There are many expensive things in the world that make me seriously consider how much it costs to provide. One particular thing that got me thinking was the cost of calling my parents on their cruise. To call them on the cruise ship, it is 7.95 a minute :eek: . That doesn’t count any long-distance charges, or any fees they might decide to tack on just because they can. But I am really wondering, does it cost them so much to maintain a telephone service on a cruise ship?!
Other things that seem overpriced in my opinion-
Beverages purchased at a bar
Tabletop gaming miniatures
Vehicle repairs
Movie tickets
Electricity (Living in Silicon Valley anyway)
I was going to nominate illegal drugs as well. But most businesses make a large profit on individual items they sell. I believe if most people had any idea just HOW MUCH money GM, McDonald’s, and Nike made off of us, there’d be mass revolt. Or else we’d just all go get stoned and forget about it.
Legal drugs - pharmaceuticals have a bigger mark up, I’d say.
Any Dopers this side of the pond see the Channel 4 documentary last week
“Dying for Drugs”?
Scary stuff.
The ultimate price if you can’t afford them.
I just want to point out the difference between making a Gross profit on an item with a high margin and a company’s Net profit.
You mentioned movie tickets, which made me think of popcorn and drinks at the movie theater. Those are certainly items with a very large margin, i.e. sale price is much larger than cost of goods. On popcorn, I’d guess that the margin is probably about 99%. I understand that soft drinks sold at convenience stores have very high margins, so I’m sure the movie people are getting upwards of 90% of the cost of your drink as gross profit. BUT, that doesn’t mean that the company as a whole is turning a big profit or that their bottom line will reflect the same kind of windfall. They hit you with those large margins because they need to recover costs spent on other things, like purchase and upkeep of modern equipment and whatever it costs them to show the movie. George Lucas and those guys have to get a huge chunk of the ticket price in order to pay for actors and special effects and stuff, so the local guy has to jack you on the soda so he can keep his doors open.
High margin does not necessarily equal high net profit.
Likewise, I work for a high-end cosmetics company. Lipstick sells for $15/tube. It costs about $1.50 to make, total. That’s about a 90% margin. Are we getting rich? Hardly. Why? Because in between there, we have to pay to advertise and pay supermodels salaries and stuff like that, just to stay in business. It’s never as simple as subtracting the cost of goods from the sale price. That’s just the beginning.
Of course I’m not arguing that, given the opportunity, there are people/companies that are making huge net profits because they get you between a rock and a hard place. I’m just saying that it’s not always the case.
Hm. I was thinking prostitution had a pretty high profit margin, especially if you consider short time in an alley. There’s relatively little overhead (just condoms and such), so it’s probably nearly pure profit.
Pharmaceuticals have a huge markup versus manufacturing costs, but the major cost in this industry is research and development. Getting a drug FDA approved not only costs many, many millions of dollars, it also takes several years. Hence, you’ve got nothing coming for a few years, and lots going out. When a drug gets a patent, the companies generally try to recoup these losses as quickly as possible, knowing that once the drug loses its patent their potential to make money on it is severely diminished.
Obscure skills are pretty high-profit, but they tend to be required only infrequently (otherwise, more people would have these skills). Recreational drugs have extremely high profit margins, but this is tempered by the legal risks taken by those producing them (as well as the generally large number of middlemen involved in getting the stuff out to the public).
In the book Bridal Bargains, the authors called a number of florists in a metropolitan area (I think it was Boston) and asked for the costs of corsages and centerpieces for a “family function.” They called back a second time for a “wedding” and the prices skyrocketed.
Point taken, //\etalheadl), but the question in the OP was about the margin, not net profit.
Still, taken as a whole, you present a good case as to why illegal drugs might have the highest net profit. There is overhead, but not quite as much.
If you’re talking about “business” than any service-based business can post margins that would shame a drug dealer. In fact, I’m sure a lot of consultants who work out of their homes have practically 0 overhead and can charge $100/hour or more for their services.
On the other hand, as noted, that type of calculation ignores the cost it took to get to that position.
If you’re talking about tangible products, the traditional examples have been cosmetics and illegal drugs. But I’m beginning to think coffee can beat them all. How much do you think the coffee beans cost for that $4.95 grande you’re sipping?
My Nominees:
Goverment - It doesn’t cost much at all to raise taxes. Phillip Morris makes something like $0.25 / pack profit while state and local govt’s reap in dollars per pack.
Lawyers: $150 / hour fees.
Retail: My guess is Stationary stores, florists, and softgoods / apparel shops have the highest margins.
I reckon the margins on food/services within an arena/stadium are quite large as well, but I think that that might fall under one of the abovementioned categories. I’m just salty after spending about 50 bucks on one sandwich and beers at the Devils game last friday night ($6.75 a beer adds up after a while).
Per Metalhead’s point there’s no gross margin so high you can’t go out of business from bad management. In a mainly capitalist economy most things are usually priced to what the market will bear.
As an example I can go into Radio Shack at 8PM at night, and buy an obscure component, and pay an 80% gross margin and know that I was lucky to get this part and consider the 5.00 I paid a deal because it allows me to fix some much more expensive piece of equipment. All the expenses that RS incurrred to have that part in stock at the time I needed it made it worth 5.00 to me, even if the wholesale cost of goods was $ 1.00 to the store and .50 to the main Radio Shack regional distribution warehouse.
Yup, oil and gas are free. Well, you might spend $250,000 to get your mineral leases, and another $300,000 for the geological and geophysical data to tell you where to spend $2,000,000 to drill and test, and another $850,000 to complete the well so it can start producing free oil and/or gas for you.
But then the well must be maintaned (can easily be around 20%), and the product must be transported to market before you get paid anything for it (build a pipeline, or perhaps a tank battery and truck it to market). The mineral owner as well as any partners you have get their share.
And you’ll have to pay the landman, engineers, geophysicist, geologist, drillers, truck drivers, welders, dozer operators, etc. for helping you get your free oil and gas to market.
And that’s a small onshore project. Be glad it’s a small one if it’s a dry hole, because then you’re out only $4 million or so, and you might have enough left to try again for some of that free oil and gas.
