When you're at a store buying a t-shirt, do you ever wonder how much it actually costs to make? When the cost of the materials, labor and shipping are combined, how much is the store jacking up the price so that they can afford their rent and employees, and still turn a profit? While there are many products with exorbitant markup fees, some have barely any, percentage-wise, and some products actually cost more to make than their sale price. We'll check out some products with a very small amount of markup, so when you're making your purchases you can feel good that you're paying a fair price for the product. (Learn about the extremely high markup on some goods; read 6 Outrageously Overpriced Products.)
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Low Markup High-Tech
When looking at price markups, often the lowest ones are on the highest-tech products. In a BusinessWeek report from 2009, the cost to make iPhones, Blu-Ray DVD players and more was revealed. Often, companies can sell items like DVD players for very little markup, or even at a loss, because it will make money in licensing from selling the DVDs. It's the same with video games and cell phones. Your cell phone company is not being generous when it gives you a free phone in return for signing up for a three-year contract - you end up paying for it in some way.
According to the report, you're looking at a paltry 11% markup on an iPhone 3GS. Tech site MobileCrunch.com says, the iPhone4 costs $188 to make. Since the base model of iPhone4 goes for $199, the markup is only around 6%.
Markup So Low it's Negative
Video game systems and DVD players can cost more to make than they sell for. This is because, as previously mentioned, Sony will get licensing rights, and will make money from each video game sold to make up for the money that's lost on the system. According to the BusinessWeek article, Xbox360s cost around $470 to make, and they retail for around $300. So, there is absolutely no markup on it, and the company is actually marking it down 36%. It's important to note that these figures are from one year ago, and as companies continue to produce these products, the costs usually fall. PlayStations are in a similar position. According to iSupply, as of December, 2009, Sony was losing $36 per PS3, a markdown of around 10%.
Autos and Gas
Many industries closely guard their markup information. Automakers are one of those industries. When you buy a $20,000 car, there may be a 6-7% markup on the price, which in terms of percentage is really not that much. Sure, you may be paying an extra $1,000, but when you buy popcorn at the movies, you're paying more than 1,000% markup.
One gallon of gas goes for less than the price of one gallon of a name brand soda, but that doesn't seem to matter to anyone; for a necessity, everyone feels like gas is too expensive. However, when you think of what goes into oil production, the amount it's taxed and the expensive distribution fees, the price you're paying isn't outrageous. According to howstuffworks.com and the Department of Energy's breakdown of gas prices, a gas station is adding between 2-10 cents to a dollar's worth of gas. That means that when you fill up your car for $50, the gas station is making maximum $5 in profit. And remember, they still have to pay employees, rent and upkeep of their equipment.
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Like gas, many heavily taxed consumer goods aren't marked up that much because it would make them unaffordable. Though alcohol is marked up considerably at a store, it's not that bad compared to a restaurant, where the markup can be in the field of 100-200% for a regularly priced bottle of wine. According to the Tablas Creek Vineyard blog, written by the owners of a vineyard, there are so many steps in the process of shipping wine from the vineyard to a store that, by the end at the retail level, the markup isn't as high as you'd think.
If a bottle of wine retails for around $25, it would cost the retailer around $17 to buy, and that same wine could go for around $50 or more in a restaurant, making a markup of 200%. So, perhaps that 50% markup at the retail level seems high, but comparatively, it's not too bad. When the wine gets more expensive, restaurants still mark up, but the percentage is much less. Compare this to fountain soda, which can have a markup of over 1,000%, and the percentage markup on wine seems reasonable.
The Bottom Line
Though most products that you buy retail have a significant cost added to them, there are some that have reasonable price add-ons. In terms of percentages, cars, high-tech gadgets and entertainment devices have a tiny and sometimes even negative markup. It may not change the way you shop, but at least you'll know you're not getting ripped off when you purchase these goods. (For more tips, check out 5 Painless Ways To Save Money.)
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