Starting an audio business

Discussion in 'Home Theater Projects' started by Mike<>S, Jun 17, 2004.

  1. Mike<>S

    Mike<>S Extra

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    Hello all.

    I am thinking about starting a retail audio business. I would like to sell receivers, amps, CD/DVD players, etc. I would be working in a territory that has very few high-end audio shops.

    In any case, could someone help me with the basics on:
    1) How do I become an authorized dealer of audio equipment (I am assuming there are common requirements between audio companies)
    2) How much sales volume is required to keep the business going (just looking for a SWAG here on number of units - I realize this is a vague question, but I have no idea how many items will need to be moved on a monthly basis)
    3) Are their any major pitfalls I should be aware of?

    Any help is appreciated. Thanks, Mike
     
  2. Dave Nibeck

    Dave Nibeck Stunt Coordinator

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    You need to first identify and qualify your market. What is your competition selling? How big are their operations? Each manufacturer will have their own requirements for authorization. You may need to present a business plan to them for consideration. What do you have to offer them? Expertise? Established client base?

    # of units will depend on way too many variables. The margin on midline products are razor thin thanks to mega stores and internet. What are your income requirements? What is the expense in your area? For argument sake, lets say you sell Denon 3805's. The msrp is $1200. Let’s say your cost is $900. Assuming you can get msrp - that’s $300 per unit. Assume monthly expenses, 2k rent, 300 utilities, no payroll cause you are going to do this all yourself. That’s annual expenses of 27,600 + insurance + advertising + good will (money you will have to eat to keep your customers happy) etc. etc. Of course, the real money comes in the add-ons. Particularly wire. The margins on the add-ons are huge.

    Under this very easy and simplified scenario, you would need to sell 100 receivers just before you would see $1. Add employees and it get’s even worse.

    What’s to lose? How much money are you willing to put up?

    Nothing is greater (fun and headache) then business ownership (except a trust fund!). It involves a whole lot more work than most people realize. It usually means several years of macaroni and cheese. I have been involved in several and with each failed attempt, learn something new.
     
  3. Mike<>S

    Mike<>S Extra

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    Thanks for the info. Using your simplified example, I would have to move 25 units/month to break even. Sheesh..almost one a day. I would also need to have storage space and some sort of insurance for that much equipment...food for thought.

    One more follow-up question, can you be a retailer and not offer repair services? I did not consider that before, but I was hoping to stick with sales and installation. Maybe the repair could be outsourced to a specialist????

    Also, how much upfront cash do you think it would take to get it started. Again, just looking for a ballpark figure.

    Thanks.
     
  4. BryanZ

    BryanZ Screenwriter

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    To make matters even more confusing:

    1. Where are you going to sell your products?

    You do not want to sell them in the ghetto or near a bigger store. You also do not want to sell them where a Wal-Mart, Best Buy, or Circuit City will be built. In a mall may be nice but is it practical? What about near a college or residential neighborhood? Near interstates or major roads? Location is a big piece of the puzzle.

    2. Who is your target market?

    Little old ladies will not buy a subwoofer. The party crowd doesn't want quality. Do you want to try to sell to a mostly female market or one dominated by men?

    3. Why should people buy from you rather than elsewhere?

    It takes at least two things to be different. Lower prices isn't always the best answer. After all, what good is it to buy a $100 dvd player if the service sucks?

    4. Why should I visit your store?

    What do you have to offer me that Best Buy doesn't? Why should I take the time to come and see you? What do you have to draw me in? Do you own what you sell? By the way, sell Bose speakers and other gear. You may be pleasantly surprised. Perhaps offer installation too or get an agreement going with some installers. Perhaps having Magnepans or Rockets may be an incentive for people to visit your store. Consider it.

    5. Are you prepared to lose money for the first year and make very little the second?

    If you're planning on raking in the dough or not losing money you're kidding yourself. Be prepared for no income for a year or more. Such is the cost of doing business.

    6. What will be your second job to supplement your first jobs lost income?

    Not a pleasant thought but count on spending over 60 hours a week with your new business. You have to do something else to make the rent. Start thinking.

    For upfront cash, think in the neighborhood of $50K or more. You have remodeling (color scheme, setup, design, etc.) costs, etc. Your credit cards will be maxed out and you'll have one or two mortgages on your home.

    Good luck with this.
     
  5. Darren_T

    Darren_T Second Unit

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    Just something to think about also. If you require a loan to get this business off the ground you will need a rock solid business plan with all of the analysis laid out on paper. The bank will want to know that you have thought this through thoroughly.

    Darren
     
  6. Mike<>S

    Mike<>S Extra

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    Thanks for the follow-up. I currently co-own a business that I started several years back and know all too well about the "mac & cheese years", the long hours during start-up and the joys of preparing and begging for a loan (and having a just-short-of-seven-digit IOU.) My field is in professional financial services and I know very little about retail; especially audio retail...all this info helps.

    I guess I really need to determine how to get in bed with the audio companies to become a dealer. I also need to figure out what to sell. BryanZ, I like your #4 idea above.
     
  7. Dan Hine

    Dan Hine Screenwriter

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    Mike,

    I have a little experience to answer this question:



    A few things...KNOW the product. If you call them up and express interest in carrying their line but aren't familiar with it at all then they may be wary. But if you are familiar with what they have to offer it would seem like you value their company/product. Also, they will want to know your business plan too. How do you plan to market your company (their product). Who do you see yourself selling to? Basically, anything you can do to make them comfortable in putting their product in your hands both in terms of sales AND in promoting a good reputation for their line(s).

    Best of luck in your venture,

    - Dan Hine
     
  8. StephenHa

    StephenHa Second Unit

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    another thing to consider is contacting a buying group or trade organization like PARA sometimes tehy get better pricing on products, plus you can get advertising co-op. I am in the process of opening a store in AL and ran a store in MI. One big thing is have all the liceses in place before taking to distributors, and manufacurers otherwise they just cast you away.
     
  9. Jim Williams

    Jim Williams Second Unit

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    I am not sure if that is true. Where I live there is a family owned high end audio/video retailer. They have 6 stores and they located them near Circuit City stores on purpose. People, like myself, would go into Circuit City and could not find quality products or sales people with any real knowledge and leave Circuit City and go to the small retailer. I know for a fact that one salesman there sold over $1 million last year. They have done so well that Tweeters has been after them for years to sell out to them. This year they finally decided to sell, take their millions and retire.
     
  10. StephenHa

    StephenHa Second Unit

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    you can't avoid the box stores, you have to show the customers how your different, usually that's service, also do comunity involvement stuff (people love that)
     
  11. Allen Ross

    Allen Ross Supporting Actor

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    Not one to stick his nose in, but are you going to be selling just components or are you going to be selling some DIY kits from Adire or the likes. Cause i am sure you could just ask here and i am sure they will get you hooked up. If am not sure if this is the right thread for you, and you might get better response from another section of the forums.
     
  12. Drew_W

    Drew_W Screenwriter

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    I thought that before I read it. And I'll add Monster Cable to the list. Name recognition alone sell those products, and much as you may want to be a purist audiophile who turns his head to such "crap" (or maybe not, I know I have these feelings quite often...towards Bose anyways [​IMG]), they will rake in money, something that I'm sure you'll appreciate.

    Startup costs are going to be astronomical. You will have to invest in a building suitable for demonstration purposes, which may mean retrofitting it to allow for demonstration rooms and whatnot. Aside from the fact that you're going to have to purchase products to display beforehand to drive sales, which will already cost you a pretty penny, you're going to have to insure it all, and that won't be cheap either. You will also require excellent security to prevent theft, and consequently, your insurance rates from skyrocketing because you've been burgled (if you're more of a risk, your premiums will go up, it's basic economics).

    A friend and I were talking about him starting his own company, and without going into detail, you'll soon see that your initial capital investment is going to be astronomical.

    Therefore.

    You must identify your niche. If you have nothing to offer besides what the other guys have, that's not going to do you any good. If you're going to do installations, get CEDIA certified. If you're going to sell higher end display devices, get ISF certified, or hire someone who is. The services will bring back more money than the products.

    And of course, the first principle of retail geography applies: LOCATION LOCATION LOCATION. If you're not familiar with retail planning/geography, I would suggest you pickup a text book and read through some of the concepts. You can't afford to make a mistake there. You won't be able to pickup everything and move to a new location if things don't work out. Adapting brands to serve the clientelle as times change, sure, that's easier to do. Physically relocating the store...nope. I'd even take on a consultant who can do a retail analysis for you. I'm not saying discount the brands you're going to carry and concentrate solely on location, no, that all goes hand in hand. You need to define on paper the market you wish to capture, and then set out to find where geographically that market exists, and wether or not it is something of a niche market that is not well covered.
     
  13. Drew_W

    Drew_W Screenwriter

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    Oh and.



    Yes. There are a number of shops here that don't offer that. But many of the larger more upscale (and obviously more profitable) companies do, and can afford to. Service centres in-store will mean not having to ship the product back to the manufacturer for quick repairs, thereby offering your customers a better experience should something go wrong. And depending on the volume you get, they can be profitable as well. To start out though, it's not something I'd worry about quite yet.
     
  14. BryanZ

    BryanZ Screenwriter

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    As an afterthought, do not forget about the capital needed for cds and dvds. You want to sell the gear. You need the material to highlight it. Probably would be a good idea to have a broad variety and store it in a cd or dvd book/wallet. Visit various yard sales or pawn shops to get them. Another source is stuff you no longer watch or listen to. Perhaps radio stations would be willing to give you sampler cds.
     

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