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MSRP vs. Invoice

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Electro:
Hi Business Folks,                   :)

I thought I'd add some additional comparisons.

In the "high end" stereo business, the retail margin is almost always 40%, i.e. a product that the manufacturer charges $60 is to be sold for $100.  It is typical across the country for these small dealers to give their good customers a 10% discount, selling the $60 cost item for $90.  This is now a 33% margin.  Some dealers occasionally provide their best customers a 15% discount, so that the $60 item is sold at $85.  At this level, we have their best deal and a 29% margin.

It is a fact that most of these small dealers could not continue to operate at this level, if they sold to everyone at a 15% discount (which is selling at 29% margin).  Most small businesses must operate above a 30% margin, in order to pay their G&A and other overhead expenses and eck out a small profit.

Now compare this to the world discount leaders - Walmart and Sam's Club.  According to Sam Walton's book, they actually operate continuously at a 13% margin.  This means that Walmart buys products at $87 and sells them for $100 every day.  No other business in the world has ever come close to this feat and no one can compete with them.  Think about the level of service and quality - it is mediocre across the board, but everyone knows what to expect.  Of course, the majority of Americans have come to accept mediocre service as being normal.  Most believe the Walmart level of service is actually quite good.  It isn't.

Those who are over 60 years old can remember the level of service that was common in the 1950s and earlier.  Such good service was possible and expected.  Normal margins were 50%.  Discounting was rare and not expected.

Times have changed!

Electro

wmccall:

--- Quote ---Hi Business Folks,                   :)

I This means that Walmart buys products at $87 and sells them for $100 every day.  No other business in the world has ever come close to this feat and no one can compete with them.  
--- End quote ---



Then there is the behind the scense way that Walmart increases its margins.  What the vendor didn't dot 1 "i" on the invoice? Thats a 1% fine!  What, you didn't get the email we only accept invoices from vendors with odd numbered zipcodes on the third Tuesday of months with R's in them? Thats a 10% fine.   Then when they have you hooked they ask you to sell them items below cost so they can have a loss leader sale the day after Thanksgiving.

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