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Hello,
I'm an owner of a local eastern-European workshop that produces high-end electric guitars.
I want to offer our guitars to shops and dealers in the US and western Europe.
Does anyone knows what considers common for dealers to charge from the final price to the customers?

Thank you

Retail is 100% markup from wholesale but there is usually at least a 20% discount.

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Pat

Really?!? I'm assuming you mean they double their money? When I was working in a music store almost ten years ago the owner liked to make a 40% profit on new guitars (we'd multiply our cost by 1.67, which would mean if you discounted the item for the customer by 40% you'd be selling at cost,) and he was considered old school by all the salesmen, big box stores in Canada were typically marking big ticket items up only 25-30%. So a guitar selling at $1000 would likely cost the store $750.

imo skip the stores altogether -go internet direct. if you must, attend some trade shows and look for distribution, that is provided you can supply the volume and are ok with middlemen.

A retail list price of double wholesale is common on many consumer products. But discounts come off the retailers half. 20% off retail list price would give the retailer a 30% profit.

But talking about trying to sell guitars in retail stores is as anachronistic as saying you have a new health tincture you want pharmacists to offer at their soda counters. If you are going to reach US customers it will be under your own brand and through the internet. A VERY crowded field right now.


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100% markup = doubling your money. 20% off retail list price would give the retailer a 60% profit.

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Pat

After a 20% discount 37.5% of the sale price goes to the store. I don’t know why that level of precision is necessary in this discussion, but sorry for not being clear.


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It's not necessary. Just a friendly discussion. Since profits are so slim in this business I figured we better get it where we can, even if it is just on paper! LOL

Correct me if I'm wrong, but you buy a guitar for $100. You mark it up to $200, and sell it for $160 (20% off). You got $60 profit off of $100 investment. 60% profit.

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Pat

I think we may be talking about the difference between return on investment, and retail margins? From a retail perspective making $60 profit on a $100 investment is actually more like 37.5% profit.

I don't know if this is standard retail practice or not, but my old boss always talked in "points" he wanted to make x amount of points off of any sale.

This is how he made us do the math...

Say in general you want to be making a 40% profit on everything you sell, logic would suggest you mark up your cost 40% (at least that's what I thought), so you pay $100 for a guitar and you hang it on the wall for $140 ($40 is 40% of $100). Now where the tricky thing would come in is that say that guitar hangs around for a long time and you want to blow it out for cost, so you go to ring in the $140 guitar and you subtract 40%, but suddenly you're selling the guitar that cost you $100 for only $84. Because 40% of 100 is 40, but 40% of 140 is 56.

So if we paid $100 for something but wanted to make a 40% profit we'd take our cost and divide that number by .6, we'd end up charging say $167.95. If you discount this number by 40% you end up with your cost. If I wanted to make 30% I'd divide cost by .7, and if I wanted to make 50% doubling my money I'd divide by .5.

Pat, we are addressing different questions. I’m talking about the breakdown of the sale price, not the retailer’s profit.

If we are talking pricing to the consumer the question is often how much do I get and how much is fair for the store to get. A 50/50 split may seem unfair. My point was that all discounts come from the retailers share such that a 20% discount means closer to a 3:1 split. A 30% discount is close to 4:1. For items that rarely sell at full list price, this begins to feel more reasonable.

The retailer’s profit is much more complicated and fluid than simply the difference between the wholesale and retail price. I wasn’t really talking about that. Whether they can make a profit on 1/3rd of the sales price is up to them.


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Okay, I've never been in retail so I didn't know it was so complicated.

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Pat

Profit is what is left over after the cost of goods and all other expenses are deducted from revenue...so a guitar which costs the retailer $1000 and is sold for $2000 may only yield a few percent profit, depending on overhead costs such as :

- Cost of money (where line of credit is used to buy stock)
- Rent, utilities, permitting and licensing, cost of paying employees, insurance (business, liability, workmans' comp, theft and fire, etc.), advertising & marketing
- Taxes (most businesses pay tax on profits, and many states charge a minimum tax ($300 and up) simply to keep a company registered in the state, not to mention on the value of inventory, etc.)
- Costs to pay all those taxes (e.g., sales and use taxes...although the consumer is charged for sales tax, the retailer pays the cost of collecting, reporting, and paying those taxes to the local and state taxing authorities)

This is just a partial list of expenses beyond just the cost of the item to be sold, but it represents why retail net profit margins are often much smaller than one might think. Average profits for retailers in the US have a substantial range by types of business, but between 2% and 10% of total (not net) sales would not be out of line, with web retailers actually on the low end of that range. To put this in perspective, Walmart runs about 3% net profit margin, so in a 31 day month, 30 days are needed to pay all expenses, with all profit generated on that final day of the month. Loss of just one or two days of sales (e.g., winter storm, broken water main in front of store, sales force strike) may erase any profits for the month, for the quarter, or even the year where fixed expenses dominate the balance sheet.

I suggest hiring an accountant that is familiar with North American small business practices and web sales. Trying to set pricing without someone with a clue as to likely expenses and actual practices seems like a good way to quickly exit the North American market.

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For the times they are a changin'

- Bob Dylan

Anything less than 35% of the final sales price will be a non starter IME, at least northeast USA. So if they hang at $1200, sell at $999 you would get $649 maximum.

In addition to what Woody said above you must consider your market presence. Any advertising? You will be head to head with their lines and will appear to customers as an "off brand" without any recognition. Then there is the price point you align with in their tiered marketing structure. Are you going up against higher end or basic guitars on price (not quality!)? Much harder to sell an expensive off brand...... Which generally means they want higher margins, closer to 50% of final sales price.

Are you going to "floor plan" these instruments? or sell on commission? Most smaller shops and dealers will not buy outright in these cases as the sales are very speculative. After you sell a few the deal can change..... but at first you will be the one waiting the longest to get paid. And it makes a difference which way it is written up as to who is responsible for damage to the instrument while at their shop, and they will come back to you damaged..... And you will not be compensated for it so make sure your insurance is good.

Who will be doing the importing and distribution? Do you have the time & staff to deal with all that? You could go through an importer like Armadillo music , but there goes another 35% minimum compounded on your sales price ......

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Brian

You never know what you are capable of until you actually try.

https://www.howardguitarsdelaware.com/