Originally Posted by
jsdavis
The net profit on a $1000 bike is only $50? How the heck did I get a bike for 35% off SRP? I know it was new old stock from 2 years prior, but that would represent a giant loss especially since the bike was basically unchanged for 2 years.
They took a net loss on it to get it off their floor (unless it was part of a closeout special purchase). It's not good to tie up one's finite amount of showroom space with old-stock bikes sitting alongside their updated versions. The operating overhead at a typical LBS is about 35%, so in the big picture, if we mark a bike up 40% and sell it at $1000, the LBS only keeps a small slice of the pie as net profit (which is gross profit minus overhead). And of that pie, we'll have to give back part of our slice when the customer comes back for their free tune-up.
Markup is a bit higher on accessories. There are some bike models that are "accessory magnets" and can make us more net profit on the accessories than on the bike itself, e.g. a Trek 7.1FX hybrid that goes out the door with a computer, fenders, a rear rack, bags, a mirror, a toolkit, lights, and maybe clipless pedals/shoes.
To give a specific example, let's say there's a bike we buy for $715. The "advertised" MSRP is $1200, but the "real" MSRP is $1100 (don't ask!). At the "real" MSRP, gross profit is $385. But overhead costs mean that our landlord, the power company, UPS, our insurance company, payroll, etc get most of that $385. What's left, that's the net profit that the store itself has to show for its efforts. It's not a lucrative biz.
And we have competing dealers of our brand who'll undercut us to get the sale. Yay.
Anyway, you see the main point: We sell the BD customer a $65 tune-up. I get ~$15 (paid by the hour), the LBS gets ~$50, we didn't have to stock anything, and the customer ends up getting very good value from the tune-up. So it's a win-win. And if we do a good job, that customer may be back for lights, a computer, etc.