Retailers's profit on keyboards

[Synthoid]

A few members here have mentioned they've worked in pro music stores over the years so I thought I'd ask... what's the average markup on a high-end keyboard?

 

Take the Motif XF for instance. Most online stores sell it for $3499. What's the dealer cost?

 

 

[Joe Muscara]

I had a friend who worked in a music store back in the early 90s. Different manufacturers had different markups. The amounts they charged the dealers ranged from 50 to 75% IIRC. Of course, back then all we had were the little dealers. The big box stores often get breaks when they buy large quantities, so that drops their direct cost for the product down.

 

Also, this was before computers and software were big, and there seems to be much less markup in that.

 

Then there's paying for the dealer overhead.

[ITGITC]

Why do you ask?

[Synthoid]

Inquiring minds want to know.

 

Seriously though, back when I bought my Korg M3, I received a great deal at GC. They had a 20% off sale on Black Friday, and I had a 20% off coupon as well. I was told I couldn't use the coupon for a sale item, but when I got to the register, the cashier rang up the sale price... plus took my 20% coupon as well (40% savings). I was later told by the keyboard salesman at a mom & pop shop that I got the M3 for under cost.

[ITGITC]

 

I think the margin depends on the item. Ones with a higher retail price have a higher margin.

 

At one time, I thought this averaged out to ~40%... more or less.

 

Currently, I'm not so sure.

 

With the economy the way it is, I wouldn't want to jump into this business. I have a feeling it's very tough to come out ahead; particularly for smaller brick & mortar shops.

 

I think you got a really good deal on the M3, Mr. Synthoid.

 

Tom

 

[Synthoid]

With the economy the way it is, I wouldn't want to jump into this business. I have a feeling it's very tough to come out ahead; particularly for smaller brick & mortar shops.

 

Yes, I agree. Several musician friends and I were trying to bring more business to our local music store, but they kept stocking less gear. The keyboard department consisted of a Motif XS, MM6, Korg X50 and various entry-level "toys." They certainly could have ordered an M3 for me, but after that 40% off deal at GC, well.....

 

[Eric Jx]

My guess would be on big items (like an M3) the dealer usually make around 15%-20% on the sale.

 

Smaller items (like patch cables) have a much bigger markup. Like 100%+

[MikeT156]

Keep in mind that the dealers profit margins are based on retail price, not the MAP price. Their cost is determined by how much they buy, so bigger dealers usually have a lower cost. The other thing that has to be considered is the business model a dealer follows. Places like Sweetwater have a much high operating cost than a small store that doesn't offer all the services that Sweetwater offers. Also, a company that has a full service department will tie up a lot of money in parts. Their biggest expense is payroll. They have to pay their tech's whether they have work or not, and that runs up their operating expenses.

 

Typically, dealers can afford a 20% discount off list price and stay profitable. You can't operate a business at cost plus 10%, it just won't work.

 

Different vendors have different margins for their dealers.

 

Then there are the Gibson Guitar dealer programs of the world that require their dealers to buy such huge quantities of their products in order to be a dealer that many dealers told them to take a hike. Not all customers can afford a Gibson anything, so if a dealer puts all their money into their line, they can't afford other lines. That doesn't work either.

 

 

 

 

Cheers,

 

 

Mike T.

 

 

[mate stubb]

Back in the late 80s, I worked retail. We were a big roland dealer, and that line had what we called a 'B' mark. That meant that cost was 60% of list price. This was back in the days before the internet and MAP price. Other manufacturers (Alesis for instance) had a narrower mark where cost was 70% of list price.

 

If you were a rube and walked in cold, we would be happy to sell it to you at full retail. If you were a pro and a good customer, you could get it for 10% over cost, or 30% off list. Sometimes a special friend or a big name hotshot would get 5% over cost. You made no commission on that deal though!

[Michelle ggurl]

Also, and I don't know if this is true anymore but it was about 6 yrs ago when I was shopping for gear, I learned that the smaller retailers often banded together in a "co-op" sort of thing to purchase greater numbers of the same items collectively, so they'd all get a better deal and hence have a fighting chance to exist in a world where the GC and Sam Ash megaliths dominate. Still, if an item doesn't turn over, because of the nature of a smaller store, it hurts them more than it would a GC.

 

These co-ops also exist in some other retail industries to increase the ability of the "little guy" to compete.

[Sven Golly]

Dealer "cost" is what it costs them to purchase the item from the manufacturer or distributor. The "actual" cost includes paying staff to support the customer, paying rent on the store, paying utilities so the lights stay on, paying for cables/speakers/headphones so you can demo the keyboard, paying shippers/receivers to manage getting the gear into the store, yadda yadda yadda.

 

Frankly this sort of questioning is disturbing, because if only 1 person in 100 takes "cost" to mean "I can beat down my local dealer to only making $50 on the Motif XF that I'm gonna buy, because he didn't do anything to help me decide on what keyboard to buy, and I could have just bought it from website XYZ and saved that money, so he should be happy I'm buying it from him". The natural result to this sort of thinking is that retailers close up shop... and given the amount of whining in this forum from folks who don't have local retailers, I'll give you two guesses what my thoughts are on the subject, and the first one doesn't count.

 

[Bobadohshe]

Well said Sven.

 

I worked at a local music store for about 10 years ending last year.

 

I'd say that as low as we'd comfortably want to go would be 1.4 of cost. Selling things at 1.6 or 1.8 was always nice, but not always an option. Sometimes you'd have to go 1.2 just to make sure the customer didn't walk down the street to Sam Ash or GC and out your doors forever. There's often value in selling something and breaking even but keeping a happy customer smiling and coming back to you as his or her source. Sometimes, there's not. Eventually you want them to think, 'those guys are great over there' and come to you for all their needs, whether it be to buy an instrument or just to talk music.

 

MAP vs RETAIL is another wrench that has been thrown into the whole thing as well. MAP is sometimes already 1.5. So to give a discount off of THAT can cut your margins real quick.

[MikeT156]

I understand where Rob is coming from about local dealers. The other side of that discussion is that a LOT of small dealers don't know anymore about the product than I do, and don't have a service department. So I'm not going to give them any money, period.

 

The other regional dealer I work with sells me gear below MAP price and has a top notch tech, so I don't beat them up on price anymore. When I go to their store and want to buy something I say "What do you have to get for it". And that's the lowest price I can get without pissing them off. They know what Chuck Levins and other larger dealers sell things for so I don't have to call all over the planet to get a similar deal. Their tech takes it easy on me on out-of-warranty repairs. I have no problem buying FX floor models because when a new model comes out, they want to move their current model on down the road, so I get things from them pretty cheap that way. They don't want to sit on old stock very long because in 6 months that stuff will be door stops. A few years ago I told them to increase their hourly service rate, and that there prices were too low on some items. A little give and take works.

 

I do buy from a low price Internet company if my regional dealer doesn't carry it.

 

 

 

Cheers,

 

 

Mike T.

[Sven Golly]

I understand where Rob is coming from about local dealers. The other side of that discussion is that a LOT of small dealers don't know anymore about the product than I do, and don't have a service department. So I'm not going to give them any money, period.

 

Knowledge about the products notwithstanding, they are shelling out capital expenses to put things on the floor for you to try before purchasing; that should be worth something, no?

 

[McMike100]

Keep in mind that the dealers profit margins are based on retail price, not the MAP price.

The dealer's profit margin are based on what they actually sold it for, not on any arbitrary retail or MAP price. Profit margin is: Selling price minus dealer cost divided by selling price.

[Synthoid]

Dealer "cost" is what it costs them to purchase the item from the manufacturer or distributor. The "actual" cost includes paying staff to support the customer, paying rent on the store, paying utilities so the lights stay on, paying for cables/speakers/headphones so you can demo the keyboard, paying shippers/receivers to manage getting the gear into the store, yadda yadda yadda.

 

Precisely... I used to buy all my gear from Medley Music in Bryn Mawr, PA because of the excellent service and selection. It was a long drive and not always the best price, but it was well worth the trip--their sales staff were extremely knowledgeable. They went out of business (sadly) awhile back and I started dealing with the local mom & pop shop mentioned earlier in this thread. They didn't stock much of anything I wanted to buy, so since I couldn't "test drive" anything there, I've been shopping elsewhere.

 

 

 

[Sven Golly]

Keep in mind that the dealers profit margins are based on retail price, not the MAP price.

The dealer's profit margin are based on what they actually sold it for, not on any arbitrary retail or MAP price. Profit margin is: Selling price minus dealer cost divided by selling price.

 

Oh, snap! You've been told, Mike.

[MikeT156]

McMike100:

 

The dealer's profit margin are based on what they actually sold it for, not on any arbitrary retail or MAP price. Profit margin is: Selling price minus dealer cost divided by selling price.

 

I think we are getting into semantics folks. When I worked in a music store, when the owner or manager asked a vendor what the "margins" were, for example they would say 40 points. Meaning, if the list price was $1000, then the dealer cost was $600. So that was a 40% margin, referred to as 40 points. Thats what the vendors would say, but the actual gross profit margin was what the price the dealer sold it for, less the product cost, and shipping. Our price book gave us a "Freight in cost". Overhead was other items that were entered into the books in under separate categories so that the owner could determine his NET profit. The bottom line is still the bottom line.

 

 

And Rob, I know what you are saying about a store that has to pay overhead and pay for the products to put on display, but if they don't know anything about it and can't service it, I don't go into their store. They don't meet my criteria for a dealer I will do business with. I won't waste their time when I know I won't buy there. I have read posts on other forums that players talk about going somewhere to try something and then buy it on the Internet. I have posted about this a number of times, that's dirty pool and I say its unethical.

 

 

 

 

Cheers,

 

 

Mike T.

 

 

[mcgoo]

I would have to think that the MAP has helped the local retailer. Years ago when I was in retail, it wasn't unusual for a mail order house to show 30% off retail on a Roland kbd. That's pretty tough on a local store, although we'd do it in a pinch.... only to have a customer whine about paying tax, 'cause "the out of state mailorder place doesn't charge tax". People never did understand they still had to pay tax for out of state purchases.

[Joe Muscara]

People never did understand they still had to pax for out of state purchases.

Well, they're supposed to, anyway...

[AnotherScott]

Back in the late 80s, I worked retail. We were a big roland dealer, and that line had what we called a 'B' mark. That meant that cost was 60% of list price. ...

If you were a pro and a good customer, you could get it for 10% over cost, or 30% off list.

 

There's a bunch of funky math in this thread.

 

10% over cost does not equal 30% off list.

 

Example:

 

List = $100.

 

Cost, 60% of list (or 40% off), = $60.

 

10% over cost = $66. That's 34% off list, not 30%. And using the formula correctly referenced by McMike, the profit margin (the percentage of the sale which is gross profit) would be a hair under 9.1%.

 

If you sold it for 30% off list, that would be $70. That would be about 16.65% over cost. And the profit margin would be just under 14.3%.

 

And Synthoid, 20% off plus a 20% coupon does not yield 40% savings.

 

Example:

 

List = $100.

 

20% off sale reduces that price by $20, to $80.

 

Coupon takes 20% off the $80 selling price, for a further $16 discount, bringing the final price down to $64.

 

$64 represents a 36% total savings, not 40%.

 

In my experience in high end electronics (which may not be up to date), a common scenario is something like:

... cost is 40% off retail (so a $100 list item costs the store $60)

... typical dealer markup from cost is 40% ($60 + 40% yields a sell price of $84, or 16% off list), yielding a gross profit margin of about 28%.

... a more aggressive or motivated dealer may be willing to use a 25% markup from cost, making the sell price $75, which yields a 25% discount from list, and a gross margin of 20%, though that's generally not sufficient to support a successful business that provides any more service than handing you a box.

 

Then there are many variables that affect the price from both sides. Things that often add to the cost include shipping charges which often get added to the dealers' cost, credit card fees which take a percentage of the sell price, and of course the entire overhead of running a business and paying employees. Things that often reduce the cost include discounts for prompt payment and discounts for volume purchases.

[Synthoid]

And Synthoid, 20% off plus a 20% coupon does not yield 40% savings.

 

Example:

 

List = $100.

 

20% off sale reduces that price by $20, to $80.

 

Coupon takes 20% off the $80 selling price, for a further $16 discount, bringing the final price down to $64.

 

$64 represents a 36% total savings, not 40%.

 

Close enough for me.

 

[mate stubb]

 

There's a bunch of funky math in this thread.

 

10% over cost does not equal 30% off list.

 

 

For our math challenged customers, 10 over == 30% off. If I was making a little extra on the side and they were still happy, everyone walked away smiling.

[Chris Link]

I was told I couldn't use the coupon for a sale item, but when I got to the register, the cashier rang up the sale price... plus took my 20% coupon as well (40% savings). I was later told by the keyboard salesman at a mom & pop shop that I got the M3 for under cost.

 

Yeah, and maybe the cashier got fired for screwing up and costing the store several hundred bucks!

[Synthoid]

I was told I couldn't use the coupon for a sale item, but when I got to the register, the cashier rang up the sale price... plus took my 20% coupon as well (40% savings). I was later told by the keyboard salesman at a mom & pop shop that I got the M3 for under cost.

 

Yeah, and maybe the cashier got fired for screwing up and costing the store several hundred bucks!

 

He called in the sale with the store manager and it was approved. That's what amazed me. I also received a free V stand with my purchase.

 

 

[Chris Link]

 

"He called in the sale with the store manager and it was approved. That's what amazed me. I also received a free V stand with my purchase."

 

I misread your comment. It sounded like you had pulled a fast one by asking to use the coupon after being told it would not be accepted. And that would be a pretty crappy thing to do, IMO.

 

Pretty sweet that you got such a great deal. I picked up my Nord Electro at the Musican's Friend outlet. When I went to check out, they that it was 20% off the lowest price and that there was an additional discount for "keyboard weekend". I ended up selling it three years later for more than I paid for it.

 

[Synthoid]

I misread your comment. It sounded like you had pulled a fast one by asking to use the coupon after being told it would not be accepted. And that would be a pretty crappy thing to do, IMO.

 

Pretty sweet that you got such a great deal.

 

Yeah, I was ready for just the 20% off sale, and when I got to the register I'm pretty sure I was asked, "Do you have a coupon," so I went for it.

 

[Joe Muscara]

In this day and age, their systems should reject the coupon if it does not apply, so even if you did ask, there should be nothing wrong with that. I always ask in case and store staff are always willing to check. It's just a matter of scanning the coupon for them (I am talking about any store, not just MI stores).

[Synthoid]

In this day and age, their systems should reject the coupon if it does not apply, so even if you did ask, there should be nothing wrong with that.

 

Right... and anyway, after all, it was Guitar Center.

 

[Martin Hines]

I would have to think that the MAP has helped the local retailer.

I think the answer is "Yes" and "No".

 

Minimum Advertised Pricing (MAP) was created to give all retailers a "level playing field", so big dealers (who can actually buy the gear for less) could not out advertise smaller retailers. Both the big dealer and the small dealer advertise the product at the same price.

 

MAP was also supposed to be a minimum suggested selling price, a price at which dealers should make enough profit to stay in business.

 

Unfortunately, primarily due to the Internet, MAP information is available to most consumers, and many consumers think MAP is the starting point for price negotiations.