"We're a sports brand doing about £1.5m direct to consumer. A distributor has come to us wanting our range wholesale, but their terms are half off our retail price and sixty day payment. My instinct says that kills the margin. My gut says the volume is worth it. Which one is right?"
Neither is right as stated, because the question is being asked in the wrong currency. Wholesale does not halve your margin, it buys something with it: certainty, volume you do not have to advertise for, and shelf presence in someone else's customer base. Whether that trade is worth it is a number you can calculate before you negotiate. On the illustrative model below, a £12.50 trade price leaves about £1.35 less contribution per unit than a direct sale, and what you get in exchange is the consumer marketing spend you avoid on those units, plus an order size that does not need a single extra consumer impression to sell. Run the comparison properly and you will know your floor before you sit down with them.
Everything below is an illustrative example with synthetic planning numbers, not any client's books. Steal the method, then swap in your own data.
Here's the Short Version
- Compare channels on contribution per unit and cash per unit, never on headline margin. A direct sale carries marketing, fulfilment, fees and returns inside it; a wholesale sale carries almost none of those, but pays a lower price and pays late
- On the illustrative product, a direct sale delivers about £5.25 of contribution after a £6 blended marketing cost, and the wholesale sale delivers about £4.40 with no consumer marketing spend in this worked model
- Work the floor backwards from contribution, not forwards from the retail price. On this product, any trade price below about £13.90 a unit gives up contribution versus the direct channel
- Cash is the hidden line in the comparison. A wholesale invoice on sixty day terms means you fund the stock until payment arrives, including any production and delivery time before the credit period begins. If the buyer pays late, statutory interest normally starts on the first late day at 8 percentage points above the applicable Bank of England reference rate, unless the contract provides a different substantial remedy
- Read every term like a cost: sale or return clauses, markdown support, settlement discounts, listing fees and exclusivity each move the effective price. The contract can reduce the effective price below the figure shown on the price list
- Report margin by channel from day one: wholesale and D2C are two different businesses sharing a warehouse, and one can quietly subsidise the other for a year before anyone notices
- Sale or return has an accounting and VAT timetable of its own: goods stay yours until the retailer adopts them, and the tax point rules catch stock left unresolved for too long
Two Channels, Two Different Businesses
Direct to consumer is a customer acquisition business. You buy attention, convert it into orders, and pay the costs of serving each order yourself: platform commissions, card fees, fulfilment, returns, and the marketing that made the sale happen. The price is full retail because you are doing all the work and taking all the risk.
Wholesale is a distribution business. The retailer owns the customer, the storefront, the marketing and most of the risk, and in exchange you sell to them at a price that lets them run their own margin. You get certainty of volume, reach you could not buy at your current ad budget, and you avoid the direct channel's consumer acquisition spend on those units, although wholesale can still carry its own sales and account-acquisition costs. What you give up is the retail margin on those units, and a chunk of control: over pricing in the market, over presentation, and over how much of the customer relationship you ever get to see.
Neither is the right answer in general. The right answer for a specific sports brand on a specific product line is arithmetic, and it starts with the per unit comparison.
The Per-Unit Comparison
Same product, same landed cost, two routes to the customer. The product is an illustrative training top with a £30 retail price including VAT, which is £25 net of VAT in your accounts, with a landed cost of £8. The direct column carries the costs of selling direct; the wholesale column sells at a trade price of £13 net, which is roughly half of the direct net price, and carries almost none of them.
One convention before the table: the direct column assumes TikTok Shop UK's standard 9% commission, including VAT, with no shipping charge, discount or refund in the fee base. On a £30 customer payment, the commission is £2.70 including VAT and £2.25 after reclaiming the VAT on the fee.
| Line, per unit sold | Direct to consumer | Wholesale |
|---|---|---|
| Revenue in your accounts (net of VAT) | £25.00 | £13.00 |
| TikTok Shop commission, net of recoverable VAT | -£2.25 | £0.00 |
| Picking, packing and carriage | -£3.00 | -£0.60 |
| Marketing (blended cost per order) | -£6.00 | £0.00 |
| Returns provision | -£0.50 | £0.00 on firm sale terms |
| Landed cost of the product | -£8.00 | -£8.00 |
| Contribution per unit | £5.25 | £4.40 |
Read the two bottom lines together and the trade becomes visible. Wholesale is about 85p worse per unit at £13, even though the sticker gap looks much larger. The direct sale earns £5.25 after a £6 marketing cost, and that £6 is the part that does not scale forever. A wholesale order of 300 units earns about £1,320 of contribution with no consumer ad spend in this illustrative model and one delivery address. The question stops being "which price is better" and becomes "what do I want to buy with the difference": reach and certainty, or customer relationship and price control.
The Floor: What Discount Leaves You Nothing
Now work the floor, and do it before the negotiation, because this is the number the meeting will test. To match the direct sale's £5.25 of contribution on this product, the trade price needs to cover the same contribution, the reduced fulfilment, and the landed cost: £5.25 plus £0.60 plus £8.00, which is £13.85, or about £13.90 a unit. That is your parity price. Every pound below it, multiplied across the year's units, is the price of buying into wholesale.
Put the retailer's ask against it. At £13.00 you are handing over about 85p per unit versus direct parity. At £12.50, the rounder "half of net" version, it is about £1.35. On 5,000 wholesale units a year that is roughly £6,750 of contribution buying you a stockist relationship, reach into a new audience, and volume certainty. That can be a perfectly good purchase. It is a bad purchase when you pay it without noticing, and worse when it happens on every unit you ever sell because the first price list set the discount forever.
Three rules keep the floor intact. First, build the trade price list from contribution arithmetic per line, not as a blanket percentage off retail; a low-cost accessory and a high-cost shoe cannot carry the same discount. Second, price the ladder deliberately: trade, distributor, key account, each rung with its own justification and its own margin floor. Third, never let the wholesale price be decided by the loudest buyer, because the first big account's terms become your market's terms.
The Cash Cycle Is A Second Price
Money moves on different clocks in the two channels, and the difference is worth real money.
| Cash point | Direct to consumer | Wholesale |
|---|---|---|
| Who pays first | The customer, at checkout | You buy and deliver the stock first; they pay later |
| How fast the cash lands | Platform-specific: Shopify Payments starts at three business days plus bank processing, and TikTok settlement can be one, three, eight or 31 days after delivery, plus bank processing | Invoice terms, commonly 30 to 60 days, sometimes longer for large accounts |
| What you are funding in between | Inventory, marketing and fulfilment until the platform payout reaches the bank | The landed stock from supplier payment through delivery and the agreed customer credit period |
| If they pay late | Platform handles it | Statutory interest normally starts on the first late day at 8 percentage points above the applicable Bank of England reference rate, unless the contract provides a different substantial remedy |
Two things fall out of that table. First, a wholesale order's true cost includes financing the stock you sold them from the moment your supplier is paid until their payment lands: on a £3,900 order (300 units at £13), that money being elsewhere has a real cost that belongs in the channel's margin line, not in a shrug. Second, credit risk is now yours. Run a credit check before the first order, set a credit limit per account, and keep selling on pro forma terms until they have a payment history. If the worst happens, remember two mechanics. VAT bad debt relief may let you reclaim the VAT once you have accounted for and paid it, written the debt off in your VAT records, and the debt has remained unpaid for six months after the later of the due date and supply date, claimable within four years and six months of that later date. And statutory late payment interest normally starts on the first late day, at 8 percentage points above the applicable Bank of England reference rate. Being owed it and collecting it from a struggling customer are different things.
The Terms Are Where The Real Price Hides
The price list says £13. The contract decides what you actually collect. Five clauses move more money than most founders expect.
Sale or return. If unsold stock can come back, the retailer's risk is your risk, and the effective price drops again. It also has a VAT timetable of its own: if the retailer adopts the goods earlier, that is the basic tax point; otherwise, the basic tax point is the expiry of an agreed adoption period of twelve months or less, or twelve months after dispatch if no limit is set or the agreed limit runs longer. An earlier VAT invoice can override that basic tax point. For accounting, keep genuine consignment stock in inventory and do not recognise revenue on delivery; recognise revenue when control passes under the contract.
Settlement discounts. "2% for payment within 10 days" sounds like encouragement. On a 4% contribution margin it is half your profit, gone to speed up cash you have already financed. Price it as a financing decision, not a courtesy.
Markdown support and returns of unsold lines. Retailers commonly ask for help clearing stock that did not sell. Whether you fund markdowns or absorb returns of end of season kit, both are price reductions with paperwork. Cap them in the terms as a percentage, and track them against the account's margin monthly.
Listing fees and promotional contributions. These reduce the account's economics, but their accounting depends on what you receive. A payment to the retailer normally reduces revenue unless it buys a distinct good or service. If it buys a genuine service delivered over a stated period, recognise that cost over the period in which the service is received. If the account is annual, the fee affects the annual economics, not one month's numbers in isolation.
Exclusivity. Exclusive rights to a channel or a region tie your hands, so they should be paid for in volume commitments, minimum order quantities, or a shorter term. Free exclusivity is how a brand gets locked out of its own growth.
The reporting discipline that keeps all of this honest is simple: margin by channel, on its own P&L line, including the financing cost of the terms and the correct accounting for account fees, reviewed monthly. Without it, wholesale's true contribution hides inside the direct channel's tidy numbers, and you find out two years later which one was actually funding which.
FAQ
Is wholesale more profitable than D2C?
Per unit, usually not; on this illustrative product the direct sale delivers about £5.25 of contribution against £4.40 wholesale. Wholesale wins when it brings volume you could not acquire profitably through ads, when it covers fixed costs that D2C alone cannot, and when the cash cycle is managed with credit limits and terms. It loses when the discount goes below your contribution floor or the terms hand back the difference through markdowns and returns.
What wholesale discount should I offer?
Work backwards from contribution parity, per line. On the illustrative product, about 44.6% off the net retail equivalent, rounded to 45%, is the parity point against direct contribution. A 50% ask sits below it and needs a reason beyond margin: volume certainty, reach, or fixed-cost cover. Never set a blanket percentage across the range; a high-cost shoe and a low-cost accessory cannot carry the same discount.
How do I account for sale or return stock?
Keep genuine consignment stock in inventory and do not recognise revenue on delivery. Recognise revenue when control passes under the contract, such as when the retailer adopts or sells the goods or its return right expires. For VAT, an earlier adoption or VAT invoice produces an earlier tax point; otherwise the basic tax point is the expiry of an agreed period of twelve months or less, or twelve months after dispatch if no limit is set or the agreed limit runs longer.
The Bottom Line
Structure the two channels like the two businesses they are. Compare contribution per unit, not headline price. Set the trade price list from a per-line contribution floor, and treat every term, settlement discounts, markdowns, listing fees and exclusivity, as part of the price. Fund the cash cycle consciously and protect it with credit limits, because the stock you sold on sixty day terms is your money until it is not. Then judge the channel like a business: contribution after everything, by account, monthly. Wholesale is not a margin problem. It is a margin trade, and the founders who win at it are the ones who know exactly what they paid.
If you want your wholesale price list, terms and channel margins built from real contribution maths, that is our daily work for UK sports brands between £1m and £20m. We are specialist social commerce accountants, we look at trade terms and channel P&Ls every week, and we will tell you plainly which accounts earn their keep. Book a call and bring your price list, your terms and your last year of sales by channel.