I recently found a car that a distributor sells cheaper than the official company. How can the distributors in genral afford this decision financially?
In: 69
>factory or manufacture price
All manufacturers have 2 things going on. Overhead and margin.
If I make a doodad, and I have 10 employees and some equipment, everyday they come in I’m paying for them, and the equipment and to keep the lights on. *That’s overhead.*
If I buy the raw materials, and make that into my doodad, and it costs $8 for one doodad, then sell it for $10, that $2 is my margin (gross margin to be specific).
Now let’s say a distributor comes in and says “what will you sell a doodad to me for if I buy 200 of them?”.
“I can sell them to you for $8.50”
He turns around and sells them for $9.80 while I still sell them factory direct for $10 bucks.
But….. I’m now running at 90% capacity and my overhead costs are spread out, and I can get volume discounts for raw materials. So now I’ve reduced my costs to $6 and improved my gross margin to $2.50 (This is called economy of scale).
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