Let’s take a phone merchand for example. Let’s say that he sells the phones for 500$, but his income from a phone is 50$ because they are sold 450$ from the factory. So, if just ONE phone isn’t sold, he’d lose 450$, and he’d need to sell 9 phones (450÷5) just to come back to the starting point.
This question also works for any kind of merchandizing, including food (which becomes unsellable after a few days unlike phones).
So how do they make profit of it ? I’m confused
This post is the same as a post I made 1 hour ago that corrects some words, sorry for my bad english.
In: Economics
Two things…
1. Sale or return – merchant only pays for items that they actually sell, not for stock.
In this case there is no 450$ to the factory unless you sell for 500$ – so every sale is 50$ profit.
Failing that –
2. profit margins – you make enough per item that you still make money even if you don’t sell out.
* Buy 100 phones at 450$ each = 45000$
* Sell 95 phones at 500$ each = 47500$
* Have 5 phones remaining = 2250$
* Total Profit is 47500$ (revenue) – 45000$ (cost) = 2500$
* Net Profit is 4750$ (profit from 95 phones) – 2250$ (cost of unsold inventory) = 2500$.
So you made 2500$ even with 5 unsold phones….plus you could still say sell the remain 5 phones at a discount or something – because importantly at this point whatever you sell them for it is pure profit.
So say $300 each, that would be 5 * 300$ = 1500$.
Which would make the Total Profit 4000$ rather than 2500$
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