Okay, Ed, let's make some explicit assumptions. Let's assume that the unit is drop shipped from CPQ, and that the retailer makes 25% -- that's not too high!. So his cost was $800. Subtract 25% for shipping, so he was charged $775 for the unit. Let's assume that the distributor receives only 15% (he does need to make a profit and I have neglected his costs), So his cost was $673. Now, according to a 4% profit margin, that would mean that CPQ's cost could not exceed $647. Now, as Jim Kelly pointed out, your figures do not include the cost of bundled software, ROM BIOS etc., nor do they include overhead items, nor do they include warranty costs, etc. Perhaps the costs of HD and CD-ROM were overstated in your analysis -- they were your figures after all. But it is clear to me that in order to achieve a 14% profit margin (which was used in a previous analysis on the CPQ thread), all costs (including labor, overheads and allocated expenses, and provisions for warranty work) could not exceed $590. Perhaps this is possible -- I don't know. The major point I was trying to make is that channel costs can runup costs very quickly.
Now, I don't know whether the 4% number is real or not, but I do know from reading various posts that the profit margins must be very slim. After this analysis, I'm more inclined to believe the 4% profit margin numbers than my previous guesstimate of 10%
Regards,
Paul |
