Building a distributor price ladder in Europe

A European distributor reads a manufacturer’s ex-works price from the shelf backwards. It starts from what a consumer will pay and takes off VAT, the retailer’s margin and its own margin. Then it takes off the cost of bringing the goods in. If what remains is below the ex-works price, the product does not fit that market, however good it is.

A price ladder sets out that arithmetic, rung by rung, before the first quote. It shows where duty, VAT and logistics sit, and how much room each margin has. Run backwards, it shows the highest ex-works price a target shelf price can carry.

The five rungs from factory gate to shelf

A ladder for a consumer product sold through a distributor and a retailer has five rungs.

1. Ex-works price. What the manufacturer charges at its own premises, before any freight.
2. Landed cost. Ex-works plus freight and insurance to the EU, customs duty, clearance and transport to the warehouse.
3. Price to the distributor. Landed cost plus storage and delivery to the distributor’s dock, where the brand carries those costs.
4. Price to the retailer. The distributor’s buying price plus the distributor’s margin.
5. Shelf price. The retailer’s buying price plus its margin, plus VAT at the rate of the country where the consumer buys.

Which party pays for each rung depends on the delivery term in the contract. The ICC’s Incoterms rules are eleven three-letter trade terms that allocate costs, risks and obligations between buyer and seller. The rungs stay the same whichever term is used; only the payer changes. The two delivered terms are compared in DAP or DDP for shipments into the EU.

One definition needs settling with every buyer. In this article a margin is a share of the selling price, and a mark-up is a share of cost. A 30 percent margin on the selling price equals a mark-up of about 43 percent on cost. Mixing the two understates every price above that rung.

Landed cost starts from the customs value

Duty is calculated on the customs value. Luxembourg’s government logistics portal states that the customs value is the basis for customs duties. It is also the basis for import VAT, subject to some adjustments. Insurance, transport, handling and loading costs up to the point of entry into the EU customs territory are added to the transaction value. Those costs after the point of entry are left out.

What goes in and what stays out is set out in customs value: what goes in and what stays out. For the ladder, landed cost is the ex-works price, freight and insurance to the EU border, duty, clearance and transport to the warehouse. The duty rate depends on the product’s tariff classification and its origin. A wrong classification moves this rung, so it is settled first, as covered in HS codes and Binding Tariff Information.

Import VAT is cash flow and duty is cost

Import VAT is calculated on a wider base. Spain’s tax agency sets it out in its VAT manual. The taxable base is the customs value plus taxes, duties and other charges due on importation, except the VAT itself. Incidental costs such as packaging, transport and insurance up to the first place of destination in the EU are added too.

For an importer that is VAT-registered and entitled to deduct, import VAT is not a rung of the ladder. The European Commission describes VAT as a consumption tax borne ultimately by the final consumer. A registered trader deducts the VAT it paid from the VAT it collected. Import VAT ties up cash until it is recovered. Some countries let it be declared in the VAT return instead, as set out in postponed accounting for import VAT.

Duty is different. It is not VAT and is not recovered through the VAT return. It stays in the cost of the goods, and every margin above it is calculated on it.

Between businesses, VAT passes along the chain. A seller generally charges no VAT on goods shipped to a business in another EU country with a valid EU VAT number. Exceptions apply. Inside one country, VAT is charged and the registered buyer deducts it. VAT becomes part of the price only at the shelf, at the consumer’s rate.

Distributor and retailer margins depend on the channel

There is no single European margin. A distributor’s margin pays for holding stock, giving credit, a sales team and delivery to its customers. A retailer’s margin pays for the shelf. Margins differ by sector, channel and country. The figure to build on is the one a specific buyer confirms.

Two further costs sit inside those margins or beside them. In food, retail chains may ask suppliers to pay for stocking, display, listing, promotion or marketing. The EU rules on unfair trading practices protect agri-food suppliers with a turnover of up to EUR 350 million. Under them, those payments are allowed only if agreed beforehand in a clear and unambiguous manner.

Payment terms are the second cost. Under the Late Payment Directive, businesses pay within 60 days unless they expressly agree otherwise, provided the term is not grossly unfair. Until the invoice is paid, the seller finances the goods.

The same net price gives different shelf prices

Each EU country sets its own standard VAT rate, and that rate cannot be less than 15 percent. On the Your Europe list last checked on 13 July 2026, Luxembourg applies 17 percent and Germany 19 percent. France applies 20 percent, Spain 21 percent, Portugal 23 percent and Hungary 27 percent. A retail net price of 10.00 euros becomes 11.70 at a Luxembourg shelf and 12.70 at a Hungarian one.

Underlying price levels differ more than VAT does. Eurostat’s comparison for 2025, published on 18 June 2026, puts household consumption prices in Denmark at 140 percent of the EU average. Bulgaria sits at 63 percent. Food and non-alcoholic beverages varied least, from 80 percent in Romania to 122 percent in Luxembourg.

A single European price list leaves a distributor in one country with no margin and one in another with too much. Choosing where to start is covered in one European market first, or all at once?.

A worked ladder with assumed figures

All inputs below are assumed, for the arithmetic only. They are not market norms, quotes or EFC prices. The VAT rates are the real standard rates listed above. The duty rate is an assumed 4 percent, and amounts are per unit in euros.

Rung	Per unit	How it is reached
Ex-works price	10.00	Assumed
Freight and insurance to the EU port	0.80	Assumed
Customs value	10.80	Ex-works plus freight and insurance to the point of entry
Duty at an assumed 4 percent	0.43	4 percent of 10.80
Clearance and haulage to the warehouse	0.30	Assumed
Landed cost in the EU warehouse	11.53	Sum of the rows above
Storage, picking and delivery to the distributor	0.40	Assumed
Price to the distributor, at cost	11.93	Landed cost plus EU logistics
Distributor’s selling price, 30 percent margin	17.04	11.93 divided by 0.70
Retailer’s net price, 40 percent margin	28.40	17.04 divided by 0.60
Shelf price in Germany, VAT 19 percent	33.80	28.40 times 1.19
Shelf price in Portugal, VAT 23 percent	34.93	28.40 times 1.23
Shelf price in Hungary, VAT 27 percent	36.07	28.40 times 1.27

In this ladder the German shelf price is about 3.4 times the ex-works price. Each euro added at the factory adds about 2.95 euros at the German shelf, because duty, both margins and VAT compound on it. The brand earns no margin on its EU costs here. A brand that adds one raises every rung above it.

The ladder also runs backwards. Suppose the target shelf price in Germany is 29.99 euros. Taking off VAT at 19 percent gives a retailer’s net price of 25.20. With a 40 percent retailer margin, the distributor sells at 15.12. With a 30 percent distributor margin, the distributor buys at 10.58.

Take off 0.40 for EU logistics and 0.30 for clearance and haulage, and 9.88 remains. Removing the 4 percent duty leaves a customs value of 9.50. Taking off 0.80 for freight leaves an ex-works ceiling of 8.70. A manufacturer quoting 10.00 ex-works into that shelf position is 1.30 euros above what the ladder can carry.

Who sets the shelf price under EU law

The ladder ends in a recommended shelf price, not a fixed one. Under Article 4(a) of Regulation (EU) 2022/720, restricting a buyer’s ability to determine its own sale price is a hardcore restriction. A supplier may impose a maximum sale price or recommend one. Pressure or incentives must not turn either into a fixed or minimum price. What else a brand may and may not restrict is in exclusive distribution in the EU: what a brand may restrict.

How EFC handles the price ladder in market work

EFC is a Portuguese company that arranges customs clearance and handles VAT, warehousing and fulfillment inside the EU for brands from outside the EU. In its business development work, a price ladder is built for each target market before any distributor is approached. It draws on the market research for that market and is checked against what buyers confirm. Outreach and follow-up to distributors and retail chains then run on that ladder.

The lower rungs come from the operating side: customs clearance, storage and delivery to the distributor’s dock. They depend on the client’s actual goods. The goods are imported under the client’s own EU VAT and EORI numbers, or EFC’s operation provides the importer of record where needed (not for medical devices). The client sets its own prices and signs its own contracts. EFC does not buy or sell the goods.

What the ladder cannot tell you

A ladder is arithmetic, not a forecast. Duty rates depend on classification and origin, VAT rates change, and each buyer sets its own margin. This article is not tax or customs advice. The rates for a specific product come from the tariff and from advisers in the market concerned.

A ladder that works removes one reason to say no. The reason to say yes is still the product, the price and the fit.

Sources

Label	Value	Source
Incoterms rules	eleven three-letter trade terms that allocate costs, risks and obligations between buyer and seller	ICC, Incoterms 2020, opened 2026-10-19
Customs value	basis for customs duties and, subject to some adjustments, import VAT; insurance, transport, handling and loading up to the point of entry added; such costs after the point of entry deducted	Luxembourg government logistics portal, customs value, opened 2026-10-19
Import VAT taxable base	customs value plus taxes, duties and charges due on importation except VAT, plus incidental costs including packaging, transport and insurance to the first place of destination in the EU	Agencia Tributaria, VAT manual 2025, taxable base on imports, opened 2026-10-19
How VAT works	borne ultimately by the final consumer; a registered trader deducts VAT paid from VAT collected	European Commission, how does VAT work, opened 2026-10-19
Sale to a business in another EU country	no VAT charged if the customer has a valid EU VAT number	Your Europe, cross-border VAT, opened 2026-10-19
Supplier payments to food retailers	payments for stocking, display, listing, promotion and marketing allowed only if agreed beforehand in a clear and unambiguous manner; protects suppliers with annual turnover up to EUR 350 million	European Commission, DG Agriculture, unfair trading practices, opened 2026-10-19
Payment terms between businesses	within 60 days unless expressly agreed otherwise, provided not grossly unfair	European Commission, late payment, opened 2026-10-19
Standard VAT rates	minimum 15 percent; Luxembourg 17, Germany 19, France 20, Spain 21, Portugal 23, Hungary 27 percent; page last checked 13/07/2026	Your Europe, VAT rules and rates, opened 2026-10-19
Price levels, 2025	household consumption: Denmark 140 percent, Bulgaria 63 percent of the EU average; food and non-alcoholic beverages: Romania 80 percent, Luxembourg 122 percent	Eurostat, household consumption price levels across the EU in 2025, 18 June 2026, opened 2026-10-19
Resale prices	restricting the buyer’s ability to determine its sale price is hardcore; maximum and recommended prices allowed unless they amount to a fixed or minimum price through pressure or incentives (Article 4(a))	Regulation (EU) 2022/720, official text, Publications Office of the EU, opened 2026-10-19