Do they make money by supplying the goods? Or do they make a certain percentage when one of the products is sold? Say for example a pair of Adidas trainers are sold for £100 in a sports store. Would the sports store keep the £100 after selling it or would some of the money go to Adidas? Or does it not work like that at all as the product is instead bought from Adidas first and therefore nothing from the sale goes back to them. Sorry if I made this really complicated, any help would be greatly appreciated.
In: Economics
I own a retail store. It is so obvious to me. Our particular markup is about 100%. For a $20 item, we paid the manufacturer $10 for it. When that item is sitting on the shelf. The manufacturer made their money and is done. I sell it, put the $20 in the bank as mine to keep (now I can buy two more items to sell for $40 in the bank).
The mass populace might be screaming that a 100% markup (50% margin) is so selfish. I can tell you I make almost no salary, have credit card debt like everyone else. I employ 15 people and pay the banks and landlord… i’d need about a 200% markup to actually be making enough profit to be rich off this business. I’ve risked my home and families future to try out this retail thing… 13 years later, there are times I wish I hadn’t. Almost every brick-and-mortar store owner is in my exact same boat… the death of retail is a real thing… in the future, we’ll probably all just buy-from and work-for Amazon.
ACME Dynamics, a **manufacturer** makes the Thingamajig, a fantastic product that everyone wants. Their manufacturing costs for each Thingamajig is $10. That $50 is the cost of the components that go into a Thingamajig + payroll for the people who work on the Thingamajig assembly line + the mortgage payments on the Thingamajig factory, etc.
ACME Dynamics sells thousands of Thingamajigs to Peak Distribution Co., a **wholesaler**. Peak Distribution Co buys Thingamajigs from one company, Widgets from another company, Doodads from another company, and so on.
ACME sells Thingamajigs to Peak for $12. They ship a truckload of Thingamajigs off to Peak, invoice them, and Peak sends ACME a check. Peak now has a truckload of Thingamajigs sitting in their warehouse alongside all the Widgets and Doodads.
Since it cost ACME $10 to manufacture a Thingamajig, that means they make $2 (or 20% profit) for each Thingamajig they sell to Peak for $12.
Zenith Market is a **retailer**. They need product to sell in their stores so they reach out to several wholesalers — Peak Distribution Co.,TipTop Wholesaler, and Nadir Goods Inc. — to see who has the best price on Thingamajigs. Peak is distributing Thingamajigs for $14.40, while TipTop and Nadir are charging $15 per Thingamajig.
So Zenith places an order for Thingamajigs with Peak. Peak packages them up in a box, sends them off to Zenith, and Peak gets a check from Zenith for the order.
Peak bought the Thingamajigs for $12, but is selling them to Zenith for $14.40, so they’re making $2.40 per Thingamajig, a 20% profit.
So now Zenith has some Thingamajigs. They put them on a shelf in the Zenith Market store and slap a price sticker on them for $20.16 per Thingamajig.
A **consumer** named Dabzovic wanders into Zenith Market and goes “Ooooh! Thingamajigs!” Dabzovic carefully carries the Thingamajig up to the Zenith Market cashier, plops down $20.16 and is now the proud owner of a Thingamajig.
Zenith Market just sold a Thingamajig for $20.16. They’d bought that Thingamajig from Peak for $14.40, so they made a profit of $5.76 (40%) on the Thingamajig sale.
Most typically, the brand sells the items wholesale to the retailer. So your £100 Adidas trainers are sold by Adidas to the store for, say, £50. Adidas makes their money when they sell the order of shoes to the retailer, then the retailer has to recoup their expense by selling to the customer. Markup is about 2x in general, so whatever the regular price is, the store paid half that. The difference covers store rent, employees, marketing, discounts/sales, store profit.
Manufacturers/product makers sell products to retailers and resellers at a price called wholesale. Retailers and resellers markup the items and sell them to customers at the retail price.
It’s also possible that a retailer may stock their product and pay the manufacturer based on actual sales, they return anything unsold. It is not common but it happens in new product categories where the retailer doesn’t want the risk, so manufacturers take it.
There are different price structures and generally discounts based upon quantities.
This is the whole idea between wholesale pricing and retail pricing.
Wholesale is usually x amount above manufacture cost. Retail is x amount above wholesale pricing.
Super simplified but you could google some of those terms to get a more in depth edumacation.
Most stores pre-purchase inventory from the company. The company that makes the product makes profit even if the store doesn’t sell any.
They already made it when they sold it to the store.
Pepsi products are purchased by a chain. Walmart, 7-Eleven, Walgreens, CVS, whatever. The sale/profit has been made. Boom. They’re done.
The store is a reseller.
I guess all companies are different. I worked at a burger king, but it was a franchise meaning.. some guy owns a company called bumblebee, they give burger king 10 or 12% of the profit.. for the bumblebee can open stores with the bk logo, use bk suppliers, training, standards etc.. the store i worked at we sent our takings and costs to head office they worked out what theyre paying..
i think subways work like this alot, and recently alot of not mcdonalds owned mcdonalds aswell
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