Where is your money going? What makes up a product price, what it consists of?

How often do you think about where or to whom your money is going after the purchase? Is it an industrialist, a Wall Street investor, a side street baker, a transport company employee, advertising guru, grandma working from home or underpaid factory worker. The fact is that the portion of your expenditure will sooner or later find the way to all of them. But have you thought about the fact that you can decide on your own to whom and where your money is going.

For each product, the price can theoretically be divided into parts which consists of the idea, material, hours of operation, the company's administrative expenses, marketing, advertising, packaging, transport, retailer, sales work, profits, taxes and sometimes even the air or a bubble. Eventually, all these costs are paid by the buyer. So, it would be wise to think about how much and where your money is going.


In order to produce something it is necessary to have an idea. Some ideas cost more, some less. Therefore, the proportion of the idea may be very different depending on the case and the product. If you buy things such as vegetables or fruit, then proportion of the idea in the price is nearly non-existent. However, if you buy some fruit-flavored product, then the idea has much higher proportion in the price. The share of an idea in a price is greater for a products such as artistic products, training, services and special solutions and for other creative activities.


The material has a very important role in the pricing. Using cheaper materials products can be produced at a cheaper price from competitors. However, the quality of the product is then often worse than with more expensive materials. Material prices can also be played. Many raw materials prices will fluctuate depending on the season, the location and the economic cycles and large companies will be using a smart strategy to take advantage of the price fluctuations. But the fact is that the earth's resources are not infinite and one day the economy may face the moment when mineral resources have been exhausted. Therefore, if possible, one should consume these products which are produced from a recycled material. When choosing the product you should also look at whether or not the material has been waisted too much, though it is likely to be difficult to estimate without the background information. Many companies who are using sustainable materials and are environmentally friendly place this information also to a product.

Working hours

After the idea of the product and the material it would need someone or something that would put this product together. For example, it may be a grandmother who is knitting a sweater in a chair in front of a TV or a set of machines that process automated factory-speed high-precision products. Whether your money is going to the factory or your grandmother is your own decision. What is certain, however, is that human labor is getting more and more expensive, and this is forcing manufacturers to increasingly look towards machines. It means that an increasing proportion of people will lose their jobs.

It is very important where the production takes place, because the operating price is different from country to country and the wage gap between people in terms of the world is sometimes tens if not a hundred times different. It is Horrible to think about that, for example, a seamstress who sews shirts in Asia is less paid than a vendor in Europe in a shirt shop behind the counter who only reaches over the shirt and hads it over the counter. One person essentially makes the material with its own hands, and will be paid less than the person who puts the shirt in a plastic bag and passes it to the customer.

Executive expenses

A company will not be able to function properly if there is no work necessary buildings, equipment, specialists and other resources that affect the operation of the company. Many companies have also taken the loan, which would ultimately be paid by the customer anyway. As each loan is accompanied by the interest rate you also benefit the bank indirectly from the sales. The larger the company's administrative costs, the higher the price of the product .

If a company is poorly managed and its performance is ineffective, then this will also increase the price of products because of a poorly run company costs are higher and someone has to eventually pay for these costs. Costs can be reduced in several ways. The company does not have to buy the newest and most expensive vehicles, do not need to have the fancier offices, employees may be authorized to work in the home to save on office costs etc., etc..

On the one hand, it shows all the company's success, of course, but its the paying customers from whose pocket that money is eventually coming from. Therefore, you should always also look at whether the size of the company and its costs has a logical balance between the success of the company. If the owner of a small workshop is making the expenses compared to a big company owner, this probably comes at the cost of someone's sweat and effort. There are always exceptions, but let's be realistic, however.

Marketing and Advertising

They say that if something needs to be advertised, then it probably is a bad product, because good things do not need to be advertised, it advertises itself. We all know what a Ferrari is, but how often do we see a Ferrari commercials? Some products are just so legendary that it does not need any special advertising. But in reality only a very few companies can manage without a traditional advertising. One could argue that advertising is also when a friend recommends a product or service to another friend. Limit between advertising, marketing and reputation is very thin here, and can not be definitive. What is clear is that each ad costs, and that cost is paid in the end by those who go to the store and buy a product. The more advertising, the more the customer will pay the price for the advertising.


Basket of packed tomatoes look better and prouder than to pick them from a large box in a plastic bag. But are they better? They are twice as expensive though, but maybe it is the price of a basket, jardiniere and handiwork, not the better tomatoes. No company will pack something for free and from a good will. Packaging must also be paid by the customer anyway. In particular, the sad part is that each of these fancy and large packagings are likely to end up in the trash, and mixed with the whole of the rest of the garbage, which means that it does not go well for recycling. Think how terrible it would be if you buy a product which packaging is more expensive than the product itself ... quite possible is that this has happened.

Air or bubble

There are also many products in which one must pay for air or bubble. Essentially, air is not the case, however, it has come under the summarizing something that does not actually exist, or exist only in theory. They are emotion, position, status and other aspects that can be easily manipulated. If you purchase a product that is accompanied by a general societal approval and admiration, it is possible to increase the price of the product because it is desirable and unattainable for many. If the overpriced products remain unsold, they will be destroyed and not being distributed inexpensively, because it would reduce their price and in the future noone would buy them so dearly. So, there are some products which you are probably paying for the position and status. Is it worth it, is yours to decide.


If your product is ready, and in some cases also the air blown into, then this product should be transported to points of sale. The further the production is from the point of sale, the higher the transportation costs. If you buy something from a side street bakers' pastries, you do not have to worry about wheater you paid for a flight, ship or land transport. But the farther away the products you buy, the greater part of the cost of a product falls within the transport. It means you gave a greater amount of your income to fuel spending and the pollution of the planet. The fact that the European products are expensive in America and vice versa, probably everyone knows, but that does not mean that if you buy an European product and which is more expensive then it is somehow better. You just paid more for brokers and transport.

Mediators, retailer, brokers

The more companies from the commodity goes through, the more expensive the price will be. Factory sells products retailer, distributor sells the product to wholesale company, wholesale company sells it to retailers, etc., etc.. Every retailer wants to get their profits and must also pay their employees wages and other costs. Perhaps if you are at the beginning of thinking that you only pay for the factories for the production company, the company's buildings, equipment, vehicles, operating hours, advertising, packaging, etc., you will actually pay far more than only ones corporate spendings. Buying a sweater from grandma's is already starting to feel pretty good idea or what? More so, you can order a sweater exactly like you want.


All previous work also requires that all of these products also have to sell. Sales job can be done in very many different ways. Depending on it the sales costs are also different. Without a doubt, we enjoy the showrooms and service agencies with beautiful furniture and tasteful furnishings. Everyone needs to make it clear to themself eventually what and how important is for them, because also all points of sale costs will ultimately be borne by the customer's pocket.


No company can operate without profit. Even if it is a non-profit agency. This may not be economic, for example, the benefits can be emotional. Just as all of the foregoing, this must also come from the customer's pocket expense. You can, of course, increase the profit of the company in several ways and one of the best way to increase profits is to reduce costs, which often means a reduction in workers' wages. What kind of profit optimization process it ever is, in any case, the part of the profits come from the customer.


And finally, of the above contains various taxes. Needless to specifically mention that it will also come from the buyers pocket. So ... the next time you shop for anything, you can proudly reflect on how many areas of ecenomy you support with your purchase. But as a result, you will always have the opportunity to decide which product to choose and whom to support with your purchase. This option is for us all to decide!

Last update: 2018-03-19 (Y,M,D)

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