Newbie question

[SEF]

How do you determine what your mark up should be for something that you sell ?

Let's say you have a R1000 product, factory price. How do you determine how much profit you will make from it ? And what % is a mark up usually calculated at ?

thanks
SEF

 

[Mars]

The rule of thumb in costing is cost x3, 1/3 is cost, 1/3 is overheads and 1/3 is profit. However its usually not that simple. Marking up something that costs R10k by x3 is going to get your quote in the bin. Mark it up too little and besides stuffing up the market you kill your profit with your overheads.

You need to know what your overheads are exactly and make sure you cover them. Then you worry about profit. What you can sometimes do is sell your more costly items at a low mark-up and your cheaper ones at a slightly higher mark up.
Also keep in mind that if you are supplying businesses its in your best interest to become VAT registered. It will effectivly drop your price by 14% because you and your customer can claim the vat back.

It all also depends on the industry youre in.

 

[Mike Hoxbig]

I'm guessing it is usually determined by the industry you're in, type of market you're serving and the demand for the product/service. For niche markets you can generally push the mark-up up a bit.

 

[SEF]

It's IT... computer parts and accesorties.

 

[stricken]

jeez madman. some good advice man.

SEF... computer hardware market is cut throat. you looking at 30% max markup. ALthough your overheads are gonna be near zero. depending on supplier. if you can get it from Rectron or equivalent distributer, then you compete with all the retailers, who take bigger margins since they pay rent on floorspace. In the online world, there are more shopping sites in south africa than good cheeses. no not jesus. cheeses. and 90% of them order on demand, so they hold no stock. pretty cheesy.

Basically... getting into hardware requires purchases directly from manufacturers at a container level. if you can streamline this supply chain, find the required capital, and actually handle the risk of buying a container full of CPU's you know will sell, then, you could be a rich man.

in some instances you can throw in a bit of social engineering, convince some university they need a supercomputer, and thus create your own demand.

 

[Spooner]

I used to work in a well known national store (not going to mention which one cause they might complain I'm releasing confidential information haha) and their markup was dependant on the value of the sale. Items of below R1000 was usually 27% down to 22%, R1000 to R5000 22% down to 19%, R5000 to R10000 19% down to 15%, R10000+ 15% down to minimum 11%. That's pretty much roughly the price brackets if I remember correctly. Obviously from this you can see its definitely not Incredible Corruption as their margins would be double of these...

 

[Mars]

jeez madman. some good advice man.

SEF... computer hardware market is cut throat. you looking at 30% max markup. ALthough your overheads are gonna be near zero. depending on supplier. if you can get it from Rectron or equivalent distributer, then you compete with all the retailers, who take bigger margins since they pay rent on floorspace. In the online world, there are more shopping sites in south africa than good cheeses. no not jesus. cheeses. and 90% of them order on demand, so they hold no stock. pretty cheesy.

Basically... getting into hardware requires purchases directly from manufacturers at a container level. if you can streamline this supply chain, find the required capital, and actually handle the risk of buying a container full of CPU's you know will sell, then, you could be a rich man.

in some instances you can throw in a bit of social engineering, convince some university they need a supercomputer, and thus create your own demand.

Thanks

If you're not keeping stock on hand then its pretty easy to have a massive inventory without having massive overheads, but your customer service goes down the drain because you are relying on a third party. One of the best online shops imo is Prophecy. They're really jacked and the website tells you the ETA before you buy, and in my experience they are accurate.

Then you can do as I do with this kind of business. I charge a 15 to 25% handling fee on the job. Tho I don't actually sell hardware to Joe public. I'm more of a problem solver kind of guy. My customer approaches me with what he needs done and I put the whole thing together for him and charge a handling fee on top. Then I don't really need to worry about cost so much. I do carry part of the risk because I don not take a deposit to cover 100% of my cost, but I do make sure I cover the bulk of it.

In my other business where I carry R300k's worth of stock (batteries), the mark-up on the slow movers is much higher than that of the fast movers. Reason being, that's my money lying there on the shelf depreciating. Its a bigger risk to keep them in stock and therefore you pay more for it.