My uncle contacted me today as he was interested in purchasing a 55 inch LED TV and saw a great one at a store he was in. The price tag was $4999.99 and apparently the salesman offered to knock it down to about $4699.99. As well, he started to offer all of these accessories and add ons as well for what seemed to be 80% off the retail price. Sure enough, the person tells him that is the best he can do as well.
As usual, he contacts me to see if I knew whether or not it was a good deal price wise as one of the factors he was thinking was that retail sales have been bad for companies and so maybe this truly was a good deal. When he told me the prices of the add-ons they actually sounded decent to me. But for the TV itself, I had to contact other people within my network.
In general though, he didn’t care too much if there was only say a $200 to $500 markup. He is a business person himself too and understands that a company needs to make a profit. In fact, he was even telling me that even if it was say cheaper online or at a different place he would factor in other details like the shipping as well.
It just so happens that I knew a person that worked for this particular company and as a result he can get everything at a discounted price. With the information that was given to me, it looked like the cheapest that one could get it for was about $3700. An extremely substantial difference no doubt.
So after relaying this information, I found out that he was already kind of reconsidering holding off as a result of the new stuff that is coming out, but knowing that the company would make almost $1000 for that single purchase made him not want to buy it for sure. He made that pretty clear too as he didn’t feel it was right for a company to be making that much money on a single transaction.
Psychological factors like these always interests me when it comes to money. It’s especially useful to know too if you are say even trying to do simple things like making a side income from some kind of venture. I wrote an older post before called Because You Have Something To Gain which kind of dives into this realm.
In general, for myself I’d say a 20% profit margin is usually “fair†when it comes to reselling items when factoring everything such as the person’s expense and labor. But I guess the question is does the same hold true if say an item costed a company $100,000 to acquire and they then sold it for a $20,000 profit? Would I be okay with that? Even I’m one to say I would be bias in saying not really.
In some ways it is kind of silly too when I think about it as many things like say a membership or a professional service fee is technically “marked up†according to what the provider thinks it is worth. In that situation, you mostly compare it based on value and not so much on how much of it is profit for them. But knowing that this is an issue for people means it is definitely something that you have to put some thought into when it comes to your ventures.
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