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Music Store Mark Up

Discussion in 'Bad Dog Cafe' started by threadbare, Jan 8, 2009.

  1. threadbare

    threadbare Tele-Holic

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    I know that this has been discussed here before, but about how much is a music store's mark up? How much do they add to what they actually pay for a guitar. 20%, 50%, More?
     
  2. Eric Karonen

    Eric Karonen RIP

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    I would think the rule of thumb is that the cheaper the guitar, the less the mark-up, just like cars. Most wannabe musician's can't afford the expensive stuff, and neither can the business, especially for small stores! And, another rule of thumb for retailers, is at least a three-times markup, particularly when it comes to food and clothes. Profit is another story, hence the various degrees of mark-up. Rarely does something sell out.
     
  3. octatonic

    octatonic Poster Extraordinaire

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    It depends on many things.

    It used to be 30% basic on RRP (which I think you guys call MSRP?) but larger chains gets massive discounts for buying in bulk and paying on time.

    Smaller stores what buy guitars one or two at a time might even negotiate a 30/60 (or a 30/60/90) split, meaning they pay the manufacturer for the guitar over 2 or 3 months. (30/60 refers to how many days the account can be overdue).

    Also when you consider how much the sell price is compared to the RRP it isn't that accurate.
    You also have to factor the cost of business- shops have huge rents, rates, wages and such.

    I used to work in a small store- it was impossible to compete against the larger chains who had all the buying power and could do much better prices.
    Eventually the store I worked for shut down the owner being 1/2 a million in debt (I had left years before).
     
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  5. nevadacalifornia

    nevadacalifornia Tele-Meister

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    I think that if you look at the MSRP that is set by Fender, Gibson, Martin, etc.
    and devide it in 1/2, that you have the cost paid by the dealer. At least the independant dealers. The big chains must get it even cheaper.
     
  6. studio1087

    studio1087 Doctor of Teleocity

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    I worked in guitar retail for three years in college and got to see invoices for everything because we had to fill out a cost vs. negotiated sell price sheet for accounting when we got paid every other week.

    Guitars, amps, keyboards, drum sets, mics, pedals were all purchased at 50% of the published list price. We tried to make at least 25% but we often discounted more expensive items more than 25% because we could still make a few hundred dollars on a sale. (Higher price tag, more profit dollars).

    Strings, picks, slides, polish and polishing cloths, straps....all the little doo-dads that came from bundled marketing groups often had a greater discount than 50%. I had standing orders to discount any set of D'Addario strings to $3.00 to good customers because our volume discount on strings was much more than 50%. My boss used to kid that we paid less than $1.95 for any set of strings in the store. I never saw string invoices because we were not commissioned on picks and strings.

    The only time that we bought large items better than 50% was when we hit a volume goal with some manufacturers. Peavey amps were as low as 50% + 15% additional when we hit a volume goal set by our Peavey rep.

    Other factors for larger stores are consignment inventory. The manufacturer's rep would push a huge batch of amps at us and tell us that if we took all 48 amps, we didn't have to pay for 90 days. The store would fill with gear and the trick was to sell the bulk of it before the 90 days ran out....we would get billed 0% down net 90 days. My boss would really deal when time was running out and we had a $14,000 invoice to pay. Peavey was a company that really pushed the large orders with consignment terms. I remember recieving 70 amps having to take half of them to our off site warehouse because the combo dept was filled. I would ask my boss...."Chief, what the heck did you do?" He would say..."Hartley Peavey owns these for 90 days....not to worry!" That was his consignment joke.

    Our owner was a local TV and traveling Polka band hero....he would take music tour groups to Germany on the side. I remember him saying. "Sell guys...sell.....I used to have money in the bank and now I own 14 Les Pauls." He never really understood the electronic stuff but he always put business in perspective.

    John
     
  7. TheGoodTexan

    TheGoodTexan Doctor of Teleocity

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    xx
     
    Last edited: Feb 2, 2009
  8. TheGoodTexan

    TheGoodTexan Doctor of Teleocity

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    xx
     
    Last edited: Feb 2, 2009
  9. stealyerface

    stealyerface Tele-Afflicted

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    Being in the car business, I know for sure I have sold $50,000 Tahoes for less of a profit than some Guitar Center deals on a new Fender Guitar. Which sucks for me I guess.

    But I wonder why there is not an "Edmunds" or "Invoice.com" for guitars? Why is it that someone can come in the dealership and brandish the newest addition of Consumer Reports Buying Guide, and get to within a few dollars of what I actually pay for the car, and then have the audacity to offer me $100 over that price, and the next week feel okay with giving some big music chain a 25% profit on a $1000 item?

    I would love to roll onto GC with a "GuitarInvoice.com" handbook, and say, "Good morning D'Angelo. Dude, that sure is a sweet full-sleeve tattoo of the Virgin Mary being pole-axed by a horse wearing a battle helmet... but anyway, It says here in my magazine that you guys paid $550 for this 52' Reissue Telecaster. You have it priced up on the wall for $1499. I'll give you $575 for it. Whaddyasay?"

    Of course it will never happen, but I can dare to dream can't I?

    syf
     
  10. stxrus

    stxrus Tele-Afflicted

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    you owe me a monitor, keyboard, mouse, and possibly a printer. i just about drowned my desk with a diet coke i was trying to drink while reading this.

    my god that is funny

    steve
     
  11. studio1087

    studio1087 Doctor of Teleocity

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    It may be happening now in that we know that you just divide the list guitar price in half and you have the cost. Guitars are pretty easy.

    I don't mean to sidetrack the topic but car dealerships are a big mystery. I've seen the dealer invoices for three Honda Accors that I bought near cost (paying cash) and the dealer explained to me that there are hold-backs and incentives from Honda that make the deal profitable. How does that work? :confused: I've always assumed that their is more profit in running a large auto service department than there is in selling new cars. If a dealer has 18 reapir bays and they are all full at $100 per hour labor, I would hope that they are making enough money to stay afloat.

    I know a guy who owns a great CF Martin shop on the east side of Milwaukee and he has told me that there are days where he'll make $200 selling a new D-28 but he'll make $600 the same day doing a vintage neck reset (he's an amazing luthier). Acoustic guitars might fetch more labor and repair income than electrics simply because the tools and skills are so specialized for steaming off a dovetail neckset or installing a pickup.

    John
     
  12. Sterling Indigo

    Sterling Indigo Friend of Leo's

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    +1, I now have "pole-axed" added to my limited lexicon...can't wait to use it..what does it mean?
     
  13. stealyerface

    stealyerface Tele-Afflicted

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    Well, 4 times a year, GM gives us a little bit of money back to help pay for the floor plan interest that accrues on the cars that we pay GM for. This is called Holdback. I cannot afford to pay cash (liquid) for all the cars on the inventory. So I pay a monthly charge based on the value of the vehicles. After I sell the car, I get a percentage of what I have already paid them back to the dealership to help pay for the next round of cars. It is not a lot of money per car, but enough on the big ticket items to warrant selling them at a quick-turn price, and recouping the money down the road. There is the mystery to that.

    Service is a money maker but you need great mechanics. GM is all flat-rate based. So if a brake job says it takes 2.5 hours, that is what they pay. So if the mechanic can do the job in 1.8 hours, the dealership can turn it over, and everyone makes money. If a guy is new or screws up a job, and it takes him 4 hours, the book says 2.5 and that is that. Good mechanics make the dealership money. Service is where the dealership makes the money while the sales department brings the new service customers in. A symbiotic relationship that is very important...

    Funny you should mention a neck reset. I have my heart in my throat as we speak because my beloved 1954 Martin 00-18 is on its way to Martin (Dave Nichols) for a warranty neck-reset. My dads parents bought it new when he was 8 years old. So, for the original owner a reset is a lifetime warrantied item. I am awaiting the phone call that says it is lost, stolen, ruined, missing... whatever. Always the pessimist, I hope she turns out okay, and back to me safe and sound...

    syf
     
  14. stealyerface

    stealyerface Tele-Afflicted

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    The pole axe was a weapon used in medeival England. It was literally an axe atop a long pole. Originally the term meant to be killed with such a weapon; it later came to mean being violently killed with any such weapon or instrument

    happy to help!

    syf
     
  15. PixelMover

    PixelMover Tele-Holic

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    Haha -- Nice! :D
    Glad I wasn't drinking anything when I read that. In the end isn't it up to the dealer -- cars or guitars -- to essentially tell the buyer to take a walk? Stealyerface, do you turn people away like I've seen GC do numerous times. In the end I get the feeling GC employess (maybe a bad example) could care less if you buy that guitar on the wall. Realistically, $1000 msrp, store buys for $500, their tag says $750. You can hope to get it for what? $650 lowest? Only $150 profit for the store when they pay that full-sleeved tattooed dude $10 an hour for his time?

    It just doesn't work out.
     
    Last edited: Jan 9, 2009
  16. Sterling Indigo

    Sterling Indigo Friend of Leo's

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    Just so my tat guy will understand...thanks! I'll definitely be gettin this one 'full sleeve' as you said. :cool:
     
  17. stealyerface

    stealyerface Tele-Afflicted

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    Yes, we do tell folks that we cannot sell the cars and trucks for what they wanted, but my point is why is there a publication that makes this anyone's freaking business anyway? No one has a book about how much the dealer cost of a Dishwasher is. No one goes into Sears and offers the salesman $20 over the "cost" of the Kitchen Aid Mixer.... People go in and pay the asking price, or made-up "sale" price on an oven all the time. And if they pay $2900 for a Vulcan, they are paying over 50% in marked up profit... but God Forbid they come look at a Suburban and pay more than $200 more than I did...

    syf
     
  18. PixelMover

    PixelMover Tele-Holic

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    //deleted// not going to get into a trite argument...
     
  19. stealyerface

    stealyerface Tele-Afflicted

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    Feel free to comment... You won't hurt my feelings. Remember, I am in the car business, I don't have any feelings.

    syf
     
  20. studio1087

    studio1087 Doctor of Teleocity

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    A 00-18 from 1954?? !!

    I bow before you sir.

    Holy Schniekies!

    Photo??

    John
     
  21. stealyerface

    stealyerface Tele-Afflicted

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    [​IMG][/IMG]

    This is the only shot I have that was in an old camera... once she gets back from the doctor's office, I'll post some nicer pics of the old girl.

    syf
     
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