Markup=Retail-Wholesale.. a test.

[imoldernu]

This is just for fun, so don't get too picky. Prompted by the retail store closing thread.

Have you ever wondered how retailers make a profit? Sure... by selling for more than their cost. But how much more? That's where it gets interesting. After being in the field, I've been aware of most retail products, what they cost, and whether the markup is high or low. Quite interesting.

So here's a test... Match up the class of goods, with the range of markups that a retailer might expect to get.

1. Clothing
2. Shoes
3. Cell Phones
4. Furniture
5. Groceries
6. Prescription drugs
7. New Cars
8. Eyeglasses

Mark up %
a. 100-500%
b. 8-10%
c. 200-5600%
d. 60-80%
e. 800-1000%
f. 5-25%
g. 100-350%
h. 200-400%

Remember this isn't serious and you won't win anything. Make your match ups, and then go here to see where the numbers came from.

Cheat Sheet: Retail Markup on Common Items

Then decide which kind of business you want to start.

 

[Blue Collar Guy]

my father had a delicatessen, he added 25 % mark up to everything,

 

[NW-Bound]

Not looking at the cheat sheet, I believe clothing has the highest markup, while groceries have the lowest.

The lowest markup category of 5%-25% for groceries would reflect the gross profit, not the net of grocery chains. These guys usually make 1% or 2% net. Very tough business to be in.

 

[OldShooter]

Are "markup" and "gross margin" getting confused here?

 

[imoldernu]

For purposes here, mark up is the difference between the item cost and the selling price.
The technical determination of margin is involved but not important here.
The post was just intended to look at the vast differences between different products.

In general, for some products, knowing the typical margins can help in negotiating prices for some products. Furniture, for instance lends itself to deal making, and knowing the cost glasses, can lead to alternatives to what the optometrist offers.

Here's an interesting site that gives information on many different products, that covers many of the products we use every day. (2014)

37 Products With Crazy-High Markups - Business Insider

One of my biggest surprises came many years ago, when My son worked at McDonalds, and he told me the most expensive ingredient in the supersize drinks was the cost of the cup.

 

[Nemo2]

One of my biggest surprises came many years ago, when My son worked at McDonalds, and he told me the most expensive ingredient in the supersize drinks was the cost of the cup.

Decades ago I worked with a guy who had been a partner in a donut/coffee franchise......he figured they made so much profit on the coffee that they could have given the donuts away for nothing.

 

[COcheesehead]

Decades ago I worked with a guy who had been a partner in a donut/coffee franchise......he figured they made so much profit on the coffee that they could have given the donuts away for nothing.

Yep, biggest mark ups at convenience stores are the fountain drinks, coffee and the roller hot dogs. The lowest, the gas.

 

[DrRoy]

I'm glad the markup on cell phones is low. I just had to replace the phone I got from w*rk since I RE'd 2 weeks ago. I could have spent less but wanted to keep an iphone for continuity. Saved a couple bucks by not getting a plus.

 

[Midpack]

I know this is in fun, but even the cheat sheet is vague about what's included in cost, so it's hard to play. What I'd include in cost ("wholesale", shipping, wages, bldg lease, dunnage, utilities, maintenance, business insurance, etc.) wouldn't be in wholesale. Those other costs have everything to do with the big variation in "markups". Too many people compare wholesale FOB to retail, and it's meaningless and misleading. Sorry.

 

[OldShooter]

For purposes here, mark up is the difference between the item cost and the selling price. The technical determination of margin is involved but not important here. ...

One of the things I do is business mentoring with SCORE, and this misunderstanding arises repeatedly.

"Markup" is a percentage of the item's cost that is added to the cost to come up with a price. This approach is popular in the retail world. For example, if I have an item that costs me $1 and use a 100% markup, then I will sell it for $2.

"Margin" is what you are talking about here: "the difference between item cost and the selling price." So, for example, my 100% markup produces a 50% margin. It is really not technical at all, just a different (and more common) approach to looking at a selling price.

To @Midpack's point about what is included in cost, it is really not all that complicated though there are always tradeoffs. Generally "cost" in the income section of a P&L refers to variable costs. For a hot dog stand, the hot dogs and the buns would be "cost." Technically, the ketchup and the mustard are variable costs as well, but I think most hot dog vendors would book them in the "fixed costs" part of the P&L because trying to measure and keep track is not worth the hassle. Also "rent" would be a fixed cost, as would utilities, etc. For a hot dog vendor, these do not vary with the amount of product sold. Now, for an electric blast furnace, electricity might well be tracked as a variable cost. So it is a little fuzzy, but not the wild west. Margin (technically "Gross Margin") is then figured as the difference between the total of all the variable costs and the selling price.

(/soapbox)

 

[Midpack]

To @Midpack's point about what is included in cost, it is really not all that complicated though there are always tradeoffs. Generally "cost" in the income section of a P&L refers to variable costs. For a hot dog stand, the hot dogs and the buns would be "cost." Technically, the ketchup and the mustard are variable costs as well, but I think most hot dog vendors would book them in the "fixed costs" part of the P&L because trying to measure and keep track is not worth the hassle. Also "rent" would be a fixed cost, as would utilities, etc. For a hot dog vendor, these do not vary with the amount of product sold. Now, for an electric blast furnace, electricity might well be tracked as a variable cost. So it is a little fuzzy, but not the wild west. Margin (technically "Gross Margin") is then figured as the difference between the total of all the variable costs and the selling price.

You missed my point, I reviewed P&L's and other fin docs for decades. Comparing retail to wholesale doesn't serve any useful purpose, and gets some people riled up because they overlook all up costs which vary considerably from one industry to another.

 

[Sojourner]

My guess for the highest markup/margin turned out to be right: eyeglasses. I saw a TV show recently about how one company (Luxottica) controls a huge percentage of the retail eyeglass business in the U.S., and is thus able to fix prices at artificially high levels. Here is a quote from an article on snopes.com I found regarding this:

[Luxottica] owns 30 different brands of frames, including Anne Klein, Burberry, DKNY, Oakley, Polo, Ralph Lauren, Ray-Ban, Versace and Vogue. It also controls retail shops, including LensCrafters, Pearle Vision, Sears Optical and Target Optical. And it owns the EyeMed Vision Care group, a vision insurance company. It makes its frames in company-owned plants in China and Italy and sells them in about 130 countries, so it’s no surprise that Luxottica also owns China’s Modern Sight Optics, a leading Chinese optical retailer.

 

[OldShooter]

... they overlook all up costs which vary considerably from one industry to another.

Excellent point. You really can't compare margins as easily as you might think. In particular, very capital intensive industries like paper mills or blast furnaces have huge fixed cost that must be covered by higher margins than, say, the hot dog vendor whose only investment is his cart.

In other cases, like Luxottica, the high margins have been due to monopolistic and oligopolistic pricing rather than having been driven by costs. "Whatever the market will bear." But now, fortunately, the Chinese are destroying that business model. I routinely buy prescription computer and reading glasses for around $25, sometime twofer $25.

So a margin number doesn't mean much by itself. It has to be looked at in context.

 

[ERD50]

I read somewhere that popcorn at a movie theater has one of the highest mark-ups of all (or margins? didn't read all the detail, but agree it isn't easy to compare apples-apples).

Higher than luxury items or illegal drugs. Kinda makes sense, popcorn is cheap in bulk, stores easily, and is easily processed with cheap equipment in just minutes, with a few cheap additives into something that sells for a far higher price. The box might cost as much as the popcorn?

-ERD50

 

[OldShooter]

... the highest mark-ups of all (or margins? ...

Well, you can think in terms of either one. It's not a matter of one being right and one being wrong. It's when they get mixed that people get confused.