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
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.
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