Resale Price Method
Resale Price Method
The Resale Price Method is a Transfer Pricing Method. It starts from the price at which a product is sold to a third-party customer. It is often used for price setting towards related distributors and already provides for management insight.
That is because the Resale Price Method (also known as the Resale Minus Method or RPM method) leaves the right incentives with the distributor. If a distributor increases their OPEX without increasing sales, they become loss-making—keeping pressure on operational efficiency and margin discipline.
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Get in touchHow the Resale Price Method works
- The product’s resale price to a third party is taken as the starting point.
- A margin percentage is subtracted from that price.
- This margin accounts for the distributor’s operational expenses (OPEX) and expected profits.
- The result is the transfer price charged between related parties.
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Resale Price Method - P&L placement
The method works “top-down”: it uses turnover (sales revenue) to determine the purchase price (COGS) for the intercompany transaction. This affects gross profit, and therefore EBIT may be positive or negative depending on whether sales volume × gross margin covers the distributor’s operational expenses.
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Use cases
The Resale Minus Method is typically applied to related-party distributors. While helpful for price setting, distributors are ultimately often tested using the Transactional Net Margin Method (TNMM). This is because:
- The right minus percentage can be hard to substantiate.
- Distributors are often exclusive and dependent on group-manufactured products.
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