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Retail – Slashing prices but still making a profit.

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It’s an open secret that non consumer items sold at large and medium sizes retail stores have a marked up price of at least 100%. That means if the cost of a pair of shoes is $10, it will have a price tag of $20. Other items like sunglasses and dress accessories are marked up even higher. Of course not all businesses does that. Some reputable ones have a reputation to keep and they price their items reasonably. That’s the reason why we sometimes see vast price differences for the same products in different stores.

Marking up prices and then slashing them by very attractive margins attracts lots of people. So when you see big signs that says 50% discount, don’t think they are selling at a loss. They are still making tons of money.

For example if an item cost $10 and the marked up price is $25, even of you deduct 50% from the marked up price, you will still be making $2.50 in gross profit which is equivalent to 25% gross profit. A very respectable profit margin these days.

Another very popular way during a price war among competitors is sacrificing their target bonuses. Lots of wholesalers rewards their customers with bonuses if they achieve a certain target in their purchases. For example, if I buy 10 cans of paint of a particular color in one bulk purchase, my supplier will reward me with 2 cans of free paint. I will be actually paying for 12 cans of paint at the cost of 10. So if my normal cost is say, $30 per can of paint, I will be paying $300 for 12 cans of paint. This make the actual cost of the paint to be $25 per can.

Now, this extra $5 is suppose to be an encouragement for us to buy and sell more. So what some do is they forgo this bonus and sells their paint under the normal price. For example, normally paint fetches a 10% gross profit, so we sell st $33 per can. Now they sell at $32.50. People are funny. If someone else sells for 50 cents less, they will start singing and once they start singing, you will be loosing customers to your competitor unless you too takes after him.


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