After factoring in other input costs and margin expectations for shareholders, I’d expect finished goods to rise more like 10%. No one’s buying wholesale chunks of aluminum and steel for home use.
Margin expectations are a x% of costs; if the costs go up +y%, the margin expectations are still x% of 100+y% costs. If anything, margin expectations will go up because of the increased risk of investing into something that may not sell as well at 100+y% as it did at 100%.
For example: if a bonus margin of 5% was fine compared to money interest rates of 4.5% at this moment, for a final 4.5+5=9.5% APY, there may be no longer any confidence in interest rates staying the same or people buying the same amount to keep the same economy of scale, with investors refusing any less than 4.5+10=14.5% margins, making prices go up an additional 5% over the 110%. It gets even worse, because while a relatively small increase in expected ROI might be acceptable, the final per unit cost may need to increase even more to achieve that ROI… or directly close shop, declare bankruptcy, reduce offer, and prices of remaining units skyrocketing to 150% and beyond.
The larger the expected margin, and the smaller the economy of scale of a product, the more it is likely to increase with each component’s price hike.
You’re of course correct on margins. I was meaning the broader sense of ensuring line goes up. I’m up way too late to have an economics discussion, and it seemed convenient shorthand.
I’m glad you did! There’s a nonzero chance someone unversed in such things will read your post and gain knowledge. The whole system is designed to be a black box to the layperson, and any time we can shed some light, we should.
After factoring in other input costs and margin expectations for shareholders, I’d expect finished goods to rise more like 10%. No one’s buying wholesale chunks of aluminum and steel for home use.
Other inputs yes, margins no.
Margin expectations are a x% of costs; if the costs go up +y%, the margin expectations are still x% of 100+y% costs. If anything, margin expectations will go up because of the increased risk of investing into something that may not sell as well at 100+y% as it did at 100%.
For example: if a bonus margin of 5% was fine compared to money interest rates of 4.5% at this moment, for a final 4.5+5=9.5% APY, there may be no longer any confidence in interest rates staying the same or people buying the same amount to keep the same economy of scale, with investors refusing any less than 4.5+10=14.5% margins, making prices go up an additional 5% over the 110%. It gets even worse, because while a relatively small increase in expected ROI might be acceptable, the final per unit cost may need to increase even more to achieve that ROI… or directly close shop, declare bankruptcy, reduce offer, and prices of remaining units skyrocketing to 150% and beyond.
The larger the expected margin, and the smaller the economy of scale of a product, the more it is likely to increase with each component’s price hike.
You’re of course correct on margins. I was meaning the broader sense of ensuring line goes up. I’m up way too late to have an economics discussion, and it seemed convenient shorthand.
No worries, I just felt like writing it down. Have a good… night? rest period? something 😄
I’m glad you did! There’s a nonzero chance someone unversed in such things will read your post and gain knowledge. The whole system is designed to be a black box to the layperson, and any time we can shed some light, we should.