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You are confusing revenue with profit. The profit margin for a high-end chocolate is higher than a snickers bar's.
by lurquer 7y ago
You are confusing revenue with profit. The profit margin for a high-end chocolate is higher than a snickers bar's.
- PaulDavisThe1st 7y agoMaking 20% on sales of $100k nets you $20k. Making 5% on sales of $1M nets you $50k. So in that scenario, do you prefer profit or revenue? Revenue and Profit are intimately intertwined, with their cousin Cost riding shotgun.
- edmundsauto 7y agoIt depends on what other options you have for investing the $900k. The grandfather's ghost of opportunity cost is always watching...
- Retric 7y agoIt’s extremely unlikely for a profitable company to need x$ in capital to drive x$ in sales. Cash flow is generally much faster than that.
- edmundsauto 7y agoI'm not sure what you mean, can you elaborate?
- PaulDavisThe1st 7y agoWhat he means is simple. Like at least 1 other poster, you seem to have considered the numbers I gave to represent capital investment: invest $100k, make $20k vs. invest $1M, make $50k. But that's not the scenario at all. The scenario is about sales, not capital investment. The point is that its very unlikely (for retail at least) that you need to invest $X of capital in order to sell $X of merchandise. The question about returns here is not about returns on capital investment, but profit margins on sales.
- Retric 7y agoLet’s say you’re a gas station. You need to spend 500k to get things running including buying 100k of gas. Every week rent and people’s salaries add up to 19k and you sell gas costing you 80k for 100k. So, after 1 week you have 20k in gas and 100 - 19 = 81k in cash. You need to spend 80k of that on more gas for text week resulting in a net profit of 1k or a 1% profit margin. But, repeat that for one year and you bought 80k x 52 weeks of gas = 4.16 million even though you only had 500k in capital. Further your profit margin might be low but your ROI was 52/500 or 10.4% which is not bad.
- lurquer 7y agoI prefer the 20% margin, of course. Why would I tie up an extra $900k to make 5% ? You make the 20% with the 100k, and hopefully find similar opportunities with your other 9 stacks of 100k's. Profit is the only driving force in the market.
- PaulDavisThe1st 7y agoLike others, you seem to have completely missed the context, set up by the grandparent post. The comparison is not about investing $X and making $Y profit. It's about selling $X with a given profit margin. The actual capital requirements to sell $X are assumed to be roughly the same for both scenarios.
- deleted 7y ago[deleted]
- Retric 7y agoNot necessarily, high end chocolate is often a brutal low margin business. Generally, food companies increase profit margins by lowering quality. Massive companies also have low average profits, but it’s not low quality driving down profits so much as growing to the edge of unprofitability because high profit margins are not inherently as useful as total profits. If say Budweiser increased their price by say 10c a can their overall profit would decrease even if their profit margin would increase.
- lurquer 7y agoIf say Budweiser increased their price by say 10c a can their overall profit would decrease even if their profit margin would increase. -------- That's not neccesarily the case. The ideal price point for maximum profits is ever-changing. Would Budseiser's profits increase if they lowered the price by $0.10? The answer is the same: it depends.
- Retric 7y agoWhile I don’t disagree with your point, I am going to assume a company like Budweiser is going to be very good at selecting a nearly optimal price.