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58 Responses

  1. Khaled Kharfan at |

    nice list there, but i think you should consider that some of these industries, such as cosmetics and medicine ( and possibly convenience products companies such as furniture and glass frames) have the majority of their costs attributed to research. so the actual cost per unit for a manufacturer climbs up when such factors are taken into account.

    Reply
    1. David at |

      I mentioned that in my reply,(see below).

      Reply
  2. misko3000 at |

    Cooking spices have like a three thousand percent markup as well.

    Reply
  3. David at |

    I think that the information on this list is somewhat misleading.

    As was pointed out, a lot of the mark up is not profit in the true sense. The mark up on make up, medicine, etc. is to compensate for the significant costs of r&d, marketing and government regulation. Although the mark up on medicine is high, one has to account for the fact that before any drug can be released to the public the FDA requires the manufacturer to go though an extensive and expensive three phase development process which literally takes years. This increases the costs for development of the drug. In addition, the drug patents expire after a few years and the generic manufacturers knock off the product at a much lower cost because all the r&d has already been done, and there are few marketing costs for product placement and differention are almost nil.

    As far as cosmetics are concerned, the FDA still gets involved which results in the manufacturer incurring higher costs and delay. In addtion, because product turnover is not high it costs the retailer money the longer the product stays on the store shelf as a result, this has to be offset by higher price points.

    As far as fashion items are concerned I could not agree with you more. In fact, many of the manufacturers of designer jeans make generic ones as well! The difference in cost is largely due to royalties which have to be paid to the designer, in addition to the fact that these clothes can't be massed produced and are only sold through "select" retailers.

    As far as the water is concerned, different states have different rules as to what can be called "pure". In fact, some states require only ten percent of the water in a bottle to be spring water and still allow it to be called " pure spring water", other states have more stringent requirements. Bottled water and tap water are not the same. Tap water contains chlorine, fluoride and other unfiltered chemicals. Much of the bottled water does come from natural streams, or glaciers. Again, the costs incurred for this product are essentially, marketing, product differentiation and distribution. The same thing applies for "designer" glasses. Gucci, Chanel, Polo and others must be paid hugh royalties for the use of their names. This adds considerably to the price.

    Diamonds and other jewelry tends to be expensive due to good old supply and demand. The demand is high for a relatively low supply of precious stones. In addition, the product is expensive to extract and refine. While marketing costs are not as high as they are for sunglasses and designer jeans, the turn over for precious jewelry low. In fact, fine jewelry may sit in a store literally for months even years before it is sold! This means that the mark up has to be high to compensate for the low turnover, fixed costs and ther expenses. In addition, the people who cut and set the stones are few, and highly skilled. That means the time it takes to produce the final product is longer than it is to produce a piece of clothing.

    Believe it or not, the costs of running a movie theatre are also very high. Films cost a lot to rent and projectionists are very well paid. While a large part of the cost of showing the film is offset by ticket prices, this is not always the case. For every Iron Man or Avatar, ther are a lot of Giglis, (which was a hugh flop at the box office and cost a bundle ). Since the concession area is considered a profit center for the theatre, some of the cost of other areas have to be off set by more profitable ones.

    Greeting cards are more than just paper and ink. The creators have to be paid, the cost of distribution and marketing as well as profit to the retailer are factored into the price. In addition, there is the cost of returns from the retailer for the ones that are not sold .

    Iagree that soda is little more than colored water. However, the cost of advertising marketing and product differentiation are significant. Also while products that flop are rare, the profits lost by failure are significant, remember Pepsi Light, Coke Light, Diet Coke with Lime, New Coke, Tab? The development and marketing cost incurred are significant and have to be offset through profit margins and mark up in other areas..

    In closing, I just want to point out that while it seems that mark ups are high and seem to be arbitrary, there is often good reason for them to exist.

    All in all, there are many reasons that

    Reply
    1. meow.bi at |

      I have to agree with you that part of the markup is covering research expenses or designer work, but those expenses are not so high to justify high markups.

      The worst example are pharmaceutical companies. Just check their annual revenues. Do you really think that they are spending 20 billion US per year on research ?
      According to Forbes, research of new medication costs 4-11 billion. According to Wikipedia, annual revenue of 19 strongest pharmaceutical companies in 2008 was 495 bil. US ( or converted to new medications.. 44 – 123 should be launched every year ). I don’t think so.
      Also one more thing… if they are selling one medication in Europe for 60 US ( and not loosing any money on that medication), why do they sell the same stuff in US for 4-5 times higher price? Taxes? Transport cost? Greed?

      When it comes to postcards… design of those postcards is so cheap that they pay back designer by selling several cards only ( on freelance sites companies are offering 15-25 US for a design of 1 postcard).

      Reply
    2. Patrick at |

      Also, from the basic standpoint of providing goods and services. The cost of R&D for a drug n the pharmecuetical business is enourmous, which was touched on in David’s reply. But one thing people miss is the sheer manpower it takes on the side of the business in order to push a drug through extraordinary regulatory scrutiny. We are talking not just marketers and researchers, but legal staffs and communications staffs that make everything fit the bill that goverment regulations require.

      Reply
  4. JoeD at |

    I agree that ink for ink jet printers should have been included on the list. Ridiculous it costs so much.

    As for Diamonds, I would never spend that kind of money on a gem that has become so…. common in use for jewelry. There are other stones such as rubies, or other crystals that are far rarer than diamonds and sell for at least equal if not less in comparable carat weight.

    Reply
  5. Walter at |

    Not sure what machines you're getting your soda from but the only soda I can find for fifty or seventy five cents is Sam's soda at Walmart. The price of Pepsi or Coke for a can is around a dollar now with the bottles going for $1.25. Plus at least most restaurants do have unlimited refills so I mak sure to have as many glasses as I can get.

    Reply
    1. daniel at |

      In restaurants, they serve drinks from a fountain usually. The cost for making the drinks from a fountain is dramatically lower than buying a bottle of premixed drink. Imagine production, containment, and shipping without the water? Anyhow, a typical 22 oz soft drink costs a restaurant a few cents to make, and add a few dollars to the bill. That’s why many restaurants are willing to allow unlimited refills.

      Reply
  6. Llyr Ap Morgan at |

    For #1, it depends what country you're in; in Wales, all prescriptions are free.

    Reply
    1. Ramsey at |

      They're not free, someone else is paying for it.

      Reply
      1. hihowareyou at |

        Your tax dollars are paying for it. It just seems free.

        Reply
  7. comradeDa at |

    Huh?

    I pay like, maybe, $40 tops for any of my prescription meds. Maybe it’s different for people who live in countries with public health care or something.

    Reply
    1. daniel at |

      The point is not what YOU pay, but what is paid in total for that perscription. Between you and the insurance company and perhaps the government, the total amount paid is actually very high. Sure, R&D is priced in, but only in the U.S. Perscription drug users and insurance companies pay for the research for the rest of the world. All they have to do in Germany is say, “If it is good enough for the American’s to take, we can take it too.”

      Reply
  8. joshuam511 at |

    you don’t have a clue how companies work do you, the product is often the least costly part of the equation, you have rent, rates, professional staff costs, loans. and then anything you make is 70% taxed.

    i own a opticians, and yes some of the frames are expensive but other aspects of them are very under priced and undersold and the lack of sales of other optical good [which are often bought on the internet] drive up the cost of optics for the opticians.

    often manufactures have recommended retail prices for their products, and the sales over the internet are ‘often’ a breach of contract.

    opticians also have to deliver a high quality service, if they do not they can be struck of the medical lists – same a doctors. unqualified internet providers cannot be struck off any medical certification lists because they are not on any.
    please take greater care in the discussions you post and research more into your topics

    Reply
    1. David at |

      Quite the contrary, I do. I am not disagreeing with you. My point is that the high prices and markups are largely due to external costs tha price gouging obvioudly the retailer has to have a high markup to absorb thse costs. These include the costs of marketing,( which I did mention). It also includes royalty costs. Some of the companies that make designer sunglasses also make genereic sunglasses. What you are relating IS part of the overall marketing cost, either to you or the consumer. Thanks to advertising, and the prestige of designer names the costs to the retailer and the consumer are high. I am sorry that you may feel bullied by the wholesaler, the fact is if there is a name product that has cache it will cost more. I am sure that your business would drop off considerably if you did not carry some of the high fashion names. That's just the way sales works. I have gone into small optical retailers and asked for a specific brand of designer glasses and told that the store did not carry it, but would "order it " for me. Obviously, just like with jewelry, if the turnover is not fast the retailer is hesitant to carry the product in it s inventory. BTW I have taught marketing and finance to college students, and I do know a little abut the process.

      Reply
      1. hihowareyou at |

        Yes, some companies absorb their profit margins from over charging on simple products. But as far as what the product is actually worth there is usually a large disparity. Take popcorn for example: the ACTUAL cost of a bag of popcorn is a few pennies. What the company CHARGES for it is much higher than what they bought their bulk bags of popcorn seeds and liquid butter for.

        Reply
        1. Jerry Nowell at |

          How does the cost of the materials used to product a product = what something is really “worth”? Let me ask you this: What do you do for a living? Unless you actually sell your own body parts, you almost certainly do something that eventually contributes to the production or delivery of a product. When I buy the product toward which your labor contributed, should I ask that they deduct the cost of your wages? After all, if a product is only worth the value of it’s components, they’d be over charging me to cover your wages.

          Reply
          1. Piwetz at |

            The worth, value or price of any product will be determined by what the consumer is willing to pay for it, for whatever reason.

            Reply
  9. Novacaine at |

    The problem with buying glasses online is that you can't try them on first, otherwise I would.

    Reply
  10. joshuam511 at |

    the websites do not really have any expenses, they can be run out of some 12 year olds bedroom and you would have no way of knowing.

    I don't know about the US but in the UK an ophthalmologist tests eyes, and a dispensing optician calculates the lenses and frame and fits them.

    that is two professional wadges both of whom have degree level qualification. our ophthalmic optician is around £100 an hour and that as well [maybe slightly less for a dispensing optician] for a DO.

    the lenses are also subsidised by the frame, internet sites often [always] use cheap molded plastic lenses from the far east ie China, Korea etc. and they retail at less than a penny. some of them even have physical ripples in the surface.

    we always use high quality ground lenses from reputable company's ie rodenstock a German company. these lenses can cost upto £400 per lens [generally less nearer £30-50 per pair] and so need to be subsidised by the cost of the frame.

    lenses are a lot more complex than they superficially seem heck they have a degree course pretty much dedicated to lens.

    i guarantee you that glasses are not hugely over priced and the only way websites can undercut high street practices is by loss of quality and lack of huge over heads.

    i hope that helped

    Reply
  11. Laka Dukus at |

    You do know most cinemas make money on the consessions and not the tickets right?

    Reply
    1. David at |

      Back in the '70's 2 friends of mine and I owned a drive-in and we would have let people in for free just to get the concessions, but the movie leasing companies, especially Disney, had minimums we could charge. We'd charge the absolute minimum we could ($5 a car load) and advertise 25 cent hot dogs. Our cost with bun, condiments and all was under 10 cents and we'd sell the hell out of them. Pop has the highest profit margin out there – that 32 oz. Coke you just bought for a buck cost them about 15 cents including the cup (the most expensive part). We

      didn't make money on the movies, but we sure made money on the concessions. We also found that trying to rape people on the concessions didn't work – we made a lot more than the other theaters in town because people didn't feel like they were getting screwed just because they were in a theater. There was no reason to charge more than they would have paid at a convenience store. As a result, we did quite well until the landowner decided to sell out to Wal-Mart. Still, it was a great experience and also ridded me of my 1st ex.

      Reply
      1. Dean at |

        David, I really enjoyed reading your blog more than any others. I didn't realize so little was made on the ticket sales. I wonder if that's still the case nowadays, with blockbuster movie ticket prices being so high? Cheers!

        Reply
        1. Srlowe at |

          Greetings,
          David hit the nail on the head with the reasoning for concession prices. In highschool I worked for a “Cinema Center” in PA, and the owner said the concession brought in more than 80% of the income, the tickets themselves didn’t do much. The reason for this is that it costs soooo much to purchase the film for movies. With Starwars, for instance, he lost money having it in his theaters because of how much Lucas charges, they even had to buy digital projectors just to air them. But, he couldn’t very well NOT have the movie in his theaters, and the concession prices were the only saving grace.

          Reply
    2. hihowareyou at |

      Yes, anyone who has ever been to a cinema knows that. You can get a bag of popcorn at a gas station for 50 cents and the same size bag at a cinema costs $5.00. This list doesn't concern the profit to cost ratio employed by cinemas to maximize profits on concessions. It's just an examination of how high of a markup they can charge for a CHEAP product. Yes, cinemas make their money off of concessions, but this is not a list of the Top 10 Ways to Become a Successful Cinema Owner By Overcharging On Your Concessions To Absorb The Price to Cost Ratio of Running A Cinema; it's about overpriced popcorn.

      Reply
  12. tasmanian devil at |

    In reality something is only worth what people are willing to pay. The production cost is meaningless. A good example is in the 80's a man would buy cheap denim jeans, put his own label on them, shoot them with a shotgun and then sell the to the Japanese for $500. Are the materials and time involved worth that much? No, but idiots were willing to pay these huge amounts. This is capatalism and I love it.

    Reply
  13. Keith Watabayashi at |

    I like the idea behind this list, but the research doesn't seem to be there. It reads like a bunch of things the author believes should be cheaper so he can have more money to spend on…whatever. As was stated, the item may not be expensive, the process is can be costly and should be taken into account.

    Reply
    1. hihowareyou at |

      The process of taking a bunch of kernels of corn and heating them until they pop and then selling them is pretty simple. The process of buying sugar water in bulk from Coca-Cola for 2 cents an ounce and then charging 25 cents per ounce is pretty simple too. Yeah the process for typing words on a greeting card is terribly "costly" and should DEFINITELY be taken into account; that complex process definitely explains the markup…

      Reply
  14. Arthas at |

    Movie theaters charge so much for popcorn/other snacks because they make virtually nothing (less then 5%) on ticket sales. All of the money from the ticket goes right back to the studio that produced the movie. Without marking up the popcorn and other snacks, the theater would not be able to pay its employees or turn a profit, which is of course the point of making any non non profit business in the US. Inflation is terrible and that same negative-ness that inflation brings is the reason why movie theaters have to increase the overall prices of snacks and such at the theater. Without doing this, they would go out of business.

    Reply
  15. David at |

    Printer ink @ $4500/ gallon

    Reply
  16. hihowareyou at |

    Everyone is making this list into an economics 101 class. This list isn't about business, or about economics. It's about the products that have the biggest change in value from supplier to seller. Where I live, corn is selling at the price of $3.63 a bushel. A bushel is equal to 35 liters. That's a lot of popcorn for $3.63. The same price disparity is true for soda.

    Reply
  17. JimmieH at |

    The writer might have used a different cliche in the first section of the article. Since the topic is make-up, for which is worn to “enhance our beauty,” the lipstick on a pig adage suggests we shouldn’t bother. Clay from the back yard or from a fancy jar put on a pig’s face doesn’t change the fact s/he’s a pig.

    Reply
  18. nesbith at |

    Not all diamond jewelry stores are the same so check reviews first before buying on a jewelry store”:’

    Reply
  19. Turk at |

    I work in sales for a furniture/mattress company and most items pay 4% commision, so please tell me where they are paying 20% because that is a hell of alot more then we get. A $600 sofa pays me $24, and if we reduce it 1-5% i get 80% of that, $19.20, anything more off and it is 50% commision paid, so your $600 sofa reduced to $550 pays me a whole $11 which if it took me more than an hour to sell to you is hardly minimum wage.

    Reply
  20. Dduct2 at |

    And people complain about being “gouged” for gasoline! Could it be nothing is ever said about these products because these are items we want, with the exception of medicine, but do not necessarily need?

    Reply
  21. Ron at |

    This is an interesting article and the comments made so far are mostly good too. All I can add is my paycheck is not increasing as fast as cost of goods and services. Therefore, I have to make hard choices on what to spend the income I do have so this discussion helps. Thanks for all your input!

    Reply
  22. Jerry Nowell at |

    The average income for a furniture salesperson is about 5-8% of sales, with higher end stores generally paying more (their sales staff need to be more polished and knowledgeable). I’ve been in the business for over 35 years, and have never, ever heard of sales people making 20% on sales.

    The markup in furniture is much less than people may think — but may appear high because the overhead for a quality store is very high. I have a 20,000 square foot showroom full of paid for furniture so that my customers will have many options to choose from; I hire quality sales people who earn at the high end of compensation in our industry, about 8% of their sales (annualized, about 35k to 60k for the very best, most talented designer/sales professionals); I have an excellent warehouse and delivery staff so your furniture arrives intact in your home; I have a top-notch office and admin staff to make sure the special orders are placed and acknowledged accurately, and that your statement is correct to the penny, and also to ensure that we collect and pay all the various taxes we are required to collect on behalf of the government (sales tax, fica, social security taxes, withholding taxes on wages paid, etc.); and we offer excellent service. At the end of the day, no one in my business is making a killing — not me or my staff. And we are about typical. Unless there is some sort of artificially restricted distribution (oligopoly or monopoly), competition will ensure that you are not gouged, as a rule. I suspect that this applies to most of the industries/products in this list. (If the answer seems too simple, then you probably aren’t asking the right questions.)

    Reply
  23. beckymonster at |

    I’ve always wondered why frames for glasses cost SO MUCH. A lot of consumer products have major markups but I was always bothered by the cost of glasses.

    Reply
  24. John J at |

    Every one of the points above and all the responses simply confirm to me what I have been saying for years. Namely, that as a western societey we have continued to foolishly back ourselves into a marketing, selling, and required expanding economy and we deserve whatever price rip offs are thrown at us.What would happen if we had no multi million dollar entetrainers, athletes, actors and all sorts of other non-essential garbage?? If you added up the total dollars involved in American sports, entertainment and fashion/cosmetic industries,(don’t even get to the bombs and guns), you would have more than enough to feed,develop R&D for medicine and clothe every human being on the planet in a fair and equitable manner. With the instant communications of the internet web, is it any wonder that in many 3rd world nations we are “hated”? Someone in a poverty stricken village halfway around the world can see everyday, any “one” of us wasting enough of the planet’s resources to help their entire village exist for a week. Sorry, but not one of the above defenses of anything in the article justifies the exorbitant prices we all pay for a lot of junk!!!

    Reply
    1. tim at |

      our economy works like rain. the money comes from the top and trickles from the top thru many levels or income classes to the bottom only to go back to the top. thats the only way it works
      so we need all the classes to make our economy to work

      Reply
  25. Wally Wilson at |

    Walmart eye place checked my vision and sold me a pair of glasses. Eye doctor took 60 bucks “under the counter’ so to speak. Didn’t bother telling me I needed cataract surgery in both eyes……….it took some hastling, but I returned them and got my $370 back( didn’t see the 60 bucks though). Stay with “real” optometrists

    Reply
  26. Matt at |

    I am a salesman at a store that sells both furniture and mattresses and I literally laughed when I saw your opinion of the markups. 200-400%?? thats more than ten times the profit ANY store could sell at. its just not realistic. A store wouldnt last a month with those markups. beds and furniture do tend to have bigger markups than appliances for example, but even a 30% markup is pushing it as a salesman.

    Reply
  27. James at |

    How about shaving razors, I read somewhere that markups on the average razor are around 5000%. Yes 5 thousand, there are no extra zeros there.

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  28. Richard Ruhling at |

    I appreciate your #1 markup info on the greedy drug companies. Wondering if I might use a couple paragraphs for a book I’m writing?
    Thank You Sincerely,
    Richard Ruhling (retired MD favoring alternative natural remedies)

    Reply
  29. Dubstep Remix at |

    Great read for this article. Everything is marked up these days, honestly I just bought an aquarium set up and the accessories cost me over $200!

    A quick search online shows the Chinese manufacturers selling the exact item for 30 cents when I paid $25 for it.

    But prescription medicine is by far the worse, the medical industry is notoriously greedy. They are out to milk people out of every penny under the guise of aiding their health.

    Reply
  30. Knowalittle at |

    I’ve been around the movie theater business for years. Just like any other business, you have to pay your employees, rent, electricity (air conditioning, all the lights you see, all the advertising – its a big bill

    One thing people do not know about movies though, is that most theaters do not keep any of the rake from tickets. Those dollars go to the movie companies themselves. Sometimes these contracts are written where the box (theater) leases the film for a set amount, often a losing proposition. Other boxes sign contracts where they give a percent to the film distributor (usually 90-95% of ticket rake).

    As you can see, the theater receives little if nothing from the movie itself. This is why concessions are so high, it is the only area in which the theater makes money and is able to stay open.

    Reply
  31. Jonathan at |

    I am a pharmacist and I just want to weigh in and give you an accurate perspective from my point of view. Yes, some drugs are priced high, but RnD costs are very high. Here are the facts. It costs an average of $800 million dollars to develop a successful drug. Only 1 out of 8 drugs a company produces is actually profitable, so the one successful drug has to make a lot to cover the costs associated with bringing the drug to market. Also, when a company gets sued like Merck for vioxx, it costs them 4.5 billion dollars! And when you want to ask a pharmacist a question about a drug you are picking up, about possible side effects, etc, do we charge extra for that? No, it is included in the price of what you are paying for the drug. I thought this was a poor representation of the costs of drugs and the author obviously lacks understanding about the education involved with pharmacists, the intangible advice, and others remarks explained above.

    Reply
  32. Fang at |

    lol I have you guys all beat:

    The biggest markup ever, that is infinity percent, is:


    …software.

    Angry chicken, fruit ninja. How much does it cost them to reproduce it to sell it to you? $0.00

    Reply
  33. Texas NFA Trust at |

    There are giant markups on everything you buy. If youâ??re a merchant seeking profits, thereâ??s only one way to find them: sell stuff for more than you pay for it.

    Reply
  34. Scott at |

    You forgot Potato Chips. Huge mark up per once they are more expensive than Gold.

    Reply
  35. Anonymous at |

    I have been a regular reader of the TopTenz list and having worked in the commercial/ purchasing function of a major pharma MNC in India, i do agree with the post and disagree with David on the defence of R&D costs! The products with markup as high as 2000% are products which are mass sold in the market, whose patent has expired, and generic versions are available in the market @ a much cheaper rate!

    In order to counter the generic versions, the MNC’s would typically grease the palms of the doctors by taking them to Medical conferences to South African parks or an event in Bangkok… Sometimes do the interior furnishing of the office/ clinic, in a quid pro quo arrangement where the medical fraternity would inturn prescribe the expensive drugs available only @ the medical shop right outside the clinic.

    The Indian Govt, did take cognizance of this fact and banned all kinds of gifts to doctors, therefore officially right now any kinds of gifts are certainly not given to the doctors, still as a consumer when I visit the doctor the prescribed drugs are available only @ the counter outside the clinic!

    The rest if for the community to discuss and debate on!

    Reply

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