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morningiscoming
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Dealer profit margins

Hey everyone,

I'm in the planning stages of building my first decent 2ch home audio system. My question is pretty simple: Can you haggle with audio dealers and if so, what percentage off should I consider a good deal?

Here's what I'm looking at purchasing from a local dealer as of now:

Rega p2 or Rega p3/24
Onkyo a-9555 or Rotel ra-1062
Usher S-520 or Polk lsi(7)(9) or B&W 685s

Any help would be greatly appreciated and feel free to also add some input on the equipment being considered or other comparable equipment you feel i should consider in the price range!

Thanks in advance!

bifcake
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Re: Dealer profit margins

Personally, I would buy used on Audiogon. The dealers charge twice what they pay wholesale. They would most likely drop 10% as a matter of course, 15% if you haggle and buy multiple components.

mrlowry
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Re: Dealer profit margins

Knowing EXACTLY what you want and walking in and asking for the best price will get you the biggest discount. Phoning up is less effective because it doesn't show any effort on your part and dealers don't want to talk price unless they get a sense that you are serious. The more time a dealer spends with you the less he will be willing to discount, because his costs have gone up (time is money as they say.) 10% would be just about the maximum discount on good products that are current, and not being discontinued soon. But if you don't have a relationship with the dealer that's pretty hard to get. 15% is most likely out of the question, again unless the dealer is looking to clear out old stock or a brand that he is getting out of entirely.

Rotel RA-1062 and B&W 685 would make a very nice system. The Polk LSI stuff is respectable but too "warm" for my tastes.

Jan Vigne
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Re: Dealer profit margins

Have you heard this system? Have you heard this system all at once at one dealer? Did the dealer quote a price on this system?

And pay no attention to Alex. He only looks in dealer's cost books when their back is turned and then makes up his own answers.

dcstep
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Re: Dealer profit margins

Some products are marked up 100%, as AlexO suggests, but most are in the 20% to 40% markup range. Many products are made outside the USA, so there'll be a distributor/importer markup and a retail markup.

Dave

morningiscoming
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Re: Dealer profit margins


Quote:
Have you heard this system? Have you heard this system all at once at one dealer? Did the dealer quote a price on this system?

Yes minus the Polks and I was quoted straight retail prices for all components.

JSBach
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Re: Dealer profit margins

Bargain hunt if you must but be warned, the bigger the discount you get the more likely it is you'll get crappy after sales service. Well, that's been my experience.

tomjtx
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Re: Dealer profit margins

The markup on high end gear can be as high as 5 points and as low as 3 points.

eg. 1,000.00 could mean wholesale is 500.00, 600.00 or 700.00.
With the current economy and depending where you live you should be able to negotiate a discount of at least 10 to 15%.

Look online and look on audiogon. Read numerous forums like audioasylum and audio circle. Try to spend at least a month reading and listening to systems.
There are excellent direct to consumer manufacturers (some with forums on audio circle). Almost all of them offer 30 day in home trials.

Buying from a local dealer will cost you more, only you can decide if that is worth it.

If you become very serious and educated about this hobby you might feel more comfortable not relying on a dealer.
OTOH you might decide the dealer is an invaluable resource and worth your support.

tom collins
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Re: Dealer profit margins

obviously, times are very hard right now, especially for anyone selling luxury goods, which this definitely is. as such, it would seem a good time to bargain.
but, even though the markup seems high, keep in mind several things.
first, overhead is very expensive and worse the closer you get to a metro area and worst of all in a shopping center/mall.
second, the dealer's sales are down now and they are scratching just to stay in business,(i just lost my local dealer on sunday), so they need to stay in business which brings me to the next point.
third, you may not think that you will need them, but this gear is not perfect and you may need that dealer to be there for you in the future.
finally, often times, lower priced goods and loss leaders have much less markup than the higher end products.
so, what do i really think?
i think you can get that 10-15% if you work at it from a legitimate dealer and he will still be glad to see you whenever you come by and may still be there for the future.
this is probably not a popular view on this site, but i believe that over the last few years, my dealer has helped me set up a very well integrated system that outdoes many higher priced systems in significant respects.
so, i guess in the end, i don't equate value with the lowest price. a very odd way of thinking i am sure.

Jan Vigne
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Re: Dealer profit margins

I sold audio for twenty five years and the number of "products" that had a 100% markup I could count on one hand. They were the "accessories" like headphone extension cables or the felt mat to sit under your indoor powered FM antenna.

The information about "The markup on high end gear can be as high as 5 points and as low as 3 points. eg. 1,000.00 could mean wholesale is 500.00, 600.00 or 700.00." is just as wrong. It would seem everyone knows how high the dealer's markup is but they don't know how to figure either "markup" or "profit margin".

As indicated in another post "profit margin" is how any dealer operates. The difference from what they pay to that the manufacturer suggests as the retail selling price is not in their control. That difference generally relates to "markup" and isn't what a dealer needs to stay in business - a dealer needs a margin of profit on their investment. That profit covers expenses and provides the dealer and the staff a salary and the ability to invest back into their business. Every dealer's margin of profit will be somewhat different but they all need to make something.

A dealer selling out of a warehouse - where you might be able to find the Onkyo or Rotel - will have a lower margin than a small dealer in the middle of Arkansas, partially because they buy in larger quantities and manufacturers generally provide a discount once a dealer orders "X" amount of merchandise of the same type. The table and the speakers tend to be more specialist brands who count on their dealers for support and give the dealer support back. It's unlikely you'll find either of these in a warehouse.

Where dealers generally have the largest amount of room to work on price is in the services they can control. If you offer the dealer cash rather than credit card, most dealers have a small discount to accomodate the service charges of the credit card companies that come out of their profit margins.

One of the first things a good salesperson learns is "you don't get anything you don't ask for." That works both ways and means if you don't ask, the dealer is under no obligation to give his or her money away. So ask. Tell the dealer you can pay cash or you can pay with a card that has lower charges to the dealer and then ask what discounts they can offer. Explain that you and the dealer would like to do business - don't threaten to take your business elsewhere if you do not get a discount - and could the dealer help you out with any pricing discounts. Possibly the dealer bought into a quantity discount on something that can give you a bit of a break and possibly this dealer needs to maintain a certain profit margin to stay in business. You don't know until you ask.

The dealer should work from the assumption that some profit on a sale out the door is better than a higher markup on something sitting in the stock room. There's no harm in negotiating, just play fair and keep it non-threatening and non-confrontational. Maybe the dealer can't work with you as much as you like on this group of products and this deal but they can make future upgrades more easily accessible to you. Talk. It never hurts to talk but remember this is how the dealer and the dealer's staff feed their families too. If the dealer has done their job well, they should be paid for their knowledge and services - it costs to have a brick and mortar operation where you can audition gear and ask questions or get assistance after the sale too. If what you pay gets you a system you'll enjoy for a dozen years, then what you pay today shouldn't hinge on just how much money you got off the retail price.

dcstep
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Re: Dealer profit margins

"The information about "The markup on high end gear can be as high as 5 points and as low as 3 points. eg. 1,000.00 could mean wholesale is 500.00, 600.00 or 700.00." is just as wrong . It would seem everyone knows how high the dealer's markup is but they don't know how to figure either "markup" or "profit margin"."

When you go to CEDIA or CES, the distributors and manufacturers talk in terms of "points." That's a shorthand way to comunicate the potential profit margin to people visiting their displays, dealers. Yes, it's not an entirely accurate expression of the profit margin or gross profit in the sense that a CPA like me would understand, but it gets the "point" across quickly in the hyper sales context of these shows. If the dealer expresses interest, then the real contracts come out, supported by dealer cost quotes and MSRP and street price restictions.

"Points" is the actual lingo used at the shows.

Dave

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Re: Dealer profit margins

Why are we calling dealer mark up "profit margin?"

Is the entire mark up "profit?"

Look around your area and see how many local Hi Fi dealers there are. That should tell you quite a bit about the "profit margin" in this business.

Jan Vigne
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Re: Dealer profit margins

Dave, I don't know if you're arguing with me or not but, yes, "points" are how you describe "profit margin". It's termed that because you take one number and multiply it by another number with a "point" in front to arrive at your selling price. There's nothing mysterious about markup, profit margin or points, any first term business student should understand the basic math involved.

What is not correct in the quote I referred to is the 3-5 point spread for a dealer's operation. No company, not even the restaurant business, operates on a 5 point margin. Possibly the original post missed a figure or truly believes companies can stay in business with these margins - but they can't. For example, Anmerican Express is typically the highest service charge among the credit card companies. Their service charge to a dealer can be as high as 4% of the total sale. That wouldn't leave much for the dealer if they were only making a five point profit margin max.

59mga
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Re: Dealer profit margins

I second mrlowry's recommendation of Rotel and Bowers & Wilkins. I don't know enough about Rega to comment.

Most dealers give a 10 - 15% discount when you buy an entire "system".

There is no "profit" until all the bills (rent, salaries, utilities, insurance, etc.) are paid so you have to cut the small private specialty shops a break. They aren't the big box stores that also sell computer, washers....

Jan Vigne
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Re: Dealer profit margins


Quote:
Why are we calling dealer mark up "profit margin?"

Is the entire mark up "profit?"

No, like I said, profit is there only when the merchandise is sold. There is no profit made on merchandise sitting in the stock room, stock is typically an asset or a debit but not a profit.

Mark up is an term that is in a way fictious. It is the M.S.R.P., the Manufacturer's Suggested Retail Pricing. As far as I know it is still required by Federal Law to exist as a basis for comparison by the consumer. A dealer has no control over that figure, it is the M.S.R.P. and comes from the manufacturer. It goes back to the days of Fair Trade laws and gives the consumer the ability to see what the "average" retail for a product should be.

A dealer is mostly concerned with two numbers, what they pay for an item and what they sell that item for. What the dealer pays for an item takes into account their overhead and other costs the dealer incurs on every product and service they offer. If the dealer sells an item for more than M.S.R.P. that is up to the dealer to decide. If a product is in short supply, a dealer might add a surcharge to make a bit extra for a particular product and that is profit (when the item gets sold at that price) not markup. This practice isn't that common in the audio industry but it points out that the M.S.R.P. is just a number to be seen by the consumer. It's the Maroni Sticker on a car.

In most shops where I worked we either worked from "book" cost or "store" cost. Either way, I knew what the margins were that I could work with. If I worked at a shop that discounted certain items, I knew how to arrive at my selling price for, say, a system discount, by taking my agreed upon cost and multiplying that number by a "point" something to arive at the profit margin I wanted to make. (*** cost X .###% = .@@@%profit)

tomjtx
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Re: Dealer profit margins

Also be careful about buying interconnects, speaker cable and power cords from a dealer.
These items have the largest markup and there are many audiophiles who question their efficacy.

I don't know of anyone who has "passed" a blind test re cable differences.
This doesn't "prove" diffs don't exist but it does at least suggest cable differences (if they exist) are very subtle.

For well made reasonably priced cable and ICs go to blue jeans cable.

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Re: Dealer profit margins


Quote:
Dave, I don't know if you're arguing with me or not but, yes, "points" are how you describe "profit margin". It's termed that because you take one number and multiply it by another number with a "point" in front to arrive at your selling price. There's nothing mysterious about markup, profit margin or points, any first term business student should understand the basic math involved.

What is not correct in the quote I referred to is the 3-5 point spread for a dealer's operation. No company, not even the restaurant business, operates on a 5 point margin. Possibly the original post missed a figure or truly believes companies can stay in business with these margins - but they can't. For example, Anmerican Express is typically the highest service charge among the credit card companies. Their service charge to a dealer can be as high as 4% of the total sale. That wouldn't leave much for the dealer if they were only making a five point profit margin max.

Jan, I'm not arguing with you, because I'm right. In your 20+years in the business, did you never go to CEDIA or CES??? When they say "point" they mean 10% and they work backwords from the price, so "5 points" equals 50% of the sales price or 100% markup.

As a finance guy I work in points (1%) and basis points (.01%) all day, every day. I'm not saying that these guys are right, I'm simply saying that "point" is the term used in the industry at the show level, by many manufacturers and distributors when you walk up to their booth. When you're shaking their hand they'll say some like, "my product will bring you x-points". It's not an accurate term in any other sense, but it's used to communicate the rough margin in a product to would-be retailers.

Dave

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Re: Dealer profit margins


Quote:
Jan, I'm not arguing with you, because I'm right. In your 20+years in the business, did you never go to CEDIA or CES??? When they say "point" they mean 10% and they work backwords from the price, so "5 points" equals 50% of the sales price or 100% markup.

Nope, never heard a rep say "point" when they meant 10%. Never heard a store that talked about operating at 5 points. And 50% of the selling price doesn't mean you got a 100% return on your cost investment. Maybe someone out there does use the term to mean 10% because "point" is merely shorthand for a number. If you want one point to mean 10%, it can mean that but you'd have to make sure everyone knew what you meant at all times. I never worked at a store that did not use the word "point" to mean anything other than one percentage point. I never heard anyone say they made 2.725 points on a sale, or, if they did, they got fired for being so stupid and selling so low. If you made a 27% profit margin, you said you made 27 points.


Quote:
... they work backwords from the price ...

What "price"? The "price" the dealer pays for the goods? Yeah, that's right and that's "cost". Whether you're working forward or backward is a matter of how you want to figure the deal. If I'm giving a system discount that's been preset by the store, then I work backwards from the retail "price" and I don't care about the store cost. If I'm figuring a selling price and I have the flexibility to determine my profit margin, I work forward from the store cost and I don't care about the M.S.R.P.

If I was figuring a selling "price", I didn't care about the M.S.R.Price. unless I was going to say, "You are getting X% off the retail." That sentence really didn't mean anything to me, it was for the customer's benefit. I cared about the store's "cost" because that is what came out of my - or the store's - account, that was the debit or asset. The "profit" I made was the difference between what had been taken out (debitted) as "cost" and how much came back in when the product was sold.

If someone tells you you will make "X" points, they are not telling the truth or you are misunderstanding what is being said. Retailer's don't operate in "basis points". You are bringing in another way to use the word from another industry.

For example, I could say I was paid "X" points of commisssion. That wouldn't have anything to do with the profit the store made or the selling price in a strict sense of the word. A mortgage broker makes points when they sell a mortgage. In the car business, the finance department will try to get a certain number of points on the financing of a vehicle. And the bank that finances the car loan will get their "points" on the loan.

The mortgage broker, the car finance department and the bank are increasing the overall profit on a deal but they are not actually changing the selling "price", they're making money on their end of the deal. "Points" is a simple shorthand term that can be applied to how numbers are figured and what percentage of an original number you come up with. One point when discussing profit margin represents a one per cent increase or decrease.

A retailer only makes profit when the item is sold, not when it's talked about.

That's important and needs to be remembered.

That profit can be figured in "points" when you discuss the margin of profit. I would never have said I gave up "X" points of discount - though technically I did if I negotiated down from one offer to a lower offer if you want to argue the numbers of the deal. I would say I made "X" points (of profit) on a deal because the profit is what pays the bills, not the discount and not the points.

Take an example I gave earlier, a manufacturer gives a dealer a discount for buying "X number of the same item. These manufacturer to dealer incentives exist in numerous examples. A "B" stock item, a summer clearance, the manufacturer opens a door and finds a boat load of three year old merchandise that has since been discontinued. In any of those examples, the manufacturer will make a deal and the dealer's price (the dealer's cost) will go down while the M.S.R.P. remains the same. No matter what price the dealer has been selling the merchandise for, with a lowered cost, if the dealer sells the merchandise at the same as always selling price the profit margin goes up and the dealer makes a few extra points on the transaction.

Or, take a sale where the dealer sells a $5k amplifier and a $50 cable. If the dealer makes the same profit margin on both items, the deal is at a certain amount of points. If the dealer makes a certain profit margin on the amplifier but makes fewer points on the cable, the sale is still at a certain overall profit margin and that is then figured in points (percentage of profit) to asssure the dealer has done the job properly and has made a reasonable margin of profit on both items and the overall sale.

Obviously, the dealer made a lot more dollar profit on the amplifier than on the cable but the points (profit margin)made on either remains the same. It's the profit that pays the bills.

bifcake
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Re: Dealer profit margins

As usual, a simple question that deserves a simple answer gets obfuscated by arguments about profits and margins and points that just confuse the issue.

Basically, all you need to know is this:

A dealer will buy an item for $500, ask a $1000 for it, and if you beg and plead enough, will sell it to you for $850.

dcstep
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Re: Dealer profit margins

So, you've never been to CEDIA or CES, as I suspected...

Good Lord Jan, you can sure spew a bunch of words to say very little.

Dave

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Re: Dealer profit margins


Quote:

A dealer will buy an item for $500, ask a $1000 for it, and if you beg and plead enough, will sell it to you for $850.

More likely, the dealers' cost is $700-$800.

100% markups and 50% margins DO happen, but they're not the norm.

Dave

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Re: Dealer profit margins

Very easy to find out:

Perhaps one of the Stereophile reviewers would be willing to answer the following:

How much of a discount does "industry accommodation pricing" entail?

The answer is your wholesale price. My money is that it's 50% retail.

Kal Rubinson
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Re: Dealer profit margins


Quote:
Very easy to find out:

Perhaps one of the Stereophile reviewers would be willing to answer the following:

How much of a discount does "industry accommodation pricing" entail?

The answer is your wholesale price. My money is that it's 50% retail.

First, industry accommodation pricing varies a lot.
Second, for reviewers, the manufacturer might be willing to pass up his own profit for the PR value of having the reviewer buy and feature it in the future.
Third, the review samples are returnable but not resellable to dealers/users as new. Thus, additional reductions are possible.

So, I think that inferring prices from what reviewers pay may not be useful.

Kal

bifcake
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Re: Dealer profit margins

Hi Kal,

The accommodation pricing may be useful if a range is provided: The high, the low and the median.

We would be able to deduce the wholesale pricing with a reasonable degree of accuracy. We don't need to be exact, but a 5-10% accuracy is enough for our purposes here.

Jan Vigne
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Re: Dealer profit margins


Quote:
So, you've never been to CEDIA or CES, as I suspected... Good Lord Jan, you can sure spew a bunch of words to say very little.

I'm constantly amazed at the short attention span one acquires when they are wrong.

I said I've never been to an audio show? I thought I said I never have heard a rep say, "You'll get 2.725 points in this."

And even if I have never been to an audio show - not saying I haven't but just for the sake of argument here what "if" - my not attending an audio somehow show makes you right?

How's that work?

dcstep
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Re: Dealer profit margins

You're hopeless.

Dave

Jan Vigne
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Re: Dealer profit margins

Why? Because I'm right again and you're wrong again?

I'm just wondering how me staying in the store, talking to customers, loooking up costs and figuring deals makes you right about points.

You said yourself in your business a "point" is 1%. We agree on that. In my business a "point" is 1%, not 10% like you claimed.

Explain just why someone would say "2.725 points". Wouldn't those two "points" get kinda confusing? Wouldn't it be easier to say, "27 points" and we all know what we're all talking about? I mean, I've worked with a few people who weren't smart enough to multiply by 10.

Dave, you don't even have to say you were wrong. Just answer those questions. Or is the smiley face your answer? I'm not trying to start a fight, Dave, I just don't get it when "this" equals "that" like it does so often on this forum.

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Re: Dealer profit margins

dcstep
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Re: Dealer profit margins

You clearly can't read.

I was speaking of the colloquial expression used at shows like CEDIA and CES. I made that crystal clear in my first and second post. If you'd ever been to a show, then you'd know also.

If you walk up to a sales guy at his booth he'll say something like, "this'll get you five points (or three or two)". That happened to me several times at CEDIA. The dealer I was with explained what the guy really meant and I understood. It show lingo, get it???

I make my living calculating spreads and margins, down to fractions of basis points. (A basis point is 1% of 1%, in case you want to argue about something else you don't know anything about). So rest assured that I know what a "point" is in non-show terms, 1%.

Don't read too much into the smilies.

Dave

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Re: Dealer profit margins

Dave-

I've been to a number of CEDIAs both in the employment of dealers and distributors and profit IS NOT discussed with the verbage that you use. As Jan stated profit margin is based on each "point" being 1% not 10%. That's the industry standard. Nor are profit margins discussed often. If you ask a manufacturer at the trade show they'll will talk about it buy their reason for being there is to talk about new products that are "solutions" to what they see as wide spread needs. CEDIA as all about finding solutions to technical needs, not about profit margins and making deals.

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Re: Dealer profit margins


Quote:

Quote:
Very easy to find out:

Perhaps one of the Stereophile reviewers would be willing to answer the following:

How much of a discount does "industry accommodation pricing" entail?

The answer is your wholesale price. My money is that it's 50% retail.

First, industry accommodation pricing varies a lot.
Second, for reviewers, the manufacturer might be willing to pass up his own profit for the PR value of having the reviewer buy and feature it in the future.
Third, the review samples are returnable but not resellable to dealers/users as new. Thus, additional reductions are possible.

So, I think that inferring prices from what reviewers pay may not be useful.

Kal

It could, however, explain the misuse of terms like 'Bargain' and 'Budget' when the retail price is measured in the thousands....I prefer it when the reviewer speaks more in terms of performance way above price.

dcstep
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Re: Dealer profit margins

Thanks mrlowry.

Your experience and mine don't match. I've only been to one show as a guest (CEDIA, in Denver) but people were telling me thier "points" right out of the box. I'd just walk up and say, "tell me about this" and margin came up quickly.

Maybe it was my shoes!

Dave

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Re: Dealer profit margins


Quote:
Don't read too much into the smilies

Yeah, obviously people trying to say something without actually saying it can be confusing.

So, it's still down to you've been to a show and I haven't, eh? That's your "argument from authority" and you're sticking to it.

Oh, my!

Maybe the dealer you were with lied to you because he didn't want you knowing his business.

I didn't lie about the expression and that's the only way I've ever heard it used in twenty five years of selling. In that time I've figured a fair number of deals and talked to a goodly number of reps and other salespeople. I never told one of them I had made 2.725 points on a deal and they never told me I would.

As has been pointed out here reps don't typically talk sales numbers at shows, they save that for the store's office - where the business of money is done. Shows are mostly to show merchandise - that's why they're called "shows" - and partying most of the year's profit's away.

Telling anyone a certain product will bring "X" points is another thing I can't recall ever hearing discussed at a show or on the sales floor. Profit margin fluctuates from shop to shop and deal to deal.

What was this dealer you were with looking at? A microwave oven?

dcstep
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Re: Dealer profit margins

I don't understand why you're getting so bent out of shape Jan.

I never said that you lied. I've agreed with you that, in general, a "point" means one-percent. My agreement with whoever it was that first used the term "point" to mean 10% in this thread was limited to the context of shows like CEDIA, where it seems to be accepted shorthand by some exhibitor salesmen, at least when I attended.

Dave

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Re: Dealer profit margins


Quote:
It could, however, explain the misuse of terms like 'Bargain' and 'Budget' when the retail price is measured in the thousands....I prefer it when the reviewer speaks more in terms of performance way above price.

Irrelevent. All such comments, at least from me, refer to MSRP or common street price.

Kal

Jan Vigne
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Re: Dealer profit margins


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I don't understand why you're getting so bent out of shape Jan

I'm not "bent out of shape". By now I've grown accustomed to you trying to trip me up and prove me wrong - and never once succeeding.


Quote:
I never said that you lied.

I never said you did. I said I did not lie about the expression. Why are you getting so defensive?


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I've agreed with you that, in general, a "point" means one-percent. My agreement with whoever it was that first used the term "point" to mean 10% in this thread was limited to the context of shows like CEDIA, where it seems to be accepted shorthand by some exhibitor salesmen, at least when I attended.

In "general", that's what you agreed to, eh?

Hey, did your dealer friend buy the microwave at the one show you've been to?

JIMV
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Re: Dealer profit margins


Quote:

Quote:
It could, however, explain the misuse of terms like 'Bargain' and 'Budget' when the retail price is measured in the thousands....I prefer it when the reviewer speaks more in terms of performance way above price.

Irrelevent. All such comments, at least from me, refer to MSRP or common street price.

Kal

Wasn't a complaint, just an observation. Some folks 'budget' is a good bit more than mine.

Kal Rubinson
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Re: Dealer profit margins


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Wasn't a complaint, just an observation. Some folks 'budget' is a good bit more than mine.

That is understood by most of us. My point is that you know what the reference is for "budget" or "good value:" It is the MSRP and the accommodation prices are irrelevant.

Kal

JIMV
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Re: Dealer profit margins

I understand that. It just explains why folk call multi thousand dollar gear 'budget'. I doubt the writers are paid in the 6 figure range and a system made up of $2-3K 'budget' gear still totals closer to $10K than $5k so the term 'budget' still means 'lots of bucks' for folk who make closer to the national norm of around $50K and is only a 'budget' item when one has either a very big income or access to a very big discount.

Ie; the knowledge that one can get the $3K product for about 1/3 or so off unconsciously enters into the decision to use the word.

Someone with a $10K system on a $50K income does not have a 'budget' system but a very expensive one for him. The same fellow making twice as much could well stretch that $10K system into the realm of 'budget' but only at the expense of juniors education or putting off the new BMW buy for another year.

I was simply noting that the term 'budget' is widely used very, very loosly by some. To me budget' product means I can buy it someday within my budget, not have to wait for a lottery win.

I was not complaining about the use, just making an obvious observation.

Buddha
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Re: Dealer profit margins

I get the feeling on this thread that I had when Congress was asking baseball players about steroid use.

When I've been at shows, I'd say 90% plus of the time, the 'mark up' from what the dealer cost would be to double the dealer's cost.

I have a buddy who used to be a Hi Fi distributor, and he said it typically went...distributor buys from manfuacturer for X. Sells it to dealer for 2X. Dealer sells item retail at 4X.

Typically, X = 5 times parts cost.

I am sure there are myriad exceptions!

I had dinner once with a maker of a 70,000 dollar plus turntable, and he said his parts cost alone was 40,000 dollars; so, the variability is HUGE!

Jan Vigne
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Re: Dealer profit margins

The figure of a one to five cost of parts to retail is about the average. But if you are buying based strictly on the parts count or cost, then you're shopping for a whole different type of system.


Quote:
I have a buddy who used to be a Hi Fi distributor, and he said it typically went...distributor buys from manfuacturer for X. Sells it to dealer for 2X. Dealer sells item retail at 4X.

Check with your friend again, Buddha. I cannot remember ever selling anything of value at 4X the cost of the product to get it in the store. And I've sold plenty of high quality merchandise at a 20 point (20%) or less markup. I know Alex will scream about it because he looked at the dealer's price sheets when the dealer wasn't watching him constantly but there aren't many items that come through an audio dealer's shop that have even that magical 2X cost to selling price. Not after you figure in what the item actually costs the dealer to stock. That's the stuff Alex didn't see in the price sheets and doesn't care about. But any retailer does.

All this points and mark up talk is beside the point anyway. The book cost is not how the dealer figures the profit margin they must make to survive. How much does the dealer pay each month to keep the stuff you want to listen to working by paying their AC bill? How much insurance does the dealer pay so they'll have a business if you take a tumble over one of their speaker cables by going somewhere you shouldn't have been in the first place? Or how much do they pay in salaries? Or how much does the dealer invest in the store's growth?

Once again, none of these are important to some people, they assume the dealer owes them something. And I'm not looking forward to that discussion again.

But this BS about points and dealer cost is just that - BS. Either the dealer makes enough to stay in business or they don't. If you don't want to do business with them, don't.

Kal Rubinson
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Re: Dealer profit margins


Quote:
I understand that. It just explains why folk call multi thousand dollar gear 'budget'. I doubt the writers are paid in the 6 figure range .......

Not by Stereophile but most of us have other careers.


Quote:
...........and a system made up of $2-3K 'budget' gear still totals closer to $10K than $5k so the term 'budget' still means 'lots of bucks' for folk who make closer to the national norm of around $50K and is only a 'budget' item when one has either a very big income or access to a very big discount.

Ie; the knowledge that one can get the $3K product for about 1/3 or so off unconsciously enters into the decision to use the word.

Someone with a $10K system on a $50K income does not have a 'budget' system but a very expensive one for him. The same fellow making twice as much could well stretch that $10K system into the realm of 'budget' but only at the expense of juniors education or putting off the new BMW buy for another year.

I was simply noting that the term 'budget' is widely used very, very loosly by some. To me budget' product means I can buy it someday within my budget, not have to wait for a lottery win.

I was not complaining about the use, just making an obvious observation.

Of course but that is an issue that will never go away nor is it a big deal. As long as the MSRP is stated, you can judge for yourself the validity of the "budget" label as it applies to you. This is beginning to sound like whining to me.

Kal

JIMV
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Re: Dealer profit margins


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Of course but that is an issue that will never go away nor is it a big deal. As long as the MSRP is stated, you can judge for yourself the validity of the "budget" label as it applies to you. This is beginning to sound like whining to me.

As your final note sounds very defensive. Neither conclusion is merited as the 'issue' is too minor to continue with. Your sole point, 'budget is in the eye of the beholder' is true and agrees with mine.

Buddha
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Re: Dealer profit margins


Quote:
The figure of a one to five cost of parts to retail is about the average. But if you are buying based strictly on the parts count or cost, then you're shopping for a whole different type of system.


Quote:
I have a buddy who used to be a Hi Fi distributor, and he said it typically went...distributor buys from manfuacturer for X. Sells it to dealer for 2X. Dealer sells item retail at 4X.

Check with your friend again, Buddha. I cannot remember ever selling anything of value at 4X the cost of the product to get it in the store. And I've sold plenty of high quality merchandise at a 20 point (20%) or less markup. I know Alex will scream about it because he looked at the dealer's price sheets when the dealer wasn't watching him constantly but there aren't many items that come through an audio dealer's shop that have even that magical 2X cost to selling price. Not after you figure in what the item actually costs the dealer to stock. That's the stuff Alex didn't see in the price sheets and doesn't care about. But any retailer does.

All this points and mark up talk is beside the point anyway. The book cost is not how the dealer figures the profit margin they must make to survive. How much does the dealer pay each month to keep the stuff you want to listen to working by paying their AC bill? How much insurance does the dealer pay so they'll have a business if you take a tumble over one of their speaker cables by going somewhere you shouldn't have been in the first place? Or how much do they pay in salaries? Or how much does the dealer invest in the store's growth?

Once again, none of these are important to some people, they assume the dealer owes them something. And I'm not looking forward to that discussion again.

But this BS about points and dealer cost is just that - BS. Either the dealer makes enough to stay in business or they don't. If you don't want to do business with them, don't.

Hi, Jan.

I probably didn't say it right.

The retail dealer would typically (not universally) double his 'cost' for determining sales price.

The distributor would do the same.

Hence, the 2X and 4X thing.

I'm typing and I feel tongue tied.

The dealer would not do a four fold mark up, he would double his cost.

I feel bad in this discussion, because when we talk about "profit margin," it seems like people might think that the dealer magically puts into his pocket that margin, when in fact, we know that not to be true!

Even dealer cost implies that the dealer has gone through the expense of maintaining a dealership before he ever gets the privilege of buying something at that cost, and then all the expenses of doing business first have to be covered by that 'profit margin.'

Imagine if the 'profit margin' really were that great!

There'd be more Hi Fi dealers than there are Starbucks!

Cheers.

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