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Old 12-08-2006, 11:43 AM   #1
Phokus
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Default How do companies like costco and walmart calculate profit margins on their products?

I read somewhere that costco has like a 3% profit margin on everything they sell while walmart has an %8 profit margin on everything they sell.

What do they include in the cost of their products? Is it just the cost of the product to manufacture + the cost to transport the product? Or are there other costs they place into the product as well?

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Old 12-08-2006, 11:49 AM   #2
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Default How do companies like costco and walmart calculate profit margins on their products?

Misread, sorry.
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Old 12-08-2006, 11:54 AM   #3
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Default How do companies like costco and walmart calculate profit margins on their products?

Quote:
Originally posted by: mwtgg
Gross Profit = Net Sales - Cost of Goods Sold

Gross Profit Margin = Gross Profit / Net Sales
Ahhh i see.... i guess the real question is, what makes up cost of goods sold for retailers? Is it just the cost of the good manufactured + shipping + any markup the manufacturer put s on? Or do retailers allocate other costs as well?
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Old 12-08-2006, 12:10 PM   #4
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Default How do companies like costco and walmart calculate profit margins on their products?

Quote:
Originally posted by: Phokus
Quote:
Originally posted by: mwtgg
Gross Profit = Net Sales - Cost of Goods Sold

Gross Profit Margin = Gross Profit / Net Sales
Ahhh i see.... i guess the real question is, what makes up cost of goods sold for retailers? Is it just the cost of the good manufactured + shipping + any markup the manufacturer put s on? Or do retailers allocate other costs as well?
I guess I didn't misread. The formulas helped. Cost of Goods sold is basically the cost from its supplier, plus any other costs needed to get the item into inventory and ready for sale.
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Old 12-08-2006, 12:12 PM   #5
JeffreyLebowski
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Default How do companies like costco and walmart calculate profit margins on their products?

When I worked at CrapUSA the "cost" was what they paid for the item plus a percentage added to it to cover everything from paying employees to utilities ect.
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Old 12-08-2006, 12:14 PM   #6
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Default How do companies like costco and walmart calculate profit margins on their products?

They add up total sales and subtract total costs from it, getting their pre tax and interest income, and divide that number by sales = their margin.
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Old 12-08-2006, 12:16 PM   #7
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Default How do companies like costco and walmart calculate profit margins on their products?

Consult their 10-K or 10-Q?

EDIT: I remember reading a research paper on Costco, and they discovered that some items were priced actually HIGHER than regular stores. They are mixed of course, so the buyers don't know which ones are priced higher or lower. Besides, buying in bulk always gives that psychological effect that it is cheaper.
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Old 12-08-2006, 12:20 PM   #8
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Default How do companies like costco and walmart calculate profit margins on their products?

Quote:
Originally posted by: Phokus
I read somewhere that costco has like a 3% profit margin on everything they sell while walmart has an %8 profit margin on everything they sell.

What do they include in the cost of their products? Is it just the cost of the product to manufacture + the cost to transport the product? Or are there other costs they place into the product as well?
I really don't know, but I don't think those numbers are right. Costco doesn't have a 3% profit margin on every product they sell, they have a maximum 14% profit margin on any product they sell.

And I don't think Walmart has an 8% profit margin on everything they sell. They may shoot for an 8% profit margin overall, but they're going to try to make as much profit as they can on everything they sell.
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Old 12-08-2006, 12:24 PM   #9
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Default How do companies like costco and walmart calculate profit margins on their products?

Quote:
Originally posted by: Phokus
I read somewhere that costco has like a 3% profit margin on everything they sell while walmart has an %8 profit margin on everything they sell.

What do they include in the cost of their products? Is it just the cost of the product to manufacture + the cost to transport the product? Or are there other costs they place into the product as well?
Being a Wal-Mart manager, I can tell you this is incorrect. Alot of the food we sell, we sell at a loss, but clothing brings in huge index's.

Milk for example costs us $4.26 to purchase from our supplier. We sell it for $3.46.

However, the $5.00 special t-shirts we carry cost about $2.10.
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Old 12-08-2006, 02:18 PM   #10
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Default How do companies like costco and walmart calculate profit margins on their products?

The items that are brought in the store DSD (Direct Store Delivery) are usually marked up 22-25%. At least the stuff I bring into Wal-Mart and any other supermarket is marked up that much. On my stuff and stuff like Pepsi,Coke,Nabisco etc. the vendor is responsible for the shelf being stocked and also for any damages or out of date items,so the store basically gets the best of both worlds from items like that and make a good deal of profit from these companies.

Edit: Overall the profit margin at a store is like 3%,so DSD stuff really picks up the slack from the loss leaders that are all around the store.

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Old 12-08-2006, 02:21 PM   #11
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Default How do companies like costco and walmart calculate profit margins on their products?

Some interesting posts, thanks guys!
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