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Richard Rider

Business makes much less profit per sales dollar than most people think

When discussing increased minimum wage, mandatory sick days, higher taxes and other government mandated business costs, what is too seldom mentioned is that the Left assumes the increase will come out of (bloated) profits. But reality dictates that most of the windfall wages are passed though to the customers in the form of higher prices.  Yes, that’s obvious to those of us we even a modest understanding of business, but you’d be amazed how few people are aware of this.

Try this experiment.  Next time you discuss (evil) business with a Progressive, ask this simple question — How much of a dollar of sales do you think is business after-tax profit? Allow them time to answer — PRESS for an answer.

Few will guess less than 20%.  40% is not uncommon.  The reality is that it’s maybe 8% — eight cents of every dollar of sales. 92 cents goes for costs.

It’s usually significantly less in labor intensive small businesses such as fast food and restaurants. Here’s a good summation of average profit margins in various types of restaurants:

Full-Service Restaurants

Full-service restaurants at all levels spent about 32 percent of each dollar on the cost of food and beverages, 33 percent on salaries and wages, and from 5 percent to 6 percent on restaurant occupancy costs. Profit margins, however, varied according to the cost of the average check per person. Those with checks under $15 showed a profit of 3 percent. Those with checks from $15 to $24.99 boasted the highest profit margin at 3.5 percent. Finally, those with checks of $25 and over had the lowest profits, at 1.8 percent.
Limited-Service Restaurants
Limited-service restaurants devoted 32 percent of every dollar to the cost of food and beverages, which was nearly identical to the costs for full-service establishments. However, only 29 percent went to salaries and wages, which was lower than that of full-service restaurants. About 8 percent was devoted to restaurant occupancy costs, which was the highest of any type of establishment. Profit before taxes was also the highest for any type of restaurant, at 6 percent.

But one fun choice is to use the Walmart example — the one liberals can’t rage against enough. Their after-tax profit margin is generally between 3%-3.5% of sales. BTW, latest Target margin — 2.45%.

Yes, the public (and the MSM) have many misconceptions about business and economics. But if I could pick just ONE such misconception that needs to be changed, it’s this one. It’s the difference between “making business pay more out of its excessive profits” and “making businesses pass through increased government-mandated costs to their customers.”

Of course, that assumes that the customers will willingly pay higher prices to cover the increased costs.  To the extent that business patrons choose not to pay, then the business suffers (cutting costs/employees as it scales down), moves, or goes out of business.