Shipping Prices - EU

They have to be. It's either that, or our DHL rep is lying to us about how much discount we are getting compared to other vendors. I know Amazon was losing a lot of money on Prime, which is why they started moving to take over their own shipping.

A lot of people don't realize the types of margins happening with stores/resellers like iHerb. So how it works in the B2B side of things, like with physical stores, is everything is sold through a distributor. These distributors basically control access to the stores themselves. Some of the big distributors have thousands of stores they supply. So they have a lot of power over what products get into what stores. Well these distributors generally want AT LEAST 50% margins. They honestly see that as a floor most of the time, and want higher margins than that. Those are their margins. Then the store needs margins. The stores actually operate on thinner ones than the distributors do, which is really dumb, but the distributors control the access. So they make the rules. Generally a store wants 30% or more. So let's say a product has an MSRP of $20. The physical store wants to get it for $14 from the distributor. That's a 30% margin for them. So then the distributor needs to get 50% margin off that, so the store has their margin and the distributor gets theirs. This means the manufacturer has to sell it to the distributor for $7. So the people that actually develop and make the product have to fit all development, product costs, and their own margin into that $7... Well obviously there are fixed costs for bottle, label, and labor. Let's say you are buying a million bottles at a time, are getting very good deals on labels, and you live in a low cost of living area to keep your labor costs down. Even then, your fixed packaging costs are likely $2 or more. So you are at $5 left at this point. Then you have the variable cost of the product itself inside the bottle. Let's say the cost of the product, capsule, and encapsulation are $3. So you are left with $2 in margin on a $20 product. This needs to account for all your overhead, testing, employees salary, marketing, and finally profit. Now you can see why most products in stores are lower quality. You have to keep the product costs very low to make any of the numbers work. The actual manufacturers and brands kind of get screwed. They have to make it up in volume. Any amount you can cut from that product cost goes a long way to improving your profit. So things like analytical testing, packaging, QA/QC labor, lower quality ingredients, etc. If you can shave off $1-2 from that, you are looking at big increases in your bottom line profit.

So what happens with places like iHerb is that they cut out the middle man. They get rid of the distributor model altogether, and buy directly from the brands themselves. So all that margin that would be going to the larger distributor is available to iHerb to play with. They can do sales, buy one get one free, subsidize shipping, etc. So let's say iHerb is buying that product for $7 as well. That leaves them $13 to play with, or 65%. So they can pay for a ton of advertising and affiliate commissions. They can subsidize shipping, and then use their volume to get even better deals on it. They also don't have any of the expensive overhead costs, since they don't have production facilities, labs, or R&D costs. They put everything into warehouse optimization, sales, and marketing. They also have insane automation systems. The have robot warehouse picking systems now. It's crazy! So they can reduce variable costs. They have a yearly revenue of around $1 BILLION, too. It is hard to compete with an operation like that. We have to optimize where we can, but are at the mercy of the mail carriers on pricing.