I hate to be picky, Andrew, but this:
certainly seems to imply that.
I don't know why people seem to think that large etailers like newegg work
on such a small profit margin. Some of the smaller companies with a hand
full of employees are on tight margins, but the larger ones try to average
about 50% gross profit (100% markup). Small items like adapter cables
(molex
splitters) may cost them under 50 cents and they sell them for 4 or 5
bucks.
On larger items they may only make 40% profit. Other large items like
RPTVs
and appliances have 100% markup (or more for white goods), but are usually
run on sale. A couple years ago I bought a 50" Toshiba HDTV from Sears. It
retailed for $2500. With price matching and storewide discounts, I bought
it
for $1633. I know for a fact that Sears paid under $1300 for it,
delivered.
I was in retailing for years. Starting as a manager for Endicott Johnson,
7
years as a Radio Shack store manager, 4 years with Toro, and 7 years with
my
own store before I sold it.
Let's take an example that most of us are familiar with, like the VGA
Silencer that many bought a few months ago for their nVidia or ATI cards.
Let's assume that, like most products of this type, it was made in China.
Someone (a small US or Euro company) brings the idea to a Chinese
manufacturer.(China today is like Japan of the 50's and 60's, but without
the attitude problem.) There it's designed and priced. The item is then
shipped to the company for about $4. I'd be surprised if it cost 5. The
company sells it on their website for a retail price of $22. They also
sell
it to distributors and large retailers/etailers for about $10. A small
retailer buys from the distributor for about $15 (sometimes known as a
"jobber's" price). He's pretty much stuck with selling at retail. The
large
companies will perform a (sometimes ongoing) price/movement analysis to
figure out which price to sell it at to maximize their profit. Competition
from other large retailers has a big affect on this price. They want to
capture the largest market share possible, but make as much money on the
item as they can. They have to find the sweet spot. So, the etailer may
decide the best price is $21, where they can sell 100 Silencers a day. At
$22 they lose a large market share to other large and small retailers, and
at $20 they're just throwing away profit because it won't increase sales
that much. Usually the price will be less than retail, but of course, as
we
can see now, they can sell items like the NV5 Silencer for double the
retail
price and still sell out of them.
The rule of thumb is, if you can't make at least 10% NET profit (that's
after expenses), you're better off investing your money. I hear Google is
doing very well
Gary
