Originally Posted by cs1
Those who have never been in business don't understand the difference between markup and profit. 100% markup isn't the net profit. From that figure deduct all expenses like" rent, insurance, utilities and payroll. You know those nagging little expenses that eat up about 70% of the markup. Then you pay your Uncle Sam tax on the gross profit which yeilds net profit. There aint much left on a sale after all that.
Agree totally. However, what most shops completely miss / ignore is the difference between a fully loaded and marginal cost of sale. In a nutshell if you sell a product you would not otherwise sell at greater than its marginal cost, you have made a worthwhile contribution towards overheads.
For example, if a widget costs $50, and has shop overheads associated with it of $40, shops will normally sell for prices > $90. However, if someone comes into the shop from another town and says he can get it for $70 on the internet, rationally the shop should still sell the product because they get $20 towards overheads they otherwise would not get.
Only hitch in this line of thinking is when products have limited supply, in which case the aim is to set a price at which you just sell all your product.