While it is obvious that companies get their profits by selling you products and services, it may shock you to realize that some of the products you buy cost ten or more times their production costs! That’s right, your favorite designer jeans that went for $400 may cost $30 to produce!
This infographic and article will explain the highest markup products and just how much above the production cost you can expect to pay. Use this information to assuage your curiosity or to save money on your next purchase!
What Is Markup?
Markup is the amount a producer adds to a product’s sale price above and beyond the manufacturing costs. So when you finally buy a product at the market retail cost, it always includes the markup. In most cases, markup is to ensure profit and cover overheads, but markup can become excessive.
What Products Have the Highest Markup?
So now that you know about markup and the varied profit margin in products, here are some of the highest markup products on the market today.
Text Messages
While unlimited text plans are affordable, texting without one is usually far more expensive. Phone carriers spend about three-tenths of a cent to send each of your text messages. However, sending a text via AT&T and Verizon without a plan will cost you an average of $0.20.
This profit margin is more than 6,000%! The cheaper option is to buy long-term plans, which is exactly what the phone carrier wants. This way, they can make you commit to their services for an extended period and have you on the hook for monthly payments.
Bottled Water
You’d think that water would be the cheapest product since not much goes into its production. However, depending on what brand you choose, water fetches more than a 4,000% profit!
Bottled water typically comes from the taps, and companies use about $1.50 per gallon to produce purified water. They then sell it at around $1 to $4 for approximately 16 ounces.
You should know that the quality of bottled water is the same as that of tap water in most American states, so perhaps it is time you rethink buying bottled water, even from the grocery store. Just be sure to confirm the safety of your tap before you make this move.
Brand Name Prescription Drugs
With a 200-3000% profit margin, brand-name prescription drugs have one of the highest profit margins overall. It is notably higher for essential medications that manage conditions such as HIV, diabetes, and cancer. For instance, the EpiPen (which contains epinephrine to treat severe allergic reactions) goes for $600, yet they hold only $1 worth of drugs.
The outrageous prices in prescription medicine are due to a monopoly in patented drugs, brand names, and limited market competition. Thankfully, insurance companies often help pay for this massive markup.
High School Rings
High school rings are not just overrated in some states; they are also overpriced. If you are out to get one, be ready to pay about 50-500 times the labor and production costs.
High school ring producers take advantage of the fact that you may buy it only once in your school years. Sadly, the rings are often not of good quality, and the fancier they are, the more money you will have to part with. For instance, if you want your name or year engraved into your high school ring, these services will also be much more expensive than anywhere else.
Movie Theater Popcorn
You’ve probably found yourself lamenting over the high costs and high calories of movie theater popcorn before (and rightly so!). While their popcorn goes at a wholesale price of $0.35 per serving, you may have to part with $6.50 or more at the theater. The worst part is that you can’t even carry your own snacks into the theatres.
On the bright side, a Stanford study shows that this high markup allows movie theatres to sell tickets at an affordable price since they earn significant profits from their popcorn sales. So, the next time you buy overpriced snacks at the movies, take comfort in the idea of your discounted ticket price.
Fountain Soda
Buying fountain drinks in gas stations, convenience stores, and restaurants always cost much more than the production and supply cost. On average, you may get fountain sodas at $2.99, which is more than 90% profit to the restaurant or convenience store that sells it to you.
Some restaurants will use these profits to provide you with relatively cheaper meal options. This way, they draw more customers and can sell more fountain drinks!
Prescription Eyeglasses
At a $300 average retail price, prescription eyeglass costs are relatively high. Their markup percentage is even higher, considering it costs about $30 to make eyeglass frames and lenses. This high markup is due to limited competition in the prescription eyeglasses market.
College Textbooks
As you go off to school, you should know that your tuition is not the only expensive cost you will have to deal with; college textbooks are also highly marked up.
The average price of printing college textbooks is around $10.75. However, you will have to part with $100 or more for each one you need. This extra markup cost likely goes into transportation, author royalties, marketing, and other expenses involved in book circulation.
Wedding Dresses
When thinking of your dream wedding dress, chances are it may cost you thousands of dollars. However, it will surprise you to find out how much cheaper the production cost was. In most cases, a $7,000 gown may total just $2,500 in fabric and labor costs.
For brides, the dress is more than just the fabric. It’s the fit, the finishing, and all other intricate details. Designers know this and will charge extra for each of these things.
Wrapping Up: Avoiding High Markups
Sadly, it is almost impossible to avoid high markups entirely; there is simply no way of avoiding movie theater popcorn!
However, you can avoid buying bottled water and stick to drinking tap water or buying a filter for your home. You can also avoid sending text messages by using an alternative messaging app such as Whatsapp, Messenger, or even Snapchat. Now that you know the highest markup products, you can avoid buying them or look for alternatives to save some money.