So this started out by Al ears talking about making more money, but AEjim said other models make more money. I think I know what Al ears meant and AE's cost accountant may have given a different answer to their Head of Design. Usually markup is focused on one selling unit, expressing in percentage terms, its retail price over its direct costs (and sometimes both direct and indirect costs such as distribution). Effectively higher markups are where there is a big increase from the direct/indirect costs to the selling price.plastic penguin said:"Clearly you don't watch the apprentice all ears. If you have something at RRP of £200, and something of £200,000, which do you think will produce the most profit. ? I can assure you the profit on the latter will be more than £20."
That's one way of looking at it. But if you take it on percentage terms, the cheaper items often give you more of a mark up. That's why some companies, such as Richer Sounds, have a 'pile it high and sell them cheap' policy . They would rather sell in volume and lower profit rather than huge profits with a small turnover. I know making hi-fi products is different but higher price doesn't guarantee bigger profits.
Profit is usually more accurately measured by the overall financial performance of the range of products together. The overall revenue from all products, less all direct/indirect costs, then less all overhead costs (those that cannot be directly attributed to each individial product). Richer Sounds will mainly have overhead costs, much of it fixed, so they can forecast their costs and can them calculate how many items they need to sell, based on each item giving a small contribution to cover their costs. They certainly won't sell items below what they paid for them (unless they have cash flow issues), but could conceivably sell every item for £1 more than they paid for it, as long as they sold enough items multiplied by £1 to cover their total costs.
For manufacturers, its volumes that help the most, rather than any huge markup. There are economies of scale in the manufacturing process and it is generally the volume items that contribute most to the overheads, and could be argued are the most valuable to the business, as opposed to the most profitable.
There's also the issue of the cost of keeping an item in stock, that's another cost that could affect which items you make most money from. Oh I do miss cost accounting in manufacturing. *sad*