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Want to know a typical audio equipment sales margin?


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#1 of 31 OFFLINE   Lee Scoggins

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Posted July 31 2003 - 02:01 AM

Then check here for a clue from Tag McLaren Audio which is ceasing business:

http://www.highfidel....umber=18448214

An improved sales margin of 41.5% will be applied...

I worked about ten years ago at a prominent high end salon and we typically saw audio margins around 40% and around 20%-30% on video equipment.

These margins are not uncommon on such electronic products but I thought people might want to know.

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#2 of 31 OFFLINE   John Kotches

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Posted July 31 2003 - 02:58 AM

Lee,

And out of that margin the dealer must pay for:
  • A showroom
  • All building expenses (ie utilities)
  • A staff
  • Himself
and lots of other items I haven't even bothered to list here.

Yes, that's a "high" margin -- except that there's substantial overhead.

You're looking at the Gross profit at a transaction level, what do you suppose the retailer's Net profit is from that transaction? 5%? That could easily be since $4k and up processors don't exactly fly off the shelves.

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Surround Music Enthusiast / Curmudgeon in Training
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#3 of 31 OFFLINE   Lee Scoggins

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Posted July 31 2003 - 04:59 AM

Quote:
Yes, that's a "high" margin -- except that there's substantial overhead.


I was not making any judgments about how high it is, just passing along the cost number.

Quote:
That could easily be since $4k and up processors don't exactly fly off the shelves.


The 40% margin also applies to the lower cost stuff too John as I tracked sales commissions for a retailer early in the 90s.

Most good retailers also have travel expenses as they go to shows to keep up on the latest gear. The cost of shipping and delivery departments can be material as well.

The mfr also has high costs as well - R&D, marketing, labor, etc. That's why wholesale is such a good deal. I once bought some high end accessories at wholesale which was roughly 25% of retail.

With CDs, it's perhaps even less of a value for the consumer. I recently worked on a CD that cost $1.25 to make all-in and was sold to the distributor for $9.00. Tower and the other retailers keep the rest. The difference between the numbers, $7.75 is artist royalty and record label profits. Ever wonder why Tommy Mottola lives in one of the biggest houses in the Hamptons?

I just thought the HTF might want some idea of costs here. Posted Image
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#4 of 31 OFFLINE   John Kotches

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Posted July 31 2003 - 05:55 AM

Lee,

Your subject and the post had a negative tone to it, whether you choose to believe so or not.


Quote:
The 40% margin also applies to the lower cost stuff too John as I tracked sales commissions for a retailer early in the 90s.

For a smaller retail shop this can be done with paper and pen, or even a PC, which part of this should impress me?

It takes 5 sales of an $800 component to equal the profits from 1 sale of a $4000 component. This is fairly basic math. The same costs listed above must come out of each sale to keep the business afloat.

Quote:
The mfr also has high costs as well - R&D, marketing, labor, etc. That's why wholesale is such a good deal. I once bought some high end accessories at wholesale which was roughly 25% of retail.

Wow, I guess your's is bigger than mine then. The discussion was about components, not accessories. Accessories enjoy the highest margins, which is fairly well known.

Quote:
With CDs, it's perhaps even less of a value for the consumer. I recently worked on a CD that cost $1.25 to make all-in and was sold to the distributor for $9.00. Tower and the other retailers keep the rest. The difference between the numbers, $7.75 is artist royalty and record label profits. Ever wonder why Tommy Mottola lives in one of the biggest houses in the Hamptons

Well since the discussion is about audio equipment it is unrelated to the topic at hand. But thanks for introducing a non sequitor.

You've neglected to address that out of the "record label profits" must come promotional expenses, recording expenses and additional label overhead. All of that what you refer to as profits -- which is true when talking about a Gross profit. Net profit is what adds shareholder value.

If you'd like to make things more affordable for the consumer, why don't you start the trend by cutting down the portion you refer to as "record label" profits on your CD. Using your gauge of US$1.25 as the cost to produce the CD, the artist royalties and record label profits are a ~600% margin.

If you dropped your profit down to a mere 100% ($1.25) without affecting the artists royalties, we'd be looking at a wholesale cost of no more than $4, and a retail price of $8 or so.

But hey, I doubt you'd be willing to do that.

Regards,
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#5 of 31 OFFLINE   Dustin_Taylor

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Posted July 31 2003 - 07:31 AM

40% margin for a B&M sounds about right to me. I know a person who runs an audio store and he certainly isn't rich, as his overhead eats most of his gross.

As for CD's, I have much less of sympathy when it comes to paying 15-20 dollars for a CD. I agree, they are a horrible value for what you get. A DVD costs about the same, and for my money, they are a very good value. A 2-3hr movie, with lots of extra's usually makes for a good deal even if the movie isn't great. I can't say the same for a cd.

I purchase my music these days on DVD-Audio and SACD. I'm planning on getting an iPod and using iTunes for just casual stuff. I hope Apple expands their catalog.

DT

#6 of 31 OFFLINE   Lee Scoggins

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Posted July 31 2003 - 08:14 AM

Quote:
Your subject and the post had a negative tone to it, whether you choose to believe so or not.


John, you must be having a bad day. There was nothing negative meant at all. Posted Image This is what I said:

Quote:
These margins are not uncommon on such electronic products but I thought people might want to know.


Quote:
A 2-3hr movie, with lots of extra's usually makes for a good deal even if the movie isn't great. I can't say the same for a cd.


I agree. Posted Image
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#7 of 31 OFFLINE   Lee Scoggins

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Posted July 31 2003 - 08:25 AM

Quote:
For a smaller retail shop this can be done with paper and pen, or even a PC, which part of this should impress me?


Man! You are one cranky dude today. I was not trying to impress anyone just pass along some useful information based on an interesting news report.

I just used a simple PC spreadsheet to do the commissions, really dumb stuff but valuable. Nothing like the LBO models I was building at the time.

Quote:
Well since the discussion is about audio equipment it is unrelated to the topic at hand. But thanks for introducing a non sequitor.


John, what's the problem with discussing costs on all audio products as long as information is passed along?

Quote:
You've neglected to address that out of the "record label profits" must come promotional expenses, recording expenses and additional label overhead. All of that what you refer to as profits -- which is true when talking about a Gross profit. Net profit is what adds shareholder value.


Don't lecture me about the income statement John. I know a lot more about business than you. I am a business strategy consultant, for instance. In fact, in the example I gave, the all-in costs included these expenses.

Let's face it, CD prices are very high. I know because I work in the business on recordings, you do not.

Quote:
If you'd like to make things more affordable for the consumer, why don't you start the trend by cutting down the portion you refer to as "record label" profits on your CD.


Well for one because the highly leverage retailers of the world would keep the difference and the label would lose out without benefiting the consumer. The only way is to sell direct to consumer like APO does.

Quote:
If you dropped your profit down to a mere 100% ($1.25) without affecting the artists royalties, we'd be looking at a wholesale cost of no more than $4, and a retail price of $8 or so.


Excepting direct sales, you are excluding distribution costs.
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#8 of 31 OFFLINE   RobWil

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Posted July 31 2003 - 09:03 AM

Quote:
Well since the discussion is about audio equipment it is unrelated to the topic at hand. But thanks for introducing a non sequitor.

Well I'm not sure I'd call this a discussion so far, but....
considering this is Lee's thread in the first place, hence his 'discussion' and his 'topic', I guess he can introduce anything he wants into it.
Quote:
Your subject and the post had a negative tone to it, whether you choose to believe so or not.

It's hard to read 'tone' from a written correspondence, and it often has to do with the mood of the reader which in this case is "cranky", I agree! I think you need a nap Posted Image
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#9 of 31 OFFLINE   Chu Gai

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Posted July 31 2003 - 10:08 AM

I liked hearing the information. Baby formulas from Similac and others have a profit margin to the manufacturer of over 90%, those cereal bars are around 40% or so. Interestingly McDonalds come close to breaking even (very slight profit) on their food. The profits are in the drinks.
Yes margins can be tight especially in a difficult economy. 'Course the dealers can always sell wires. Now there's profits!
Now scary would be if ML and TM merged.

#10 of 31 OFFLINE   Lee Scoggins

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Posted July 31 2003 - 10:53 AM

Quote:
'Course the dealers can always sell wires. Now there's profits!


You'll get a kick out of this Chu. Cable margins are around 50% usually. That does explain why many people are in it. But cables make a difference so for people like me with no access to six 9 pure copper, it is very worthwhile.

One can always DIY on cables though and cut out the middleman. Posted Image

Or you can buy entry level Audioquest, Kimber, Nordost or Cardas and do very well sonically.
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#11 of 31 OFFLINE   RobWil

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Posted July 31 2003 - 11:25 AM

I'll tell you where the profits are......BEER!
These bars and restaurants around here buy local microbrew in kegs. Their cost approx .60 a pint and sell for $4.00 -$4.75 a pint. What's that??? 700% markup?!?!
Then they pay the waitresses minimum wage and expect us to make up the difference in tips so we end up paying $5-$6 a pint.....sheesh! Posted Image
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#12 of 31 OFFLINE   CurtisC

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Posted July 31 2003 - 04:15 PM

Thanks for the info Lee,just something to think about.I didnt take it as a slam or sob story,just info.

#13 of 31 OFFLINE   Chu Gai

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Posted July 31 2003 - 04:22 PM

I also didn't take it as a chop, just some food for digestion. It's good to know how industries operate and hopefully it allows for the consumer to do some knowledgeable bargaining. Kind of like knowing what a car dealer invoice, kickbacks, incentives are. I like the playing field leveled a bit.

#14 of 31 OFFLINE   Kevin C Brown

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Posted July 31 2003 - 05:10 PM

Coincidentally, I heard last night at a hockey game (!) that the difference in cost to the manufacturer vs what a unit sells for, is on the order of 2 to 3x. I can believe that too, because I heard once that the typical markup for diamonds (and jewelry) was 5x!

40% seems about right, in that when I walk in the door to a retail place, I almost expect to be able to get 20% off without trying very hard.

But I also have a suspicion that a higher retial price means more mark up too. I have heard of some very good deals for Lexicon's, and another data point is Revel F30 speakers that list for $3500 going for $2500 brand new.

But I bet Frys/Best Buy/whatever actually *don't* make much money on those $99 Pioneer, Sony, & Panasonic DVD players...

Pisses me off all the more when a dealer won't budge from the retail price. Posted Image
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#15 of 31 OFFLINE   Lee Scoggins

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Posted August 01 2003 - 05:25 AM

Quote:
the difference in cost to the manufacturer vs what a unit sells for, is on the order of 2 to 3x


That is correct based on my experience as well. Fairly standard for such value added products.

It does put some of these big sales in perspective, doesn't it?

Quote:
But I also have a suspicion that a higher retial price means more mark up too.


In my experience, only slightly. Of course since the price is much higher, the profits are much higher correspondingly...

David Wilson does have some Ferraris. Posted Image But I think about all the jobs and utility/value his products have created and I think that's wonderful. I'm a big believer in capitalism. Posted Image

Quote:
But I bet Frys/Best Buy/whatever actually *don't* make much money on those $99 Pioneer, Sony, & Panasonic DVD players...


Likely true, but they got you into the store and you picked up a CD or DVD too didn't they? maybe? (foot traffic!)
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#16 of 31 OFFLINE   Cliff Olson

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Posted August 01 2003 - 08:56 AM

Thanks for the post, Lee. I like to hear about this kind of stuff. The more we know... And BTW, I'm having a great day Posted Image

#17 of 31 OFFLINE   Bill Will

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Posted August 01 2003 - 10:38 AM

Lee, nice post it's always nice to know the markup on things. As for myself I was in the grocery business for years so don't get me started on profits & markeup's because the supermarket business is the REAL whore business Posted Image

#18 of 31 OFFLINE   Chu Gai

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Posted August 01 2003 - 01:32 PM

Quote:
...because the supermarket business is the REAL whore business
I must be shopping at the wrong one Posted Image

#19 of 31 OFFLINE   Lewis Besze

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Posted August 01 2003 - 03:31 PM

Quote:
I must be shopping at the wrong one
what,no whores in your supermarket? What the world has come to.Posted Image

#20 of 31 OFFLINE   JeremyFr

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Posted August 01 2003 - 04:03 PM

I can definately vouch for the high margin, when I purchased my gear I went through a friend who worked for Good Guys at anyrate he owed me a favor so he got all my stuff at store cost. Needless to say I got a Yamaha RX-V730 which at the time retailed for 599.99 for 317.00, and my Energy Take 5+1's which retailed for around 699.99 for 297.00, and lets not get into what I got my cabling for through himPosted Image So I can definatelly attest to there being high margin, at the time I could have got an RX-V1 for $800 and a RX-Z1 for not much more it was insane. I wish he still worked there (no I'm not why he's no longer there he just moved on to better things) so I could get my Energy Connosiours.Posted Image
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