What level of price mark-up do you think is reasonable?

I know this is a very abstract question, and price of a tea is not just determined by its importing price, but also many other factors such as packaging, customer service and shopping experience a seller can provide. So for this question, I don’t expect exact answers, but rather ball-park figures.

For example, if a tea is sold in retailer market of its home country (China, Japan, India… any far, far away country) for $50 per pound, what kind of price would you think is reasonable in US retail market?

The purpose of my question – I think people’s perspectives would be very helpful for vendors to make future business decisions. For example, if the operational cost for carrying a specific tea surpass people’s expected mark up range, then probably it’s a product to give up, unless it’s very unique.

I also think with the modern communication technology, it’s ever easier for people to gain valid information, and easier for people to learn prices of tea at the source, the export/import level and wholesale level. So it’s ever more important for vendors to understand people’s price expectations.

In addition, an interesting phenomenon that I’ve noticed in high quality tea market is, lower price is not always a good thing, as many people tend to think “you get what you paid for”. So it might be tricky for vendor to put the price within a range that doesn’t appear “cheap” and doesn’t sound “greedy” either.

Would love to hear what people think about this! Thanks!

19 Replies

In marketing classes we learned that a 300% markup for most goods tends to be a reasonable starting point, then adjust as costs indicate an ability or need to go up or down. So, IMO, that’s the ballpark I expect most things to be in… so for a $50/lb tea I’d expect to pay somewhere around $9-10/oz.

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Yup 300% does seem to be the norm from what I have researched as well. Of course there are other variables too. I am sure you already know what they are for your business. Still in terms of ball park figures 300% is a good jumping off point. From there you just need to fine tune it to your circumstances.

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I admire your choice to ask this question of the community.

First off, let me say I have no formal education in retailing or in economics.

Rather than looking at this from the perspective of thinking of what the item costs you, and then consequently how much to mark it up (bottom/up) to make it worth it to you, I’d like to look at it differently (maybe it’s more of a top/down perspective). I see it more from the perspective of, what does the product fetch on the open market, and how does that compare with what are you willing to sell it for.

From my perspective as a consumer, the mark-up is not nearly as important as the bottom line. For example, I usually don’t buy tea for more than about $5/OZ (I could go into why it’s $5, but I don’t think that’s necessary here). And let’s say you offer a tea that is only marked up 50%, but it turns out it’s $12/OZ; then, to me, it doesn’t matter how much it’s marked up, as the bottom line is not within my budget. Then again, you could have a tea that you can get for $1/OZ, and you chose to mark it up 400%, which ends up being $4/OZ; well, then it falls within my budget; and then my decision to buy it depends on what other similar types of Tea I can get for about $4/OZ. And if I judge that your tea is good relative to the other teas out there, then you could have bought it for $0.50/OZ, and sell it to me for $4/OZ, and it’s still worth it to me.

For example, I really like the Frosty Spring Yunnan Roast Green you sent me recently. It’s hard to say for sure, as it’s been almost a year now, but I think I like this tea better than one of Tea Trekker’s spring greens I had from them last year ( and your price is a little better). Your mark-up on that tea vs. their mark-up on their comparable tea MAKES NO DIFFERENCE TO ME. All I know is that your spring green is better than theirs, and for a slightly better price.

I know it’s complicated, as it means you have to understand the market. Still, I certainly understand this personally from a perspective of looking for a job. What one gets paid, and can expect to get paid, is largely dependent on the market. When I look for a job I do extensive research to find out just what my qualifications are worth in the current economic conditions, and given how may others have the qualifications that I have. It’s not easy to determine that. I think it must be very similar to the retail market, based on the simple concept of supply and demand.

Now, there are other factors than just price when it comes to whether or not the consumer will buy, in this case, Tea from you; I may chose to pay a certain price for a particular tea from you even though I can get it (maybe not the same tea, but a comparable one) cheaper elsewhere because buying from you may add value in some way that buying it elsewhere does not.

What I have written next is a little philosophical, and from my own perspective on what matters to me in Life, and may seem off topic, but I still think it’s relevant here. … I think a big factor in determining the price you charge for the Tea you sell is how you answer the question, Why do I want to sell Tea? Making a profit is certainly the most common reason to sell things (and there is nothing wrong with that). Still, you may derive some satisfaction in selling Tea that goes beyond the monetary profit you gain from it. I just happen to work in a profession that is universally known for its staff members being underpaid; yet, I don’t see it that way. The rewards in doing anything—a job, or whatever—involve more than just the monetary ones. In terms of my job, I love what I do, and I see it as an honor—and sometimes even a privilege—to do it. I could do any number of other things things where I could make more money (and I have in years past), but I don’t. I don’t work those other jobs that pay more because I get so much satisfaction out of my current job.

Anyway, my two cents. I hope that helps. Take it for what it’s worth. : – )

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Azzrian said

I like and agree with everything SimpliciTea said and in addition I personally would pay a dollar or two MORE for your tea if you offered free shipping. I would place several more orders both larger and smaller. I would buy the random restock item that I go through faster – or the impulse buy, and place the big orders more often. If I was trying to decide between your place that had free shipping and only one item I needed at that moment, and another place that maybe had TWO items I wanted to try – I would go with you and probably add an extra item to try out for the first time. Shipping to me is a huge deal to have to pay too much for.

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Thanks guys for the input!

I should clarify that the reference price ($50 per pound for example) I thought of was retailer market price, and that includes mark-ups the merchants made in domestic market. So I guess eventually the mark-up of an American merchant would be based on a price lower than $50.

I have a friend who worked in a camera shop before. He said in their shop, the mark up of new camera is typically 5% -10% (but those are $1000 cameras), mark up of 2nd hand camera is about 50%, and mark up of $5 small accessories is typically 200%-800%.

For tea, I don’t have much idea what the typical or average mark up is, but I guess there is great variation, depending on business styles and fringing costs (such as warehouse cost, rent, staff, etc.).

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When I thought more of it, I realize that it’s probably quite hard to estimate the original price of a tea. Even in the domestic market – for example, in China – there could be great price difference for a tea. So I think what SimpliciTea and Azzrian said could be interpreted as the price a buyer wants to pay is more important than how much the mark up is.

I also want to tweak my original question a little and ask it from a different angle. For example, if you could obtain a tea from a far far away country for $10, and could buy it from the States for a higher price, ignoring the postage difference (sometimes the difference is not big), are you willing to pay $15, $20, $30, or more to buy it from the Stateside?

Missy said

If I was ignoring the postage price, I’d want to know about the vendor then. That is where my loyalty comes into play. If it’s a vendor I think treats me well I will get it from them even if they should carry the same tea for a bit higher than an unknown vendor.
If there was any information on the actual tea farmers I would also be more inclined to buy at a higher price. You see horror stories about production places in other places. If a tea vendor could assure me they tried to practice some thing close to fair trade and such I would be more interested. I’m not sure I totally believe fair trade certification is valid way to ensure equal treatment for the farmers. However, unless you had a trustworthy vendor that’s the only way to get close to that ideal.

Azzrian said

I agree with Missy!

Cheryl said

I think the key words that I can agree with are “a bit higher”, to buy from a stateside vendor (vs. source). And it has to be a trustworthy vendor either way. So far, my experiences are limited (just getting into unflavored teas), but I’ve bought from Teavivre, who seems to be very reasonable, compared to stateside vendors.

What made me answer your question is, a recent review for Samovar’s Hawaii-Grown Oolong. I was shocked to see a $25 for 25 gram price tag (having seen the thread about teas offered by Beautyhabit for 100g seem like a bargain). So as a person who calls her computer her “googler”, I set out to find a vendor closer to the “source”. Well, they are out there … and yes, more reasonable. So in that case, I’d seek out a closer vendor.

But in a general sense, I understand overhead and markups (accounting background) and that everybody in the chain has to make a profit. So if it were a vendor I liked/trusted, I understand a (reasonable) markup. $10 to $15 seems ok. $10 to $30 seems a bit greedy. In between, well it all depends.

Thanks guys! I agree that trust is always a determining factor!
Cheryl, I do the same as you did, always compare sources and prices in my own shopping :-)

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Azzrian said

I fear I may not be qualified to answer this yet.
For one thing the tea would have to be AMAZING.
And I am assuming you mean a tea not sold at any other vendor – is that right?
For example. I am finding that I prefer two or three tea companies at this time for pure teas (not flavored) Verdant and Rare Tea Republic and your own. However for blends, excellent quality other teas, tinsanes, etc I love joys teaspoon, 52teas and a handful of others.
So if you can get something even more special than say Verdant and Rare Tea Republic has I may consider it but spending over 15 per ounce I assume on anything is risky because “taste” is so varied from person to person. Would sample packs be offered at a price adjustment? Even though the sample pack would be more, it would be worth it. Then we go back to paying 5 or more in shipping on a tiny sample pack lol I hate it when I want one to five tiny sample packs and have to pay too much in shipping. Uggg that dreaded shipping!
Sorry I am rambling.
I had to edit because I got YOUR company and another confused Uggg I am too sick to be replying to threads – sorry.

Thanks for your input! And hope you get well better!
It makes perfect sense that some other things are sometimes more important than price, sampling and shipping are two important factors!

Azzrian said

Thank you :)

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This thread is somewhat fortuitous, as I recently made a purchase directly from a retailer in China (it has yet to ship), so I can give you my perspective in terms of the advantages and disadvantages (as it see it, anyway) of buying direct vs buying ‘stateside’.

I know you asked to ignore the postage difference, but it’s hard to ignore it in my particular comparison, because it makes a BIG difference; and in the recent purchase I made from China, if I do ignore it, than it makes my decision to purchase the tea directly from China look much more attractive than buying from you, or anyone else ‘stateside’.

Here are some of the details of my recent purchase: Including some extra fees, I paid a total of about $6 for 200 grams (7 ounces) of 2011 harvested spring green tea. I then paid about $9 for the shipping (BY FAR the least expensive option; all of the other options were about triple that). So the price per ounce before shipping is less than $1/OZ. The price after shipping is a little over $2/OZ. Now, this is a relatively small order (I am currently ‘testing the waters’, so-to-speak). If I would have bought more, the price difference (between including the shipping and not including it) may not be as great, but it would still be significant (especially with the faster, and more expensive, shipping methods).

That said, I am learning what some of the in’s and out of buying direct are (at least from a TaoBao agent).

I think whether or not to buy direct from China boils down to a couple of significant factors: time, money, a willingness to take small risks, and a willingness to endure a few hassles. In thinking about this some in light of my recent experiences, I think those that have more money than time would be better off going with tea vendors ‘stateside’. And those with more time than money—coupled with a willingness to learn about the in’s and out’s of buying direct and a willingness to take some risks—may find an advantage (in some cases, not all) in ordering direct. I happen to be one of those in the latter category.

There are many other factors involved. To me, interestingly enough, buying from TaoBao is about like buying from Teavana online (or in-store): it’s not very rewarding in that there’s no meaningful relationship being developed with them, nor do I have any real way to develop one.

Then there’s the trust issue, coupled with the language barrier. For a number of reasons, I believe what you (or any other respected tea retailers like Verdant Tea, Tea Trekker, Teavivre, etc) post about the tea you sell to be true and accurate. But, as the people I buy tea from on TaoBao are, as you say, far, far, away, they could say anything about their tea, and I have no way to verify or discount it (other than through the rating system for each seller they have—a system I don’t quite understand the significance of—which is similar to E-bay). So, you, as a stateside tea retailer, add value by being an agent I trust as you look for tea you feel is worthy of buying. When I instead buy through a Taobao agent, I feel I take shots in the dark, with the hope the risks I take uncover something worthwhile. It’s not as safe, but great rewards almost always come with risk.

And language is also a barrier when it comes to looking for more information about the tea when the details are hard to translate, and that makes it hard to look into them further. And there’s the hassles. Although things have worked out OK so far with the TaoBao agent (at this point I am waiting for them to ship my order), there have been some interesting issues that have happened along the way (I hope to list them in another thread, once this is all done). And there are lots of different steps involved in buying from them. So it involves lots of time and effort. Furthermore, it could be a month or more from the time I first saw the tea and wanted to buy it to when I actually get it. That may not be an acceptable time frame for some. If I order from you, and you have the tea in stock, it will be a matter of days, not weeks, from when I order to when I get it.

Anyway, enough for now. Although I judge this does not directly answer your question, I think these things are relevant to what you’re asking. Clearly, buying from you ‘stateside’ adds value in many ways; the question is, how much value? It’s going to take some time for me to determine the answer to that. And as each person values things differently, the answer to that question will vary dramatically from person to person. Still, I’m glad you are asking. I don’t see any TaoBao agents (or Teavana) out here asking those kinds of questions! : p

Azzrian said

And with all that said – all very interesting and worthwhile … one develops more of a respect for paying more stateside for EXCELLENT tea. The issue is most people would not know what one goes through TO get this tea, be that yourself or someone like the poster. So the “value” to me after hearing what what you have experienced thus far has went UP but for those not in the know it would not….probably.

SimpliciTea, your post covers quite a few interesting topics! I will write more when I think more of them. But here are a few things that come to my mind now.

Taobao is pretty much like the Chinese version of ebay. There are numerous sellers on it. So eventually your tea doesn’t depend on the service quality of the Taobao agent as much as on the specific seller where the tea is from. I personally think Taobao business is going to be BIG in the future (it has already changed the market structure of China a lot). Currently, due to language barrier, currency barrier (taobao can’t take foreign currency) and credibility issue (pretty much like ebay, it’s a big pool of many good and bad sellers), taobao is not very international yet. But I think it has great potential, so are many other foreign sellers, as international shopping will become easier and easier in the future. That’s also why I believe US tea sellers should strive to provide value that can match the price mark-up compared with commodities directly bought from their home countries.

As for your package, you can ask them if it’s by air or by SAL. Air mail is faster than SAL. SAL may take about a month, but sometimes it could be faster or slower. $9 for shipping is not bad. In recent years, postage in the States has increased for several times. It’s really hard to say if domestic mail will become almost as expensive as international mail – but let’s hope not! :-p

Although this thread is mainly about price mark-ups, I don’t think it’s always the case that tea from the States is much more expensive than tea in their home countries. I guess this depends on specific products, some are much more expensive, some are only slightly more expensive, and in very rare cases, not more expensive. For the “very rare cases”, those who are interested in oolong may look for the Sea Dyke (a Chinese brand specializing in oolong) products in Asian stores. I have been watching on this interesting brand. Generally speaking, its price in China is higher than its price in North America and Southeastern Asia. And this is caused by the combination of several factors.

Regarding the shipping for my current order, I chose HongKong (Singapore )Post, and the http://china-made-wholesale.com/shipping-cost page states the ‘Transit time’ is 15-25 working days. There are four shipping options: UPS, EMS, DHL, and HongKong Post. The other three are faster, but they are roughly three times as much. I don’t understand why it’s so much more, and since I am in no hurry to get it, I chose the least expensive.

Thank you for verifying what my understanding of TaoBao was. I figured, as you wrote, that the quality of the product would depend on the seller, not the agent. I am making this small purchase first just to see how it all plays out. If all goes well, I may make a larger purchase from that seller or another I am eying, this summer. I just also discovered, http://www.aliexpress.com/ They cater to small customers that want to buy from http://www.alibaba.com/ which sounds like it is similar to TaoBao. The web interface on AliExpress looks very similar to e-bay’s interface.

While I am thinking about it, one thing I really like about your web store is that you have an associated blog where you post articles about the teas you carry. Those articles tend to be very in-depth with lots of great pictures. To me, that add TONS to the experience of buying from you (and from other stores that do the same). The fact that you are active out here adds lots too; I can say the same for David at Verdant Tea, Frank at 52Teas, and Angel at Teavivre (of course there are other tea retailers who also occasionally post new discussions or add to current discussions). That’s an important way to build relationships with your customers in a way that the sellers on e-bay and Taobao can’t (or won’t) do.

I definitely look forward in hearing more of your thoughts on these topics when you have the time.

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Regarding buying from overseas vs stateside: shipping cost does very much factor for me. If I can get the same tea, say, from each but with shipping the cost to buy from overseas comes out to less, then I’m buying from overseas. I can wait the extra week or three it takes to get here, I see no benefit in buying it from a stateside retailer.

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RobFogarty said

I’m new to Steepster, but I would like to weigh in with some of my personal experiences. There is a lot of choices we have out there when it comes to the purchase of tea. I think a website like Steepster can go a long way to navigate through some of these pitfalls. The bottom line for me is going to be the perceived value of the product. This value will be made up of many factors. A rare tea will cost more money and If I want the experience, I’ll have to pay. With that understanding, I think it really comes down to what we are prepared to pay for the “experience” we are seeking. Teas are not all sourced from the same purveyor, and regardless of description, will vary greatly. If we can agree that not all teas are equal (regardless of name and description), then trust in the retailer is another major factor to consider. I would certainly pay more for a tea from a “trusted” retailer, then one I am not familiar. If you have ever burned with the purchase of a stale tin, you can relate. Another factor that plays into the experience I am looking for, is the care a company takes to package the tea properly. I for one am susceptible to the image look and professionalism a company conveys. If a company’s brand and mission aligns to my personal mission and appeals to my appreciation of look and feel, I will be more likely to buy, and will feel justified to pay a greater price. These are the things that comprise and add to the experience of a great cup of tea. Some of the ways we can manage these expectations are to pay attention to the comments and reviews of members on this site. I expect that I will find a handful of you out there that I will pay extraordinary attention to as I further explore my love of tea.

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