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
You’re right that a 10% margin [margin being the percent of sale price that is profit] would be utterly unsustainable. Traditional merchants DON’T function on a 10% margin for exactly that reason.
The standard margin for stores is generally something like 30-70% depending on what they’re selling, where, and a few other factors.
There are merchants that have smaller margins, but they generally get around the issue by either:
1) Not ordering anything until after they’ve already sold it.
This is most commonly seen in the form of “dropshipping” nowadays, where the retail outlet never even touches the stock, they get the manufacturer or distributor to send it directly to the customer. [Amazon got started by doing this, and using “loopholes” in the implementation of wholesalers’ websites to make it work, pretending to make wholesale orders when they were actually making retail ones.]
2) Having a “sale or return” agreement with their wholesaler – wherein if they don’t sell something, they can send it back [or send proof it’s been destroyed, in some cases such as newspapers] and get their money back – so things they don’t sell don’t actually impact their bottom line.
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