This invoice shows the wholesale prices for the sale or return model for magazines in the US:
The vast majority of magazine retailers here only sell the top 50 to 100 titles.
The returns process is similar, some topped, some full copy. Some titles, niche, are purchases firm sale.
So what level of commission does that work out?
Looks like 30% I think.
Possibly viable if we only carry 200 titles.
Billy, your correct 30.0%
The fact that most newsagents wouldn’t be able to work that out speaks volumes for the business acumen…
I don’t agree the margin is 30%. The tax applied at the retail level needs to be taken into consideration. In the USA the value added tax we use in Australia is not used there. They use a sales tax that is a percentage of the retail price. The tax varies from state to state and from region to region within a state. It consists of a state tax and a local tax. Because the tax is applied only when the consumer buys an item, it does not appear on the wholesale invoice.
In calculating the retailer’s margin, we need to subtract the taxman’s share from the cover price. Suppose the tax is 6%, the retailer would receive 94% of the cover price. So, 0.94cp-ws/0.94cp=3.597/14.09=25.5%.
However, this is only the NOTIONAL gross margin. To work out the REAL gross margin, we need to know the percentage sell backs. For every 5% of that figure, REAL gross margin drops by 1% (approx.) This is because the NOTIONAL margin is only achieved if you sell all your stock at the retail price.
The Americans are streets ahead of us because they are only stocking the best sellers and their real gross margin would be much greater than ours and they wouldn’t have the cost of accommodating non-profitable magazines and high returns cost: a much greater net profit.
I wonder if they pay upfront like we do?
State sales tax is added to the offer price, not included in it. So a 9.95 mag in a state with 10% tax would cost the consumer 10.95. The agent’s commission isn’t affected.
David, if you raise the retail price while holding the commission in dollar terms you lower the margin. In the case you use if the margin on $9.95 is 30% then the commission on $10.95 is 27.26%. The commission has to be worked out on the total retail price not retail less taxes. Alternatively you could calculate Australian commission on the retail less GST in which case our margin isn’t 25% it’s 27.77%.
In USA the price of a product is the price on the ticket plus tax. eg you go to McDonalds and the price of the items on the menu board you are buying add to $10. You then need to pay $10 plus the sales tax which makes it maybe $11.
Steve – your analogy with Australia doesn’t work as we have GST on both sides of the transaction and USA has it on one side only. You need to either include or exclude GST on both the wholesale price and the retail price when calculating your margin, but not include GST on one and exclude it on the other. In USA you need to exclude sales tax when calculating margin otherwise you get a misleading outcome. USA by the invoice above gets 30% margin.
Of all the comments here I like Henry’s and Dean’s, as they clearly explains why the US when showing prices displays “Price Plus Tax” as Tax varies across the country. A point I did not fully grasp as to why until now.
However in our country where is tax same across the whole, I believe should stick to our practice if Including all Tax in Prices displayed. I do know in the Past there has been support in this country to adopt the US practice and when proposed it has been howled down.
David, I was wrong to assume the sales tax was included in the cover price. Thanks for the correction.