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is it the numbers or the percentages that matter?
Published on March 21, 2007 By Sean Conners aka SConn1 In Consumer Issues
this is a subject that often does spark some good debate. There are many theories on how much someone "should" make when offering a product or service. Pure capatalist types, contend that "whatever the market will bear" is the only way to go. They contend that all other factors are irrelevant. They are more comfortable in a realm where laws such as "supply and demand" which are constant, rule the day. Objections of fairness, sacrifice and decency play no role whatsoever.

Others contend that goverment should regulate prices on many fronts. Capping earnings and forcing companies and individuals to "do their share" and the like are paramount to their platform.

I subscribe to neither position inherently. And most of the time, I side with the more capatalistic side of things. But sometimes, I do see a need to stop out of control and greedy corporations by legally raping our society in the name of "market economies." Granted, those on the left get out of control as well, looking to regulate everybody and everything they can, revealing just a general contempt for any business larger than the corner store.

How and when we balance these two factions is really not what I wanted to discuss however. That is just a little too broad in my opinion, to dive into headfirst.

But in general, what is a fair profit to you? Not what should be regulated, and the politics and rhetoric behind it, but when you shop...how much is "too much" when you hand over your hard earned cash to a clerk or salesperson?

Sometimes we focus on percentages. Like when the oil industry defends it's record profit numbers. Other industries, have to look more at the actual amount of dollars produced per unit vs. a percentage.

For example, the resturaunt business typically sell food or booze at a 3 to 1 up to a 5 to 1 gross profit ratio. Meaning that whatever the food costs (if it costs a dollar to make a hamburger) you sell it for 3 to 5 times (3 to 5 dollars for the burger) what it costs you. The new car dealer, by contrast, generally makes between 1000 and 3000 dollars gross profit on a car selling for 20 to 30K (despite their appearance of "losing money on every deal, and making it up in volume"). Retail on a piece of fine jewelery might be 10 times what the wholesale cost of it is.

From what I can tell, 3 factors seem to dictate the profit. The amount of dollars generated typically means a smaller percentage. The exception, and 2nd factor seems to be the overhead involved. And of course, competition always plays it's part in our economy.

For example, the jewelery man has more overhead in paying for his storefront / insurance / inventory / salaries / etc... that greatly brings down his final net profit. Also, a jewler is going to often sell at a "discount" as a rule, thus never actually seeing a true "retail profit." And people generally feel good with the belief that they saved 50% or whatever off of a pie in the sky, inflated retail price.

But on the other hand, people seem to resent when a car dealer makes ANYTHING on a sale. Of course, unless you are buying a Saturn or a rare car, nobody pays sticker price on a car. But when I used to be in that industry, it used to amaze me when people showed an obvious contempt and a desire for the dealership to actually lose money on a sale. They felt entitled to it, almost.

But in the end, in the type of society we live in, businesses need to be profitable, on the whole. But what is fair? It seems that most businesses, especially larger ones, like the oil industry, like to focus entirely on the percentages, which almost makes them look benevolent. that is, until you look at the sheer numbers.

The guy in the corner diner may turn a dollar burger into a 4 dollar lunch special, and he will quadruple his money. But then again, he only made 3 bucks.

Any thoughts? What is a fair profit to you?

Comments (Page 2)
2 Pages1 2 
on Mar 24, 2007
On the other hand, you seem to think that price is somehow tied to the cost of producing something.


no i don't. i'm asking questions about that, and in some cases, i believe it is relevant, but certainly not in all. and i think it's relevancy actually has to do with making too little, than too much more often.

in both of your examples, in fact, it is relevant to "making too little." you are justifying your prices by pointing out your expenses or losses. of course, one has to consider all their expenses, whether the "entity" be an individual, or a large company. know what i'm sayin man?
on Apr 06, 2007

Assuming that the product is produced in a competitive market, a fair profit is the maximum amount that a consumer is willing to pay for the product or service.


so should businesses conspire to jack prices or manipulate supplies to yield greater profits? or should competition, and not prices be enforced in your view?

Since I just said that the product must be produced in a competitive market, I think you have your answer already.

on Apr 06, 2007

no i don't. i'm asking questions about that, and in some cases, i believe it is relevant, but certainly not in all. and i think it's relevancy actually has to do with making too little, than too much more often.

in both of your examples, in fact, it is relevant to "making too little." you are justifying your prices by pointing out your expenses or losses. of course, one has to consider all their expenses, whether the "entity" be an individual, or a large company. know what i'm sayin man?

The cost never comes into play.  I'll charge as much as I can get away with for my product or service.  If someone has a problem with that, they are free to compete with me or not buy my product or service.

on Apr 07, 2007
Since I just said that the product must be produced in a competitive market, I think you have your answer already.


thanks, i just wanted to make sure i understood you clearly. i think we're on the same page there.

on Jul 20, 2007
In all and every case its "what the market will bear"

To do otherwise, always, always create artificial distortions that eventually come home to roost and bit you in the bum so hard, it ends up costing the consumer more than going for the original market driven solution ever could.

Attack Business Cartels fixing Prices ? Absolutely, thats artificially distorting the marketplace, and businesses need to learn to obey their own rules or expect the wrath of the customer to decend.

Its not rocket science.
on Jul 20, 2007
Businesses have living expenses, too, like paying filing fees to the government to stay a company, paying rent, utilities, coffee for the break room, etc. So why can't you include those expenses in the person as a business example? If they don't pay rent, food, gas, insurance, car payment, etc, it will prevent them from working effectively, and they may lose that job.

Of course, some people have expenses in their lives that aren't necessary for their worklife, ie, a mountain dew, or a coffee every morning from Starbucks. But businesses also have things like private jets for executives, heck, even just the salaries to executives... so it all evens out.
on Dec 06, 2007
The thing is, a business owner or CFO of a corperation can't include purely private expenses.


Well lets just see most CEO's make as much $$ in ONE MONTH to what it takes the hole year for the worker to make..
on Dec 06, 2007
so should businesses conspire to jack prices or manipulate supplies to yield greater profits? or should competition, and not prices be enforced in your view?


they do and some even do it with the help of the goverment
conspire to jack prices or manipulate supplies to yield greater profits

Examples:

some of the big grower of food well doze up the crop just to hike up sale price

the goverment will buy a lot of sirplus and store it in caves at which in turn hikes up price
and to top it off they trash the dry milk they stored

McDallod's grows and raise and stores and ships their ouwn food but don't pay there emplyoees any better and they sell it for the same price or higher

hell
most companys that make genaric food pay their worker better then the ones that make name brand

wal*Mart was like 3rd or 4th at profit 2 to 3 years in a row and GM was one step donw
wal*Mart starting pay is Minimum wage GM starting pay is $16.50

Aldi A low Low price grocury store pay $12.71 to start Cashier
Price Chopper grocury store pay $8.50 to $9.00 to start


the Oil company will and DID shut down some refineriers and had to raise the price of gas

hhmmm looks like greed to me







on Dec 06, 2007
In the case of oil companies, if we would cut our gas consumption by 50%, the price of gas would drop sharply and suddenly.


No if we did that then the Oil company would then in turn Raise the price of gas..

If a produce is in high demand the price goes up
If a produce is in low demand the price goes up

And then there is just greed on the other hand so the price goes up
on Dec 06, 2007
HAD to repost toooo many type-o's

so should businesses conspire to jack prices or manipulate supplies to yield greater profits? or should competition, and not prices be enforced in your view?


they do and some even do it with the help of the government
conspire to jack prices or manipulate supplies to yield greater profits

Examples:

some of the big grower of food well doze up the crop just to hike up sale price

the government will buy a lot of surplus and store it in caves at which in turn hikes up price
and to top it off they trash the dry milk they stored

McDonald’s grows and raise and stores and ships their own food but don't pay their employees any better and they sell it for the same price or higher

hell
most companies that make generic food pay their worker better than the ones that make name brand

Wal*Mart was like 3rd or 4th at profit 2 to 3 years in a row and GM was one step down
Wal*Mart starting pay is Minimum wage GM starting pay is $16.50

Aldi A low Low price grocery store pay $12.71 to start Cashier
Price Chopper grocery store pay $8.50 to $9.00 to start


the Oil company will and DID shut down some refineries’ and had to raise the price of gas

hhmmm looks like greed to me.
on Dec 06, 2007
in my reply #24

Produce should have been Product
on Dec 06, 2007
Here's the other side of the coin to your question, Sean.

What is a fair loss?

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