Mitchell:

EXCELLENT post, every word of it.

I have only one comment regarding an issue that has been brought up a couple of times in this thread, which is whether we are or are not entitled to a "design fee". There is no right or wrong answer to this question. It depends on the market one is serving (budget or high-end etc)and the approach one wants to take.

This message was edited by QQQ on 02/24/04 20:30.

I haven't read all the thread yet but one thing I wanted to get out there...there are a lot of different ways to charge for things.

If you spend 40+ hours working on a bid...you might want to re-consider your approach. When you do all this work in D-tools you are giving away too much...unless your plan is to get $$$ for design and don't really care if you get the job.

Also...bids need not be a series of drawings equipment specs and things that the customer most usually cares less about.

The customer wants to know how these things will make their life better or more enjoyable.

Try writing a personalized proposal, one where you address the customers desires and needs. Talk about how the things you sell them will do what they want or need. Also talk about how they will work and how they will be operating them on a daily basis.

more later

It's not the amount, it's the percentage I have a problem with. I'm probably being naive, but a 50% profit margin on a piece of equipment seems extreme to me.

Narrowing it down to the two items, I guess I have a problem with a 50% charge over retail. If you sell me a piece of equipment for $1500 and I find out later (within a few months) I could get the same piece (matching model numbers) for $1000 at Best Buy, Circuit City, Wal Mart, whatever, I'm going to feel you cheated me.

I know I'm paying for your expertise, and installation, and I'm willing to pay more for that, but 50% more?

For those of you who have a problem with this, if you buy a car for $15,000, and then you find the exact same car (color, options, everything) across town for $10,000, how would that make you feel?

SamG

Hello SamG

You have brought many valid points to this discussion but I think you are a bit naive if you have a problem with us making a 50% profit margin on a piece of equipment. That doesn't mean we will make that kind of profit on every piece that you purchase from us.

Most industries make considerably more than that. Do you really think clothing stores, restraunts, whatever could afford to pay their rent much less their employess if the only made 50% on everything they sold? We are no different. We have many expenses we have to meet just to keep the doors open so that you can come in and demo equipment and talk with our sales/designer guys.

Getting off the soap box now

Thanks
Robbie S

Man, I wish I could make 50 points on all the items I sell. Wouldn't that be wonderful.....

Want to see some serious profit?

Go to your local RS and buy some cheap, garbage, trash interconnects. You'll pay $10.00 for something that has a wholesale of $0.99 on a regular basis.

Post broken into two parts:


Yes, you are being naive. I would suggest studying the profit and loss statements of some public companies and getting a relaistic idea of gross profit margins across several industries. I would go so far as to say that you will be hard pressed to find any good A/V company selling at less than the example you gave.

As far as profit margin goes, it helps to use correct terminology. If I buy an item for $50 and sell it for $100 that is 50% profit margin, NOT 100%. Profit margin = the percentage of profit of the selling price. In the example you gave, profit margin is 33%.

If you examine the profit margins for a variety of companies you will come up with something along the following:
Microsoft: 86% (you read that right, if it costs Microsoft $14, they sell if for $100).
Polycom (video conferencing) 55%
AMX (control system manufacturer) 52% (my earlier post referred to last quarter)
Radio Shack 51%
Tweeter (A/V Retailer) 36%
Herman Miller (commercial furniture) 34%
GE 31%
Home Depot 30%
Walmart 21%
Dell 20%

These numbers aren't the most current and may have changed in the last year or so. At 36% GROSS profit margin for Tweeter, I believe their NET profit margin was somewhere around 3%.

I do admit I am probably naive, and I'll rephrase my statement. I guess it's not the profit margin you're getting, it's how much I could have gotten the same equipment for elsewhere.

Again, I know I can't compare the internet, but at other stores. I don't mind paying more for your expertise, but 50% more than what I can get the equipment elsewhere?

|That doesn't mean we will

So what I'm reading here (correct me if I'm wrong), on some equipment, you'll charge me 5% more, some 10% more, some 50% more? How do you decide how much to mark up each piece?

SamG

1. Most business have items that have slim markups and they also have their "gravy" markups that allow them to stay in business. Radio Shack is a good example, it's well known that they stay in business on the basis of their parts markup, which are INSANE. Radio Shacks sells interconnect for $5.00 that I can buy for 25 cents through wholesale (which probably means their paying 10 cents for the quantities they buy in).

A/V businesses are like any other in this regard. We may only make 15% on a TV but will make more on a speaker.

2. You charge what the market will bear.

3. You charge what is necessary to be profitable. For instance, an outstanding A/V firm is usually going to be charging more than a firm that does down and dirty work. It would not surprise me in the least to find a top notch company that invests in training, insurance for their employees etc. charging substantially more then a fly by night organization.

As I said early on, you are buying the installation company, not the product. I think this is a hard concept for some outside of the industry to TRULY grasp and may sound like sales speak. People just can't get the idea out of their head that company A is charging $1250 for the same item that company B is charging $1000 for and that therefore company A is high. This is because we are used to the concept of buying boxes in the retail world. But company A is NOT high if the end result is going to be completely different than company B, and it's often that extra markup that is required for company A to perform at a different level than company B.

Note, I am NOT saying that the highest price is always best but am saying you usually get what you pay for.

First, I hope I'm not coming across as confrontational, that's not my goal. I understand marking things up for profit, training, etc. But why do some items get a bigger markup (percentage wise) than others? Wouldn't it work to markup everything the same amount? This is a retail question not particular to the HT realm, but does anyone have an answer?

SamG

It's just the nature of the beast and is common througout all industries. Speakers have always had a better markup than video. Luxury cars have a better markup than budget cars. Or take any car manufacturer and their decked out SUV's are more profitable than their lower priced cars. Many times a business must provide one item just to provide a complete package even though their might be no profit whatsoever associated with that item.

But in general, most dealers ARE looking at the overall profit on the project as opposed to a single item. So regardless of whether item A has a 20% markup and item B a 40% markup, the dealer is typically paying attention to the total markup on the project.

Also, just to be clear, most specialized A/V equipment is fairly consistent in markup, there's not a lot of variance.

There are lots and lots of pubs in the UK.
Pints of Beer (lager,bitter,mild stout) has a lower mark up than spirits(sold in measures in the UK.)
Now if they lowered the mark up on spirits they would sell more and make more profit right? well yes and no it levels off because not that many people want to drink spirits all night so the price cut doesn’t mean bigger profits there is a natural market level for the amount sold versus price.
Now recently a few pub chains have started selling beer cheaply .Last orders are one of these chains often having the same branded beer at low prices. Now they are busy places packed every Friday /Saturday night .They have to be because of the lower margin they have to sell a lot more to make the same profit.
Try getting served in one of these places! My father and I went out for a drink and we waited twenty minutes at the bar (extra staff would further reduce there profit).Now beer in this place is £1.35 for a pint of Fosters. We walked out without being served to another pub across the road Fosters is £2.20 a pint in there.
Now it wasn’t crammed full but it wasn’t dead either, they had more staff behind the bar and we got served straight away. Now the product is exactly the same but we prefer going into the second pub why because the service is better.
Other people came from the first pub and moaned that the beer was more expensive.

1.This shows a lot of people will always pay the lowest price.
2.some people want good service and understand that costs money
3. That people will always moan about higher prices no matter what the circumstances.
My view is if you moan go back to the first pub but don’t moan you can’t get served

there are many reasons for different mark ups

1) bring in the customer: you advertise X at a discounted price then the customer thinks he is getting a deal, but once in the store he also buys Y and Z and he might end up paying more then if he bought XYZ from a different place (used by grocery store all the time)

2) excess inventory: sometimes someone orders too much of something, so by decreasing the cost to the consumer he might get rid of the cost of inventory (housing it somewhere (clothes is a good example of this, where the store wants to make place for the new seasons clothes, an other example might be when piece of equipment is being replaced)

3) cost of the device: making 5% on something that costs 100$= 5$, while 5% on something that costs 100,000 means 5,000$

4) luxury cost: like QQQ said do you think the difference in cost of building a BMW compared to a Honda is the same as the difference in purchase price? Or a designer T-shirt to a none designer one.

5) bait and switch: not really a mark up, but we have all fallen for the lets rush to the store to buy X just to find out that they just ran out, or they have not come in yet and they try and talk you into getting something else

......
there are many more things that can affect how much something costs

I'd like to thank everyone for explaining things to me and I hope I didn't make anyone upset. I'm just sitting here as a future customer hoping I have the money to spend on the system I want. (Unfinished basement... lots of possibilities) :)

SamG