Camera Sale: Who Takes The Biggest Cut? Manufacturer, Distributor, Integrator?

Let's say the cost per unit to manufacture a camera is $50 but ultimately sells for $550 (product only), to an end user, leaving $500 of total markup to split between channel partners. How does it get divvied up typically? Who gets the red biggest piece?

For arguments sake, let's assume a tightly controlled channel consisting of manufacturer to distributor to dealer to end user.


Lets say COGS for manufacturer equals 100 'units'

Gross margin for manufacturer typically is ~50%, ergo cost for distributor equals 200 'units' (i.e. manufacturer sells it for 200, made it for 100).

Markup for distributor typically is ~15%, ergo distributor markups up 30 'units', sells for 230 'units' to integrator / dealer.

Markup for integrator / dealer to end user is ~35%, ergo integrator marks up 80 units, sells for 315 'units'.

So:

  • 100 to manufacturer
  • 200 to distributor
  • 230 to integrator / dealer
  • 315 for end user

These are averages and there is a wide distribution depending on the strength of the manufacturer, the size of the customer, etc.

In the old days, this used to be much much higher. I can recall a time when 100% markups on cameras and DVRs were commonplace (e.g., 230 to integrator, 460 to end user).

Thanks. What would an OEM's markup be selling to a 'manufacturer'?

Is the distributor usually an optional channel partner or obligatory one?

Thanks. What would an OEM's markup be selling to a 'manufacturer'?

Good question. In my experience, the OEM would be charging the manufacturer ~80units.

This can be a bit tricky though, and you could break this stage down to another 3 or 4 layers. Let's say a camera has an image sensor, a DSP, 500 resistors, 500 capacitors, Ethernet/PoE magnetics, and other components. In some cases the OEM will sell all of that stuff to the "manufacturer" in the form of the finished good. In other cases the manufacturer actually sources all those resistors and capacitors and whatnot from electronics distributors (Digikey, et al) and sends them to the OEM for assembly into the finished good. So that 100unit BOM might be 50units to the OEM, 40units to Digikey, 10units to Ambarella (or whatever). Some of that can change based on volumes. Digikey has their own markups, but at some point you might buy direct from some of the component manufacturers themselves.

Cases are another variable scneario. Sometimes you can modify an existing case to customize it for your needs. But more commonly, you have a tool/mold made for your own injection-molded stuff. That can be 20,000-50,000 "units", so the more finished cameras you sell, the more that cost is spread across things. There is also stuff like UL testing and so forth that the manufacturer bears.

What a lot of this adds up to, is that the manufacturer may have the biggest margin by far, but they have a lot more up front costs vs. the other players. I realize that EVERY business has overhead (office/warehouse space, etc.), which the manufacturer ALSO has on top of the other costs.

Is the distributor usually an optional channel partner or obligatory one?

Distributor is totally optional. However, if you don't use a distributor, you're probably paying a 3PL firm to store and ship product, or you're paying extra people to run your own warehouse. Not to mention the credit aspect. The distributor is going to pay you pretty you pretty regularly in 45 days, but the average integrator wants to pay 90+ days out on average if you don't have some extra AR people to stay on top of things.

The thing to keep in mind with distributors is that they are basically a trade-off for internal costs. You can pay a few points to a distributor to be your warehouse and credit department, or you can do that in-house. Distributors like to market themselves as a way to increase your sales, but this is becoming increasingly less common, unless you pay additional marketing fees to get highlight placement in catalogs and email blasts. There is also the somewhat harder to measure cost of having product at too many distributors, as you'll typically want to have inventory at all of them. So, if you have 5 distributors, each with 200 Widgets on hand, that's 1000 Widgets you have spread around. If a dealer wants to order 250 Widgets at once, now you're having to pull inventory from one to send to another and so forth. Not to get too far off topic, but this is one of the reasons manufacturers will offer product registration discounts, they want to know about big projects coming down the pipe, who is going to win the deal, and where they are going to buy from to make sure the inventory is ready when the order comes in.

Thanks B! All good info.

For a second your

Distributor is totally optional.

thru me for a loop, but then I realized you were speaking from a manufacturers perspective, I was actually asking from a dealers viewpoint. In any case eye-opening.

As for the OEM charge of 80 units, how does that relate to John's COGS? Are you saying that it's cheaper to OEM than to procure and build out the BOM yourself?

When you spread your inventory too thinly throughout multiple distributors and warehouses and get caught out, will distributors courtesy cross-ship inventory at near cost, or do they treat it just like another dealer sale?

"I was actually asking from a dealers viewpoint"

Regarding "optional channel partner or obligatory one", it depends on the manufacturers.

  • Axis -> obligatory
  • Avigilon -> no distributor
  • Many large manufacturers -> direct only if big dealer / integrator
  • Smaller manufacturers -> some are direct only, some can choose

As our Best & Worst Places to Buy Surveillance, dealers frequently strongly prefer to buy direct from manufacturers.

Are you saying that it's cheaper to OEM than to procure and build out the BOM yourself?

For most companies, yes. Very very few camera manufacturers actually own their own manufacturing and assembly operations. There are companies overseas that specialize in camera design and assembly. You work with them for example to take the latest low-light chip from some company and build it into a 3MP camera with an onboard DSP for doing automated license plate recognition. The actual factory has people that help with circuit board design and layout, and of course populating components on the PCB, assembling the camera into the final product, etc. As the "manufacturer", what you are really doing is writing firmware for the camera, and then doing all the branding/marketing/sales to actually bring it into the channel and support it.

When you spread your inventory too thinly throughout multiple distributors and warehouses and get caught out, will distributors courtesy cross-ship inventory at near cost, or do they treat it just like another dealer sale?

Ultimately, everybody is in business together. So you can get a distributor to ship inventory back to you, or drop-ship it someplace else, most of the time. The other issue might be that a distributor has been working with one of THEIR customers, who is getting ready to place a large order. They told that guy they have inventory, and will set some aside in anticipation of his order. So they might show 100 Widgets on hand, but have essentially promised out 50 of those Widgets already. You don't want to your the stock from them and make them look bad to your mutual Integrator customer.

This scenario doesn't happen a lot, so it's not a constant problem, but it's one reason why some manufacturers are only using a select few distributors, instead of having their product available everywhere.