- Markups compound multiplicatively, not additively.
- Fixed per-unit fees behave very differently from percentage markups.
- Three 20% layers = +72.8%, not +60%.
- Layer order matters when percentages and fixed fees are mixed.
Markup layers vs fixed-cost layers
A markup layer adds a percentage on top of the current price. The bigger the running price, the bigger the currency value of that markup.
A fixed-cost layer adds the same amount regardless of price — typical of agent commissions, broker fees, or per-unit handling charges.
Most real chains mix both: a distributor might add 20% plus a $0.50 per-unit handling fee. Modeling them separately keeps the math honest.
Why small percentages compound
Three layers of "only 20%" don't add to 60%. They compound to 1.20 × 1.20 × 1.20 − 1 = 72.8%. Add a fourth 20% layer and you're at +107%.
This is why the gap between factory price and shelf price often surprises people who don't model the chain end-to-end.
Chain price build
Worked example
Factory price $10. Importer +15% → $11.50. Distributor +20% → $13.80. Retailer +40% + $2 fixed handling → $21.32.
The factory got $10. The end customer paid +113%. No single party charged "too much" individually.
Common mistakes
- Adding percentages instead of compounding them (50% vs 72.8%).
- Forgetting fixed per-unit fees that don't scale with price.
- Quoting "wholesale margin" without modeling downstream channels.
- Ignoring the order of layers — early high % is amplified by later ones.
- Treating commission as a markup when it's actually a fixed per-unit fee.
How to use the calculator
Add a layer per middleman, choose markup, fixed, or mixed, and the calculator will run the chain for you. The breakdown shows how much each layer added in currency terms — often the most useful part of the conversation when negotiating with a broker.
Frequently asked questions
Should I add percentages or compound them?
Compound them. Three 20% layers produce 72.8% total increase, not 60%. The Middleman 2-Way Pricing calculator handles this automatically.
Where do fixed-cost layers come from in real chains?
Agent commission per unit, broker file fees, packaging, sticker/labeling, palletization, and last-mile per-stop delivery charges.
Does the order of layers matter?
For percentage markups, yes — earlier layers' percentages get amplified by every later layer. Reordering changes the final price even when the percentages are identical.
Is a 4-layer chain bad?
Not necessarily. Each layer should add value (financing, breaking bulk, local logistics, sales coverage). The calculator helps you see what value each layer must justify in currency terms.