totalnewbie

I understand. But we are talking margins here not total profit. I have heard that Toyota practically does not make much money (in terms of % of cost not net $) on Corollas. What they want is to build up their customer base and loyalty so they can move on to Camrys (decent profit %) and later to Lexus' (even higher profit margin)

The lowest end of any product spectrum usually has the most fierce competition and free markets dictates the profit margin one can exploit is minimum. If someone told me that for example, a $1500 Giant TCR 2 makes more profit (in terms of % per bike sold) than a $10000 TCR advanced SL 0, I just cannot believe it.

carpediemracing 

16 years ago I used to own a bike shop so that's my viewpoint (I worked in it for 5 years, managed it for 6 years, owned it for 3). However, having worked for another small business, two smaller corporations, and one large corporation, it's ultimately about running the business properly and making money. A bike shop is a business whose primary goal is to make money. It happens to be a business that has a lot of enthusiasts with a low enough entry point that some of those enthusiasts can actually own a business (not like, say, starting a car company for a car enthusiast or an airline for an amateur pilot). For the price of filling up an big plane with fuel you could open a bike shop with a lot of cash reserves. Nowadays it's harder to open a shop but figure that if you have, in cash, 4x the price of an average car you can start a shop, and if you're very conservative you can start a bike shop if you have enough cash to buy a higher end Venge.

As far as the shop goes, yes, of course I made mistakes. One of my colleagues said I tried to deliver 150% when I should have aimed for 102%. I thought that was interesting. We spoke last week - he was trying to talk me into working for him at his bike shop. I declined.

I have a soft spot for most shops since most of them are locally owned shops. It's not like the Subway here in town (in CT) that owed $312k in sales taxes, owned by a corporation in FL registered to someone in FL. That's not a local owner with local interests. The LBS that closed one town away, he's a local guy. He stopped teaching to pursue his dream of owning a bike shop, and he had to close it after a bit. He also asked me to work at his shop and I told him that I couldn't, not for what he could afford. He paid other people a lot of money and ended up driving himself out of business.

On a $1500 bike your profit might be $100-200. On a $10,000 it'll be close to $1000, tops. It's very similar in terms of % and at the top end the margins will be in the 10-15% range. When I had a shop I'd much rather sell $399 mountain bikes than a $5500 custom Extralight with Campy Record (which was the street price of such a bike back then). The $399 mountain bike I made about $100, we could build it in 30 minutes (even with tensioning wheels, putting grease in the headset, and lubing the replaceable dropout), and it would work really well for a long time (season?, before the owners brought it in for a tuneup the next year). The $5500 custom bike, we made, gross, maybe $1000, but we spent 4-6 hours pre-sale, 2-4 hours post-sale, and the bike took 8 hours to properly assemble (including building the wheels from scratch, etc.) I sold one like that just before the shop closed. Ironically, literally a week ago, I ran into that exact bike's owner, who bought the bike from me in 1997, and he's just getting around to replacing it with some high end carbon thing. I was really pleased to see that he enjoyed the bike (and that it fit him properly).

The higher end bikes are like cars - not much % because once you hit $1000-2000 that's about it for the margin. The shop will be happy to take in $1500 gross profit, even though the bike usually requires a lot of extra work. Cars don't make dealers a lot of money, not in the scheme of things. It's the add ons that make them money.

I joked that an ideal shop would fix flat tires all day and be in a space that costs maybe $500/month rent. You'd make $10 every 10 minutes.

A few years ago I assembled, for a local shop, as a favor aka to help out, with no trade for merchandise, no trade for money, no trade for discounts, a few bikes. One was a Specialized Ruby (women's road bike). Granted I was working on an unfamiliar work station but I didn't answer the phone, I didn't talk to any customers, I only worked on the bike. I've assembled maybe 2000 bikes? maybe more (15 years in basically one shop, some days doing 5-6 bikes, other days zero, avg day might be 1 bike, busy day 15 bikes); I've assembled plenty of bare frame bikes (for the first few years Cannondale shipped dealers a frame set in one box and the build kit in another box, and I've built maybe 100? custom bikes). In other words I know what to do, what to check, and I'm pretty proficient at it. However that Ruby took me about 3 hours to build to the point that I'd be comfortable handing it off to a racer mid-race knowing they'd be plunging down a 50 mph descent in 2 minutes. That Ruby as "99%" assembled or something like that (I was so shocked at how poorly assembled it was that I did some research when I got home). The thing was that everything was on the bike but none of it was done right.

One thing that really annoyed me was the quality of the bar tape wrap. It was wrapped very poorly. If it was my shop I'd have stripped the tape and re-wrapped it with new tape. That would have been another 10 minutes (5 minutes to wrap, hopefully only 5 minutes to remove the original tape), another $10 in tape. I asked the shop owner and he said to leave it - they'd re-wrap in all likelihood because they'd probably change the bar for the buyer. Makes sense.

carpediemracing 

Our home mortgage is through GM's (former?) finance division. We have no connection with GM, it's just who did the refi.

I also bought a used Ford. GM's finance division financed the loan.

Long Tom

Great post, and it sounds very analogous to the high-end guitar shop experiences I had. Margin gets thinner on the high-end stuff, or, market pressures pushes the margins to the 25-30% range on stuff that's nominally an A-mark...

All I needed to know. I'll negotiate myself a bit of sugar on the deal but now I know it won't be much.

I will say, the part in your analysis that rang a bit... exaggerated... was applying the $65/hr shop rate against the profit. But that's just nitpicking. The thrust of your post seemed spot-on.

Once again the 41 provides great info! A big smooch to all y'all.... ewwww..... lol...

Notgrownup

Yeah just agreeing...I sell DIapers n gloves...So it doesn't matter what you sell, Bikes, Potatoe chips, guitars
etc... After a while you have to walk away from some deals because it takes away from paying your staff, lights, insurance, etc...etc...etc....

hokie cycler

So good luck with your negotiations. It sounds like you know what you are doing. You asked the questions and don't seem to like the answers.

Long Tom

I hate it when people do that, and yes, I may be guilty myself.

I'm ok with "the answers" though. I was trying to get some semi-inside information, and I got it. It's not what I was hoping for, but whatever. The difference between what I was hoping to negotiate vs. what sounds likely to happen is only a few hundred bucks anyway. P'shaw...... I light my cigars with a few hundred bucks. (I wish!)

bt

pompous comes to mind.

nycphotography

Try this: Email 10 specialized dealers in another market. Offer each of them $xxxx for the exact bike you want to order. Be very specific. If none of the 10 bite, then try again in a different market for $100 more. Repeat.

You will now have a better understanding of what they are willing to do. Of course, they won't tell you their cost structure, but really, I think that's expecting a bit much.

Once you have an idea what people might do, now you have to convince someone in your local market to do it for you.

Oh, and don't wait too long if you want something specific. Specialized DOES run out of things, sometimes quite early. Fictional example, but it works like this: They expected to sell a handful of neon green SL4 framesets, but lo and behold everybody wanted them, and they're out by January. Unless you ride a 52 or 61 that is, in which case they had them all they way through Feb.

nycphotography

That's not how it USED to work.

rpenmanparker 

What's wrong with that? OP isn't blaming the messengers, just wishing the situation were different. Who hasn't been there?

Long Tom

Ouch! Getting out the SHARP knives!

I have legit bona-fides as a negotiator. Way more so than the majority of Americans, and much of it was in a context very analogous to a LBS. I thought that was relevant, so I mentioned it. It wasn't a brag, it was a statement of fact.

But-- maybe I am pompous. I'd be the last person to know it, if so.

darb85

if you are looking for us to help you out from a negotiation stand point, dont be a dick.

Long Tom

.... ok....

Nachoman

Correct. Nobody should have an issue with this tactic.

Long Tom

I think it's admirable that there's such tangible support for the notion of LBS's extracting a max profit from us. I doubt these same folks would express that same sentiment about the local Toyota dealer.... appliance store.... or most other stores. It speaks well to the sense of community in the cycling world, and I guess the "common knowledge" that LBS's are not particularly profitable businesses in general.

(I didn't have that sense coming into this thread. The shop I'm expecting to buy from is very large, pretty darn swank, and has appeared to thrive in the 25 years I've been in this area. The owner drives a much nicer car than mine! I therefore hadn't even really thought of this in terms of them needing every penny from me in order to survive. )

I am self-employed and have empathy for the other guy... up to a point at least. I don't have a ton of "fun money" (or ANY money, lol) contrary to my joke about lighting cigars. I just have a chunk coming that will allow a nice bike purchase. I have to watch my interests as much possible. That's all. If I gave the impression I was going to walk into the shop and bust balls, I'm not.... not like that anyway. At the end of our interaction they might think I'm a Fred.... that I'm buying more bike than I need....and that I was assertive about expressing what I want and why... and so on. But we will all be smiling and happy because we will have found a common ground that works for both of us. This thread has helped me understand where that common ground lies.

To the extent I've irritated or offended anyone here I apologize. This forum is a great resource and I certainly don't want to be a negative influence. I'm very appreciative of the help. I'm just a bit argumentative... sheepish grin...

rpenmanparker 

Based on your background I would be surprised if you did not know how few people appreciate the concept of win-win negotiation. Most folks' concept of negotiated in informed by the cut-throat, winner-take-all model commonly seen on TV. And I suspect many people understand negotiation that way, because it matches their natural tendencies and attitudes. Not only that, but the belief that LBSs never make money is deep seated here. Not your fault.

Wesley36

If you did notice, a good chunk of the people who have posted own and/or work at bike shops. This is not "belief", this is experience. Beyond that, nobody said that bike shops never make money, but they do exist on a razor margin.

Personally, I have been behind the scenes at 4 bikes shops. Two are dedicated LBSs, the other two are large outdoor sporting goods shops that carry bikes prominently.

petalpower

I'm in the market for a 2014 Pro or S-Works Tarmac or Roubaix.

I'll go to the same place I've bought my last bike from, and other misc. stuff, and ask him what his best price he can do for me on it. I hoping 10-15% off.

I'm hoping the owner is intelligent enough to realize making a quick $100-500 off me on a easy, quick sale is better than $0 if I decide to go elsewhere.

popeye

You must be new here, never apologize.

rpenmanparker 

I'm inferring from your post that you think I was saying that low profitability in LBSs isn't true or at least isn't proved. I never said that. I said the belief is deep-seated, i.e. well established or widely accepted. No denial exists there. It's likely that it is deep-seated because so many shop owners attest to it here. That makes sense. All facts are either believed or disbelieved. That fact that I recognized the low profitability of LBSs is widely believed can't sensibly be turned around to suggest I think it isn't true. I was just suggesting that with such background a backlash against someone haggling for reduced pricing might be expected.

lsberrios1 

This is my side of the story. I paid MSRP on my first bike which was a felt z85 ($1250). On the second bike, which was a hybrid for my fiancee I paid $500 from $550 (9%). The third was the same exact bike that you are buying now but 2013 and I bought it nov 2012. I paid $3600 OTD with tax. So before tax it was $3,300. That is about 13% discount. + free black burn CF bottle cages ($100). I also get from 10-15% on everything I buy above $100. I don't usually talk about my spending like this but it's for a good cause. Now, many stores won't even think about giving you any discount so be prepared to walk out the door.

I feel a little bad because now I've found a store that I've become a "preferred member" since I moved to another town and they give me 20% on absolutely everything. Makes going back to my LBS a little hard when I think about it. I still try to go and buy miscellaneous items like lube, socks and nutrition when I go for a tune up at the LBS but with less frequency. Sometimes you want to please everybody but sometimes you have to go with what's good for you as well.

Love my LBS but the new shop is hard to beat. I still have a 20% off coupon at my LBS that I haven't used because everything they sell the other store has too. I am saving it for a S works saddle that I am saving up money for and only the LBS has.

Long Tom

If I've offended anybody by apologizing, I'm sorry.

Looigi

Don't know the markup on bikes but will describe an experience we had. My wife wanted a specific high end Trek that needed to be ordered. We went to four LBSs and they all offered the exact same discount off list. I don't remember exactly, like 5-7%, but exactly the same at all 4 dealers, which lead me to believe the price and allowable discount were fixed by Trek. However, one dealer offered an additional 10% of the price of the bike in free stuff in the shop. The bike was about ~$5k so that was $500 of free stuff either in stock at the shop or that we could order through his shop. Of course that $500 of stuff likely only cost him $250 but it might have cost him the profit on any of that we might have bought in his shop at full price.

Wesley36

Excellent point. The margin is much higher on other items - jerseys, water bottles, etc. You should be able to negotiate a break on these items if you are buying a bike.