SuperDave
Member
It's all about Supply and Demand. Limit the supply and increase the demand and you make more profits. There is a reason that only a few companies are able to offer the quality kits you enjoy making...
There is a difference between Mark Up and Profit Margin.
Typically, Mark Up is a percentage applied to a fixed cost to determine the selling price. Some industries refer to this as "cost plus" pricing.
Typically Profit Margin is a ratio of the "profit" that is in the selling price. A good rule of thumb to calculate your "Profit Margin" is: (selling price - cost)/Selling Price.
So:
A $1.00 item Marked Up 300% and you have a $4.00 selling price.
A ($4.00 selling price - $1.00 cost) = $3.00 /$4.00 selling price = 75% Margin... not 300%
Now remember, that "Profit Margin" is referred to more correctly as "Gross Margin" which means that you still have to deduct ALL of your associated costs of doing business from the "Gross Profit" to arrive at your "Net Profit."
You can see where the 75% Gross Margin can easily be reduced as low as single digit Net Margin when you factor out ALL the costs. For instance, a grocery chain store will "Gross" 30%-40% but the average retail grocery chain store will net less than 1%. How do they stay in business? VOLUME, VOLUME, VOLUME.
Labor can be roughly calculated as Salary (hourly too) x 1.45 to cover benefits, etc. So, you have to pay your $10.00/Hour employee $14.50 to cover their benefits and labor costs.
Then there are CPA's, Attorneys, Insurance of all kinds, advertising and marketing, debt service on loans, inventory costs, quarterly estimated taxes, payroll and payroll taxes, and on and on it goes... eating away at your "Gross Margin." Sounds like fun... let's all go into business for ourselves!!
The little "business in the garage" cannot begin to compare to what it takes to run a real business on the scale of a CSUSA, nor should the "Garage Enterprise" compare their "perceived profits" with what they "perceive" a CSUSA is making.
Cash flow is the life blood of EVERY business. A successful business will find ways to preserve their cash. When you tie up money in inventory, you have less cash to operate your business. Many, many "successful" businesses have failed because they had too little cash flow.
In dealing with overseas suppliers, it is typical to use an SLOC (standby letter of credit) so you do not have to tie up your cash for 90-180 days. Not every business can get an SLOC.
As for businesses making unseemly profits, what about Insurance Corporations? They are some of the single largest "Institutional Investors" (buying stocks in blocks of 100,000 shares or greater) on Wall Street... using the "profits" from your premiums. Remember that the next time your rates go up for some petty reason.
The next time you get your "FREE glossy four color CSUSA catalog delivered to your door" to peruse while sitting on the porcelain throne, remember that it was brought to you by a company that spent some of their "Gross Profits" to provide you some reading materials.
There is a difference between Mark Up and Profit Margin.
Typically, Mark Up is a percentage applied to a fixed cost to determine the selling price. Some industries refer to this as "cost plus" pricing.
Typically Profit Margin is a ratio of the "profit" that is in the selling price. A good rule of thumb to calculate your "Profit Margin" is: (selling price - cost)/Selling Price.
So:
A $1.00 item Marked Up 300% and you have a $4.00 selling price.
A ($4.00 selling price - $1.00 cost) = $3.00 /$4.00 selling price = 75% Margin... not 300%
Now remember, that "Profit Margin" is referred to more correctly as "Gross Margin" which means that you still have to deduct ALL of your associated costs of doing business from the "Gross Profit" to arrive at your "Net Profit."
You can see where the 75% Gross Margin can easily be reduced as low as single digit Net Margin when you factor out ALL the costs. For instance, a grocery chain store will "Gross" 30%-40% but the average retail grocery chain store will net less than 1%. How do they stay in business? VOLUME, VOLUME, VOLUME.
Labor can be roughly calculated as Salary (hourly too) x 1.45 to cover benefits, etc. So, you have to pay your $10.00/Hour employee $14.50 to cover their benefits and labor costs.
Then there are CPA's, Attorneys, Insurance of all kinds, advertising and marketing, debt service on loans, inventory costs, quarterly estimated taxes, payroll and payroll taxes, and on and on it goes... eating away at your "Gross Margin." Sounds like fun... let's all go into business for ourselves!!
The little "business in the garage" cannot begin to compare to what it takes to run a real business on the scale of a CSUSA, nor should the "Garage Enterprise" compare their "perceived profits" with what they "perceive" a CSUSA is making.Cash flow is the life blood of EVERY business. A successful business will find ways to preserve their cash. When you tie up money in inventory, you have less cash to operate your business. Many, many "successful" businesses have failed because they had too little cash flow.
In dealing with overseas suppliers, it is typical to use an SLOC (standby letter of credit) so you do not have to tie up your cash for 90-180 days. Not every business can get an SLOC.
As for businesses making unseemly profits, what about Insurance Corporations? They are some of the single largest "Institutional Investors" (buying stocks in blocks of 100,000 shares or greater) on Wall Street... using the "profits" from your premiums. Remember that the next time your rates go up for some petty reason.
The next time you get your "FREE glossy four color CSUSA catalog delivered to your door" to peruse while sitting on the porcelain throne, remember that it was brought to you by a company that spent some of their "Gross Profits" to provide you some reading materials.
