Software retailer profit margins anyone?

vbimport

#1

Does anyone here know what the profit margins are like when you buy music, games, etc from retailers? I know a friend working at a certain record company who can buy original CDs made by that company at an employee’s discount - something like GBP£5 or USD$7 per CD. Of course its got labels ‘Promotional CD - not for resale’ stuck all over it but the music is exactly the same.

I think even this promotional copy has a small profit margin built into it, maybe 10-25%. The bottom line is that the employees want it - regardless if it is a promotional copy or not - so might as well make a profit out of them as well because wherever there is a will, there are profits to be made.

Considering that you then buy essentially the same CD from a retailer (if you weren’t an employee), it may cost you a ‘discounted’ price of say £20. That is something like a 300% profit margin. For hot new games, it can be about £40.

Of course it is hard to say exactly what the margins are like unless you do the accounting work in those software/record companies, but is anyone here clued up on such info? I am just trying to put a measure on how badly we are being suckered by ‘special discounts’, for example.


#2

best buy offers almost everything in the store to employees at 5 % over cost they pay for it. their margins on cd’s are razor thing. add in the fact that, comparitively, cd’s are easy to steal as opposed to say, a washer, and they have to have bulky security costs to protect their small, easily stolen investments.

as for software, not sure about margins. special discounts are relative, though, as are most special things.


#3

@ckin2001: “Best Buy offers…to employees at 5% over cost”
The problem here is what cost? I’m quite sure it’s not the unit price that they paid their original supplier. They probably add distribution cost, security costs to cover the lost due to theft, etc and then add the 5%. I think they mean 5% net retail profit rather than 5% over purchase price. Stores like that purchase in such volume and make combined purchases that it’s difficult to get a good idea on the original price. It would be nice to know from a buyer for the chain or an accountant what is the actual markup? Their cost would be much lower, because of purchasing for multiple stores, than say a small store specializing in just music.


#4

There are people in the accounts department of software companies who spend all day trying to find out the answer to this question for their managers.


#5

There is no standard margin on software. You have the repackaged stuff (old games in a less fancy box at low prices), they have a higher profit margin than the new games. Furthermore, some stores settle for a lower profit margin, but get their profit from mass sales (100 * 10 beats 15 *30).

Then you have the difference between office related software and the games…

So there is no simple answer to this question, but I believe that average software has an average profit margin of 15-25%. But keep in mind that this margin is also used to pay for other costs like salaries, utilities, rent etc…profit margin is often used to describe the difference between the price that the retailer buys it for and the price the retailer sells it for…so profit margin is a bit misleading in this respect


#6

Originally posted by ckin2001
their margins on cd’s are razor thing.

Hmmm…I dunno. There is this certain :Z company that I mistakenly joined (was too lazy to read the contract’s fine print - now I ALWAYS read the fine print. The catch is that you must buy half a dozen £19.99-£30.00 CD’s from them a year and it adds up if you don’t). They can sell you original music CD’s for ~£5.99-6.99. The street store retail price for them would be anything £19.99-30.00. I doubt they would be selling even those £5.99-6.99 originals at a loss, so that must be at least a little over what they got it for.

Don’t forget part of the cost of the CD goes towards royalties to those despised copy protection companies.


#7

those retailers dont have to worry about loss near as much as others do. they dont have to pay employees to monitor stores. its just like any catalog vs department store setup. direct sales cost much less per unit.