mcloones running store

Wholesale company’s trade on the fact that a small profit per unit means that by selling a huge volume of units the company can realise a very healthy profit. This fact means that ultimately the end user or customer on the street gets better value for money, even though the price per unit increases as the various handlers add their profit margin in the process of getting it to the market-place.

Assume a manufacturer has the capacity to produce 100,000 units per 8 hour shift, in an ideal world they will want to sell the same amount as they produce. If they can't, then their product begins to stockpile or they have to scale back operations. Neither of which is good. The company will know what other producers are charging for the item, and to see if they can match that, the company will do the following calculations.

The company assumes certain fixed costs based on the plant running at capacity. These will be energy bills, the cost of building or paying for the facility, wages, transport, raw materials and so on. These will vary depending on how many shifts the plant is going to do. They will divide this number by the amount of units that will be produced, giving them a production cost per unit. This will allow them to see the minimum amount they need to charge just to break even. With this information they can see what profit margin they can add while still remaining competitive. By keeping the margin tight they can expect to sell their output quicker giving a better turn-over, better productivity and profit than selling at a higher price, but taking longer to sell their produce.

The wholesale companies are next in the chain of supply. They will estimate how much it will cost to store and re-ship the items if they are selling at different volumes. Therefore large sales increase their turn-over and decrease their costs, so their selling price will vary depending on the size of order. This why large retail chains and superstores can buy in their stock at less cost per unit than a small independent trader can.

While chain-stores have a large turn-over and can negotiate a competitive price with the wholesale company, the independent retailer will probably have to pass through yet another middleman, the cash and carry. These of course, will add their own profit margin, making the cost to the man on the street higher. It is common for independent trader to work under the umbrella of a supply company. This supply company can get a good price because it will buy in bulk and supply all the independent traders who retail under the supply company name, like Spar for example.