail margin, plus the operating costs of running the network.

Which produces the single most misunderstood fact about these products: the retail price is high relative to manufacturing cost not because the product is necessarily expensive to make, but because the price is carrying a distribution system.

We have written a whole article on why MLM products are priced the way they are, because the arithmetic is genuinely interesting and widely misdescribed.

And there is a regulatory dimension that is not optional. Direct selling in India operates under specific rules, and a scheme whose returns come from recruitment rather than from product sales falls under prohibitions on pyramid and money circulation schemes. If you are manufacturing for this channel, this is a question to settle with a competent legal adviser before the first order, not a commercial detail.

The decision that has to come before the plates

And this is the practical core of the article.

MRP is printed on your pack. Channel economics differ. So you have three options and you must choose one deliberately.

One MRP that works in the deepest channel. Price for the channel with the largest built-in margin requirement, and accept that you look expensive on a marketplace. Workable if the deep channel is your primary business.

Different SKUs for different channels, different pack sizes, different counts, different presentations, each with its own MRP and its own plates. This is what most multi-channel brands actually do, and it costs plate money per variant.

Or one channel, done properly. Which is the right answer for most first-time brands and the one they least want to hear, because a brand present everywhere badly loses to a brand present in one place well.

What does not work is printing an MRP suited to a marketplace and then trying to build a distribution network on it. The margins are not there, the channel will tell you so, and the pack is already printed.

The arithmetic to do before you commit

Six calculations, on a single sheet.

Landed cost per unit, including amortised one-offs and the cost of held inventory.

For each channel, total deductions as a percentage and as an amount per unit.

Realisation per unit in each channel.

Contribution per unit, and the volume needed to cover your fixed overhead.

Repeat rate assumption, stated explicitly, because D2C viability depends entirely on it and everybody quietly assumes a flattering number.

And the inventory holding period per channel, because a distribution channel’s stock sits longer than a marketplace’s and that is working capital.

Then the question that resolves it: at the MRP you are about to print, which channels are actually available to you? Make the list before the plates.

And our own position

We manufacture for marketplace brands, D2C brands, distribution networks and direct-selling companies, so we have no channel preference to defend.

What we do have is a pattern worth passing on: the clients who struggle are rarely the ones who chose the wrong channel. They are the ones who chose an MRP before choosing a channel, and then tried to make the channel fit.

That decision happens before manufacturing starts, which is why we raise it at quotation stage rather than after.

The short version

1. Each channel takes its cut in a different place
2. Marketplaces take it after the sale, D2C before, networks structurally
3. Everything starts from landed cost, not the quoted unit price
4. Add freight in, amortised plates and development, and the cost of held stock
5. The cost of money in inventory is the term brands omit
6. Marketplace deductions: commission, fulfilment, storage, weight fees
7. Plus gateway, advertising, returns, and sale-event funding
8. A slow-moving SKU pays warehouse rent
9. Heavy low-value products fail structurally on weight fees
10. Advertising is the cost of visibility, not a growth choice
11. Deductions scale with price, so raising price gives only partial relief
12. What you get in exchange is demand you did not create
13. D2C keeps the commission and pays acquisition cost instead
14. CAC is an amount per customer, not a percentage
15. It does not fall when your price falls
16. D2C works only through repeat purchase
17. One purchase means CAC on every sale; four spreads it
18. So D2C is a bet on repeat, and the category decides it
19. Ask: would a satisfied customer reorder in 45 days unprompted?
20. Distribution prices are built backwards from the retail end
21. Deduct retailer, distributor and stockist margins to find your realisation
22. Which must also cover schemes, damages and expired trade returns
23. You gain reach and lose price control and customer visibility
24. Multi-level structures carry commissions across several levels
25. So the price is carrying a distribution system, not just a product
26. And direct selling has regulatory requirements to settle before the first order
27. A scheme paying on recruitment rather than sales falls under prohibitions
28. MRP is printed, so the channel decision comes before the plates
29. Option one: price for the deepest channel and look expensive online
30. Option two: separate SKUs per channel, at plate cost per variant
31. Option three: one channel done properly, usually right, usually resisted
32. A marketplace MRP cannot support a distribution network afterwards
33. Do six calculations on one sheet before committing
34. State the repeat rate assumption explicitly instead of assuming kindly
35. Struggling brands usually chose an MRP before choosing a channel

Related guides: supplement costing and margins, how to start a supplement brand in India, how to choose a contract manufacturer. Related reading: why MLM products are priced the way they are, building a PCD distribution network, which products actually work on quick commerce, and choosing a category you can actually win.