Hello guitargeek,
Thank you for your question.
There is not just one formula. There are quite a few variables. For
instance, is the guitar made domestically? Imported? A major brand?
Handmade small production? All of these factors are considerations.
Same holds for distribution. Many, if not most of the major brands are
distributed directly from the manufacturer or importer with a captive
sales staff. Many are distributed through independent sales reps that
handle multiple lines of instruments and accessories in one of the 14
common US territories such as the Northwest, Northern California,
Southern California, New York Metro, North East, etc.
Some go through bonafied distributors or broadline wholesale houses,
but you will find that to be less than in years past
And then, what is the demand for the guitar? The more popular
instruments that are mass produced may have smaller discounts and reps
commissions while those harder to sell or off branded offer more for
the rep or dealer.
So, with all of these variables, one can only discuss the ranges of
possibilities. And although I am happy to entertain requests for
clarifications, I would not discuss the pricing of any specific brand
in a public forum as that is confidential information.
For many years, the music industry has had a number of "standard"
discounts. 50% of the suggested list price is known as an A mark or A
discount. 40% is B, 33 1/3 a C and so on. Most electric guitars fall
into the A or B discount range to the dealer. This is cost to list
price, and as I am sure you know, most musical products do not sell
for list price in your local or online shops.
In extreme mass marketed guitars, you might find discounts of 50 and
10, or a net to the dealer of 45% of the suggested list. In high
demand, premium brands or small run handmades it will likely be a
maximum of 40% and could be as low as 25% in rare cases for low
production instruments.
These discounts to the dealer may and may not include freight costs,
which can be considerable especially if the guitar is packed in hard
case. Even if not. Sometimes the freight is reduced or picked up by
the manufacturer or distributor in total if a large enough order is
placed or if a free freight special is currently being offered. But
freight costs can be considerable and can only be expressed as a cost
of goods if we know the price range of the guitars we are discussing.
Electric guitars can retail from less than $100 to the thousands.
There are also prompt payment terms for the dealer which, in some
cases are more of a penalty for paying in longer than 30 days from
invoice and in some cases actually offer extra profit for the dealer
if he is able to pay in less than 30 days - sometimes as little as 15
or 20 days from the invoice date.
The factory rep, as in the case of a popular imported Japanese line of
instruments, is for the most part a fixed cost of sales as the
importer is also the distributor and sale organization. However, in
many other lines, independent sales reps are employed. They work on
commissions on their sales which range from a low of 5% of the
WHOLESALE price to a high of roughly 10%. 6-8% is proably the most
common range for rep commissions. Note, they do not inventory or ship
product although they may be required to purchase samples. They simply
act as a sales and training agent for the manufacturer. I don't say
this to minimize their cost of doing business as phones, offices,
travel, trade show attendance and the like are high costs for an
independent rep. They earn their commissions.
In the increasingly rare cases where there actually is a warehousing
distributor between the dealer and the manufacturer, you will find
their margin to be in the 20 to 25% of the wholesale price range.
These distributors were much more common 10-20 years ago than they are
today.
So, let's run a few numbers for example. We will assume an electric
guitar with a suggested list price of $100.
The dealer might sell this discounted for $80
The dealer might pay between $45 and $60 for this guitar and may have
to pay freight on top of the wholesale cost. Music store freight seems
to average about 3% of gross sales across all product lines as a rule
of thumb.
The independent rep may earn $2.50 - $6.00 for this sale.
A bonafied distributor could earn in the range of $12.50 for this guitar.
The likely cost to the manufacturer of this guitar was $20 and would
likely never be more than $30 in parts and labor.
So, you can see the possibilities.
Search Strategy:
ex-music store owner :^)
I hope this has sufficiently answered your question. If not, please do
post a Request for Clarification prior to rating the answer and
closing the question and I will be pleased to assist further with the
above mentioned caveat that I feel it would be unethical to discuss
any specific manufacturer or brand.
Regards,
-=clouseau=- |
Request for Answer Clarification by
guitargeek-ga
on
08 Dec 2005 17:22 PST
Clouseau!
Thanks for your answer. We're getting near the information we're
looking for. I will supply you with some of the variables that you
were discussing.
In particular, how would you break down the margins on a guitar that was:
-Imported from China, or Korea but Custom paint jobs are added,good
brand name strings/tuning heads/pickups added. All assembled and
finished in Canada
-Not yet a well known brand name.
-in the price range of 700-1100 USD
What kind of numbers would you use to define "extreme mass marketed"
are you talking about generic chinese imports?(7th Para. your answer)
How large of an order would there usually be for the manufacturer to
begin to talk about negotiating on shipping?
When you did your example of a guitar with a MSRP of $100, you had
said that a bonafide distributor might get in on the 20-25% range, but
in the $100 example, the distributor recieved $12.50. Can you Clarify
that why that was for me?
You said that the manufacturer would never have more than $20 into the
guitar $30 including parts and labour. Are you thinking of these
numbers as representing his total cost of producing the guitar? ie
rent, advertising etc? or is this a hard cost associated with strictly
parts/labour?
Were you thinking of a guitar that cost 20, and parts and labour that
was an additional 30, or did you mean somewhere in the neighbourhood
of $20 or $30?
Regards,
Guitargeek
|
Clarification of Answer by
clouseau-ga
on
08 Dec 2005 19:08 PST
Hi again guitargeek,
In reply to your clarification request, you asked:
"...In particular, how would you break down the margins on a guitar that was:
-Imported from China, or Korea but Custom paint jobs are added, good
brand name strings/tuning heads/pickups added. All assembled and
finished in Canada
-Not yet a well known brand name.
-in the price range of 700-1100 USD..."
Absolutely impossible to tell without being a dealer for that specific
brand. In general, guitars from China and Korea have higher margins.
In general. But throw in the wildcard of assembly in Canada and custom
paint and there is no other way to know. And this is really outside of
the scope of the original question which was asked much more
generically. As much as I would like to help, this would be pure tea
leaves.
"...What kind of numbers would you use to define "extreme mass
marketed" are you talking about generic chinese imports?(7th Para.
your answer)..."
More like the imported guitars you might find from Fender. The low end
that is found in most every reasonable music store. Mass produced,
mass marketed.
How large of an order would there usually be for the manufacturer to
begin to talk about negotiating on shipping?..."
Depends on the company of course, but could be as little as a dozen
instruments. Also could be based on a yearly commitment based on
either dollar volume or units ordered.
"...When you did your example of a guitar with a MSRP of $100, you had
said that a bonafied distributor might get in on the 20-25% range, but
in the $100 example, the distributor received $12.50. Can you Clarify
that why that was for me?..."
Sure. That was a percentage of the WHOLESALE price as I noted. If a
guitar had a 50% margin, the wholesale would be $50 at $100 retail.
The distributor that made 25% would be earning $12.50 on this.
"...You said that the manufacturer would never have more than $20 into
the guitar $30 including parts and labour. Are you thinking of these
numbers as representing his total cost of producing the guitar? ie
rent, advertising etc.? or is this a hard cost associated with
strictly parts/labour?..."
COG. Cost Of Goods. Materials and labor. Rent, advertising, insurance,
utilities and the like all come the gross profit margin for the
manufacturer which is the difference between their COG and their
wholesale selling price. 5 to 1 is a good general guideline for COG to
retail. But of course, there are numerous variables to modify that
including simply what the market will bear or if a manufacturer
decides to set the retail aggressively to better compete or introduce
a new product.
Sorry that sentence in the original answer was poorly worded. It was
meant to convey that the cost of goods would likely be between $20 and
$30 material and labor on the imaginary $100 retail guitar.
Best,
-=clouseau=-
|
