[Stogaguy]

What sort of margin is traditional in the retail bike business? Asked a different way, if the typical LBS sells a bike for $1000, what do they pay for it?

A friend of mine is buying his first bike (after much cajoling on my part). He really wants to patronize the shop in our town but wants to negotiate a discount if possible. Knowing the typical margin figured into MSRP would help with the strategy.

 

[fredf]

here in Canada, if it sells for $1000, the lbs price is about $700.

 

[cocoboots]

what does your friend do for a job? would he appreciate it if his boss negotiated his wages on the quality of work he does? would you be willing to work for a 5-10% decrease in wages? you're not just paying for the bike...you're paying for shipping, a bike build, and fitting plus adjustments they may offer. bike shops operate on such low margins already that it's a slap in the face to continue to try to talk them down on price. it makes you look cheap, and in the future if problems arise you'll be put on the "couple week" program. as in...we'll get to it in a couple weeks and let you know. ask for the standard 3-4% deduction if you're using cash. other than that, don't be cheap and support your local shop. if you don't like the price buy off the internet or shop ebay. you won't get any service and maybe you won't get a warranty, but you'll get it cheap.

 

[dawgcatching]

Bike shop owners/employees aren't exactly getting rich. Margins are pretty low in the bike biz, and a buying a bike isn't like purchasing a car. You can ask for a bit of a discount (especially if you are purchasing two bikes) but don't expect much of a discount, especially on a lower-end bike. Likely you will end up coming off cheap and "looking for a deal" instead of just getting the bike and service that the shop is willing to offer you for a fair price. Shops aren't making much on that sale, and if it is a good shop that gives you great service (fitting, swapping stems/saddles, taking care of maintenance after the sale) then they deserve a very fair price. Maybe negotiate a discount on accessories or upgrades: shops will usually do that a bit more willingly. This is all assuming you are dealing with a knowledgeable LBS. Price, quality, service: pick 2!

 

[Stogaguy]

OK... Let's build out LBS costs

Cocoboots, sounds like I have hit a nerve. Many of your points are well taken. However, your tone is somewhat of a mystery to me.

I understand the idea of supporting one’s LBS. For the record, every scrape of my own equipment has been purchased from shops within 10 miles of my house. This is often at substantially higher prices than either internet vendors or shops in major metro areas. When I was a kid, I supported my racing habit by wrenching (mostly assembly) at a LBS. Furthermore, because I prefer to do my own mechanical work, I do not require much service after the sale, yet I still buy local.

My friend runs his own business and is constantly negotiating his fees (ultimately his income) with his clients and pricing with his suppliers. Far from being offended by this process, he just see this a normal part of any business transaction.

To turn this back to a positive dialogue, let’s try to “justify” the LBS pricing for bikes by building out a model of their costs on the bike itself (leaving general shop overhead out of the picture). Can you help by providing any of the missing numbers?
Bike (in box from Manufacturer) = $1000 (Just to pick an easy round number)
Shipping (typical paid by LBS in Nor Cal) = ?
Assembly Labor = ?
Fitting Labor = ?
Other Costs = ?

 

[fbagatelleblack]

Cocoboots, sounds like I have hit a nerve. Many of your points are well taken. However, your tone is somewhat of a mystery to me.

I have worked in several LBSs, and I was No Cal sales rep for a major bicycle company.

In my experience, any shop I've known that consitently sold bikes for significantly less than MSRP went belly up in a relatively short time frame, and I have seen HUNDREDS of LBSs go out of business.

Occasional sales and discounts on bikes that are not selling are acceptable, but such situations should be the exception, not the rule. If your friend is savvy, he can take advantage of these exceptions, but he should not expect to get a discount on a bicycle that the LBS could otherwise sell at full price. The standard LBS markup over wholesale is BARELY enough to keep a typical LBS alive.

If your friend wants a discount bike, he should buy it from a discount seller. He can order on line, or go to the nearest big city and find the humungous shop/chain that builds each bike out of the box in 15 minutes, then hopes they never see the customer again. If your friend wants the convenience and service that comes with buying a bike from a small-town LBS, he should pay MSRP. They extra investment he makes will more than pay for itself over time in terms of service received and the ongoing presence of the LBS from which he bought the bike (vs. the LBS going belly up in 6 months).

Sincerely,

FBB

 

[Ridgetop]

I avoided asking for a discount

Small businesses are too hard to keep running as it is and I really like the guy who sold me my bike. I had no desire to argue over 100.00 on a bike price. Just wasn't worth it for me and I knew he wouldn't come down any more anyway. What I did do, and it only costs him some labor time, is had him double the length of time he normally offered for tuneups from 1 year from purchase to 2 years. It isn't a big deal really but I figure I'll save about 150.00 over a year and will have an excuse to poke around the bike shop. He was happy to do this.

If you want a steep discount go online and take your chances. It's why they're there. If you want good service and helpful knowledge (assuming it's a good shop) then by from an LBS.

 

[Einstruzende]

When I bought my last pair of Ksyriums the bike shop went down by $100. I asked the price and they said $899. "No thanks, I can find them on the internet for $799 without even trying."

To which the owner said he'd match the price. I didn't feel bad either because i've spent thousands in his shop, however there is only so much more i'm willing to pay.

 

[jaseone]

The markup on parts and accessories is a lot higher than the markup on whole bikes so you are much more likely to get discounts there especially if you are a regular.

I love the fact I can just go down to my LBS and just hang out for however long I feel like, looking at this and that, chatting with the workers, ocasionally going out back to the workshop and heck if I wanted to I could even help out here & there, but that is where I draw the line, I already work enough hours in the week!

I also like that if I feel my fit isn't working for me any longer then they will just set me up on the trainer, listen to what I have to say and make the appropriate adjustments to improve the fit to my liking. I know I could probably do that myself but I'd rather dedicate more time to actually riding as opposed to learning everything myself, that isn't to say I'm not learning as I go but it will take a long time until I'll call myself an expert.

 

[jh_on_the_cape]

of course people chime in telling you that you cant negotiate... i think this ultimately hurts the lbs in todays market. you are seen as a cheapskate. everyone is a cheapskate. but you have to look at value beyond just the price on the bike, because you pay for other stuff after that too.

i will tell you this from my experience:

if it's last year's model or some wierd size, they might want to just move it out the door and you are almost doing them a favor by buying. but you won't get any real discount. also, dont expect a discount this time of year (spring). late fall you can find deals because bikes are not moving, but that isnt true near christmas. feb/march is a great time to find a deal on last years bikes. i had a shop owner tell me i was doing him a favor by buying a bike at cost from him, just so he can get it out and pay the rent. he had to sell it for less, as it wouldnt sell sitting next to the current year model for the same price.

i have also found that you can get a deal from the LBS by having them throw in some accessories for a discount, because I think they have a larger markup. so if you need shoes or something get it when you get the bike.

i have also had good experiences with having the shop fit you to the bike, just in terms of swapping out the stem and adjusting saddle position. they often do this for no charge and it can be night and day on how well the bike rides. this only holds for a good pro shop. since they have such good service and knowledge, they might not need to discount so much because they get sales anyway.

finally, i have found the shop guy to be happier when i pay cash/check. he said he gets dinged pretty hard by credit card fees (anyone know what %?). so when i paid cash he threw in some spare tubes. i mentioned i get 1% back from the CC company and he quickly offered to give me 1% off if i paid cash! could be some 'tax purposes' in that , too.

i have also bought used bikes on the internet with mixed success, mostly good. even with some of the 'bad' ones, once i replaced the iffy parts i still came out ahead, but it was a pain the butt to sort out.

 

[b987654]

half

They pay 1/2 msrp on everything. I used to think high end frames had less markup too. I am sure there are some exceptions with smaller companies or single orders.

 

[Howzitbroke]

$1000 bike in a box cost about $589-659 depending upon your volume. Very few small shops would ever see them at 589. The yearly order would need to be on the order of 200+ units from that manufacturer.

Shipping is $40 per bike individually. There are again discounts for volume. Usually on orders of 20+ shipped units.

Shops generally do not charge for assembly. Done right takes about 75-90 minutes. That amount labor is roughly $50 most places.

Fitting might be quick or in depth. Some guys know what they need some are clueless figure and hour. $35-40.

There are incidental things an occasional missing front brake cable, a new innertube, or a bolt here or there, grease, lube, but really from my experience those are rare beyond the grease. Maybe $3 per bike.

Don't forget the free 30 day adjustment and first real tune up before the year is up for another $50.

Ends up at nearly $825 for a $1000 bike. Hopefully for the shop and the buyer it builds relationship and both will serve each other. The shop by having stuff in stock and the rider by buying upgrades and stuff there. I think it is a crazy business. Fun but not much money to be made.

 

[cocoboots]

They pay 1/2 msrp on everything. I used to think high end frames had less markup too. I am sure there are some exceptions with smaller companies or single orders.

you're not quite right on this....

most small items (tubes, tires cables....) are a keystone margin..ie if it's $4 for the item the retail is $8. which is set usually by the manufacturer and not the bike shop.

some components, like campy, are 15-22% margins.

most margins fall in the 30-40% range....not near the 100% margin you suppose. so if a shop averages 33% margin that has to cover all expenses, taxes, employees, ads.....which leaves little for a owner in terms of profit. most people love this business and aren't making a ton of money, so be respectful of your LBS and understand most are working to give you the best deal, support therr staff and still have food on their own table.

 

[Howzitbroke]

They do? That's great! I will now go back in time and tell myself of this new reality so that I can keep my shop open.

Uh, sorry. They don't. Coco is right on. Most shops shoot for 34% total margin to pay the bills. Beyond that is profit.

Markup on nice stuff is lower than on cheap stuff. Dura Ace, XTR and Campy don't pay the bills because in reality most customers don't spend that kind of dough on parts.

Tubes and repairing flats are where the money is. A standard presta tube cost about $1.25. They sell for $5. I charged $5 labor to fix a flat and run the bike through the gears as a courtesy touch. Total turn around time was less than 10 minutes.

Industry secret #238: If you want to increase revenue on repairs sell tools.

Credit cards: 1-1.5% + $0.25 per transaction is normal. Sale of $100=$98.25. Bank fees blow too.

 

[mtbbmet]

"They pay 1/2 msrp on everything. I used to think high end frames had less markup too. I am sure there are some exceptions with smaller companies or single orders."

Wow, are you ever wrong. The markup on frames and complete bikes in nowhere close to that. Sure on things like tubes, pumps, clothing, there is a 100% markup. But that is there so that the store can stay afloat. There is no money to be made selling bikes. I fully agree with the above breakdown of cost. But you also need to add in the wage of the person selling the bike. And this is a couple of hours at a cost of another say $70. So now we are down to about $100 on a $1000 bike. But I would think that using the actual numbers of how much all the labour, shipping, rent, tools, power, bike, and everything else would yeild a profit of somewhere in the $60-80 range for the owner.
This is why a shop is always more willing to say "pay full price for the bike and we will give you 15% of all the accesories that you want."

 

[Howzitbroke]

Oh yeah, the wage of the guy putting it together. That was always me. The owner and I didn't really make a wage. This is why I forget that cost.

 

[jkrocket]

"They pay 1/2 msrp on everything."

A great example when knowing a little is worse than knowing nothing.

 

[collectorvelo]

depends on size of dealer

it is true that some dealers on a $1000 bike would pay $600
but others would pay $500 -- and of course those deals would be kept silent
and be based on size of purchase and method of payment

i think you will find this is true in all industries

it would be very rare for 'deals' to never be available for big purchases with cash

 

[fbagatelleblack]

it is true that some dealers on a $1000 bike would pay $600
but others would pay $500 -- and of course those deals would be kept silent
and be based on size of purchase and method of payment

i think you will find this is true in all industries

it would be very rare for 'deals' to never be available for big purchases with cash

As I mentioned, I've work this issue from both sides of the fence (LBS and Sales Rep). What you suggest here is simply not true of the bicycle industry (or at least was not true as of 1994). Margins run in the 33 to 35% range. Maybe HUGE dealers could push this one or two points more, but nothing like you suggest.

IMPORTANT DISCLAIMER: My information is correct as of 1994. I've been out of the business for more than a decade. It is possible that the situation has changed since 1994. Does anyone have more recent numbers?

Thanks,

- FBB

 

[collectorvelo]

more current numbers

There are several brands with 50% dealer margin -- and most with 45%

But that is before special deals

Buy $250,000 to $1 million of anything in the bike industry and get much lower prices than shops that buy $1000 to $2000 of stuff at a time

This is no surprise; as all other industries are the same; thus big sellers pay less for DVDs, TVs, Phones, Furniture, Violins, Cameras, Cars, etc etc