A buyer wants a 50% margin on your product. Your first reaction may be to question how your brand is supposed to make money when the retailer takes half the shelf price.
Before you answer, build the account economics. The retailer's percentage tells you the proposed buying price. It does not tell you whether your brand can afford the account.
The decision is whether the dollars left after supplying and supporting that business justify the inventory, cash, and work you will commit.
Start with the dollars
Take a fictional product with a $40 retail selling price. Assume the retailer buys it directly from the brand for $20, with no other adjustments to its initial product cost. Its initial gross margin is $20, or 50% of that retail price. This is a scenario assumption, not a universal requirement.
Now look at the brand's side. All figures below are hypothetical per-unit planning inputs. Costs are separate and counted once.
Wholesale invoice: $20.00
Landed product cost, including inbound freight and duty: ($11.40)
Promotional allowance, assumed 6% of invoice: ($1.20)
Outbound freight and handling: ($0.90)
Rep commission, assumed 5% of invoice: ($1.00)
Separate expected returns/deduction cost, assumed 2.5% of invoice: ($0.50)
Modeled contribution before overhead and other excluded costs: $5.00
The brand has $8.60 after landed product cost. It has $5 after the additional costs shown. Those are different numbers answering different questions.
That $5 still needs to support the business. This simplified example excludes financing, taxes, one-time setup expenses, and any other costs not listed. Accounting should confirm how the actual allowances and returns affect reported revenue and gross margin. Here, the table is a commercial decision model, not a financial statement presentation.
For clarity, $5 is 25% of the $20 gross invoice. A percentage calculated using net revenue would have a different denominator. Write the basis next to every percentage you discuss.
Looking more closely at the account
Two major retail accounts were examples where we had to study the true margin. We found that our analysis was not fully capturing the cost to serve those accounts. We were underestimating costs such as freight and chargebacks, along with the work involved in chasing late payments.
The management team shifted from EBITDA to contribution margin as the key metric for that evaluation. We raised pricing and negotiated harder on terms, including chargebacks and other fees. We also hired another accounting clerk specifically to dispute chargebacks. We saw improvement after those changes.
That experience is why I want to understand what it takes to serve an account before deciding how attractive the business is. The analysis needs to lead to decisions about pricing, terms, and the resources needed to manage the account.
What I would add today
This happened several years ago. If I were managing that work today, I would bring AI tools into the backend accounting and chargeback process.
Think about tracking marketing spend and return on ad spend, or ROAS. Knowing how much you spent and how much revenue was attributed to it is a starting point. The useful next step is understanding what drove the result and what you should change. ROAS alone does not establish profit.
I would apply that same thinking to chargebacks and account costs. I would want AI tools to help organize the records, explain recurring charges, and prepare recommendations the team can act on. Which deductions appear inconsistent with the agreement and deserve a dispute? Which valid charges point to an operating issue we need to fix? Which fees or terms should we bring into the next buyer negotiation?
Accounting would validate the evidence and recovery amounts. Operations would investigate the execution issues. Sales would take the commercial terms back to the buyer. The value I would look for is less time spent assembling reports and a clearer basis for the next decision.
I would judge the investment by time saved, accuracy, actual recoveries, and changes in recurring costs after the system's own costs. That would require testing against real records, not assuming that a recommendation is correct because AI produced it.
Ask what the account needs after the opening order
An opening order may spread fixed setup costs across too few units. A reorder may look better because some of those costs do not repeat. It may also require more promotional support than you expected.
Model those periods separately. If the first order needs an investment, name the investment and explain how the business expects to recover it. Do not hide it inside an optimistic annual average.
Then ask what could change. Suppose freight, support, and returns together cost another $1.25 per unit. Contribution falls from $5 to $3.75, a 25% reduction in the dollars remaining. The retailer's headline margin has not changed. The brand's decision may have.
The downside case should be plausible enough to influence the discussion. Use actual history where available. When the number is an estimate, label it and identify who needs to validate it.
Get the right people into the decision
Accounting should validate landed cost, allowance treatment, historical deductions, and the contribution needed to support the business. Operations should confirm freight, handling, case configuration, and the service obligations behind the quote.
The buyer needs to clarify the proposed price, support, return rights, and any other commitments. Sales needs to understand which parts of that package are negotiable and what the brand receives in return.
Leadership then has to make the call. A spreadsheet can show the consequences of a proposed deal. It cannot decide how much risk the business can accept or whether this opportunity deserves priority over another use of the same inventory and cash.
Negotiate the economics you can change
If the account falls below your internal requirement, identify the cause before asking for a concession. You might need a different wholesale price, a different product or pack, a narrower launch, more efficient freight, or a defined limit on promotional support.
Each option has a consequence. A smaller launch may reduce exposure while making freight less efficient. A lower-cost pack may require development work. A higher shelf price needs to remain credible to the shopper and buyer.
The recommendation should say what you would change, why it helps, and what would need to be true for the revised deal to work. If the account still cannot meet the brand's requirements, declining or postponing it is a commercial decision worth considering.
Put a condition on the yes
In this example, the $5 base contribution alone is not enough information to approve the account. I would want the team to confirm the omitted costs, the downside assumptions, the cash required, and the internal return requirement before committing.
That creates a useful answer for the buyer: here is the assortment and support package we can supply, here are the conditions behind it, and here is the alternative if the initial proposal does not work.
Run your assumptions through the Retail Margin Waterfall. If you need help connecting the account terms, operating requirements, and cash commitments, bring them to a Retail Readiness Review.