What is SRP?
SRP (Suggested Retail Price) · Also called suggested retail price, MSRP, manufacturer suggested retail price, shelf price, retail price
SRP, or suggested retail price, is the price you recommend a retailer charge shoppers for one unit. It is a planning number, not necessarily the price on the shelf or at the register.
What it is
SRP is the top line of your price waterfall. Working down from it, the retailer margin gives the retailer's buying price, and the distributor margin, if you use one, gives what you invoice the distributor.
The retailer sets the actual shelf price. It can price above or below your SRP and run promotions that change it for a few weeks. Your invoice price usually stays where you negotiated it when the shelf price moves, so the retailer's realized margin changes, not your revenue.
You usually set SRP by looking at the shelf: what comparable products cost in the same size and pack in the stores you are targeting, and where you want to sit against them. Then you check whether the waterfall from that SRP covers your costs.
Why it matters
Because the prices below are worked back from SRP, a change at the top moves the plan. With a 40% retailer margin and a 25% distributor margin, raising SRP by $0.50 raises your planned invoice price by $0.50 × 0.60 × 0.75 = $0.225. That only happens if both margins stay the same and the buyer accepts the new prices, and shoppers still have to buy at the higher price.
An SRP chosen without working the waterfall is a common way early brands end up selling at retail for little or no gross profit. It is far easier to launch at the right price than to raise it once you are on shelf.
Formula
Retailer buying price = SRP × (1 − retailer margin)
Going the other way, SRP = Retailer buying price ÷ (1 − retailer margin). Both are planning formulas: the margin is a percentage of the retailer's selling price.
Worked example
Working down from a $6.00 SRP
- Assume an SRP of $6.00, a 40% retailer margin and a 25% distributor margin on the distributor's sale to the retailer.
- Retailer buying price = $6.00 × (1 − 0.40) = $6.00 × 0.60 = $3.60.
- Your invoice to the distributor = $3.60 × (1 − 0.25) = $3.60 × 0.75 = $2.70. This is your net revenue per unit in Vaaha Unit Economics.
- At a landed COGS of $1.35, gross profit = $2.70 − $1.35 = $1.35, a 50% gross margin. Trade spend, broker commission and marketing still come out of that $1.35.
- Of the $6.00 SRP, $2.70 (45%) reaches you, and half of that goes to making the product.
Common mistakes
- Setting SRP from your costs plus a markup instead of from the shelf. Shoppers compare you with the products next to yours, not with your COGS.
- Treating SRP as your revenue. You receive your invoice price, after the retailer and distributor margins, less any allowances you agree to.
- Assuming the shelf price will match your SRP. Plan for the retailer pricing differently and for promotions.
- Using one SRP for every channel without redoing the math. Club, grocery and your own website each take a different cut, so the same SRP can work in one and lose money in another.
Common questions
- Should COGS always be one-fifth of SRP?
- No. The "Rule of 5x" is a rough screening check, not a profitability rule. Work out gross margin and contribution from the price your customer actually pays you, after allowances and your real costs.
- Is SRP the same as the shelf price?
- Not necessarily. SRP is your recommendation; the retailer decides the price shoppers pay and can change it at any time.