Quote:
Originally Posted by WillAdams
Okay, let's break it down:
- $73.94 comes in
- $61.11 goes out
- $12.83 is left and has to cover:
- credit card fee ~2--2.5% --- at most $1.85, so they have
$10.98 (or more) of potential profit which merely has to cover the expense of running a transaction on a server and sending some e-mail and storing some data and serving up some web pages (trivial cost of operation folded into the balance of their budget), maybe a banking fee on the $61.11, &c.
The merchantplace sales should be pretty much pure profit for Amazon for those sellers which don't pose problems (and even those expenses are minimal --- e-mail from a customer sales representative and maybe some chargebacks --- the onus is on the marketplace seller), so thus far, the only people making money on my book are:
- the printer (I don't mind, they worked hard)
- Amazon (annoying, and I wish there was an on-line service w/ better terms)
- the Abebooks reseller who has thus far convinced 3 people to pay his inflated prices when my copy was available for list price
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I've had the very same discussion with my former employer (country CEO of the German organization) 10 years ago:
"I don't have additional overhead in my project, all is covered within my single project".
In this project, my Gross Margin had been 30%. And my assumption had been: No additional costs in my project = 30% net profit.
But that's not how a corporate operates.
There is a back office in place, whether it's needed for a specific project or not. Same for IT infrastructure, R&D, sales, marketing, .....
It's simply a mixed calculation. Total revenue vs. total overhead costs = SAG (Sales, Administration, General).
And like I wrote before: You won't find any big corporate, with a total SAG below 12% to 15%. And that's the rare exceptions, most having >>20%.
And btw: Look at the figures of Amazon. Their profit margin is pretty thin, they barely generate any profit (yet!). Same for Facebook.
BTW: The printer, on average, generates a Gross Margin of 28% (German printing association 2013). Still, more than 2/3 of those (in Germany) are close to chapter 11. 28% seems pretty steep at first glance, considering they only need some machines and people. But of course their equipment is financed over a period of 8 years. They may not do any invests for a few years, but still have to cover significant interest rates.
Brief anecdote:
One of my former colleagues tried to get approval for a deal:
2% Gross Margin.
His argument:
Average order size = € 1.000.
So the Gross Profit is € 20. This should be more than adequate for 2 mouse clicks and an automated email = 1 minute work for an operative with an hourly rate of € 20.
Of course the deal didn't get approval.
Not even for 10% did they approve.