Retail Sales Question

MrJCMrJC Posts: 1subscriber
edited November 2012 in Business Planning
This is a very basic question about retail sales that puzzles me. I hope someone can help me understand how this works. If my cost on an item is $100.00 and I mark the item up 100% (sale price $200.00 which is suggested retail price by supplier), then I pay my sales associate a 10% commission ($20.00), and my cost of goods sold is $5.00 then I should realize a profit for each item sold of $75.00, right? $200 < sale price -$100 <cost of item -$ 20 <employee commission -$ 5 <other costs of goods sold $75 <profit But wait, now I have sold the item and I have to replace it, so I have to spend another $100.00 to replace the inventory. $200 < sale price -$100 <cost of item -$ 20 <employee commission -$ 5 <other costs of goods sold $ 75 <profit -$100 <replacement cost <$25> < loss Does this mean I lose $25.00 on every item I sell? Of course if I do not replace the item I will keep the $75. profit, but that can only happen once (when I go out of business and do not replenish any inventory.) Please explain how one can make a profit with this model? A mark up of greater then 100% would make me less competitive and thereby lose sales, but if I am losing $25.00 on each item sold, obviously I will be out of business very soon. Explain it to me like I am a 6 year old please

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