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LBS reasonable markup

Started by Keith Vetter · · Last activity · 56 posts · 3,457 views

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Road Cycling
Published
11 June 2004
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17 June 2004
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Keith Vetter
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  1. David Kerber said:
    Quoted message said:
    Quoted message said:

    Markup is a mechanism for pricing - and extremely
    commonly used in businesses from retail to manufacturing,
    purchased goods, kits and assemblies.

    It's a mechanism, but not necessarily a good one. Retail
    price should be based on the market, not the wholesale
    cost. As I mentioned before, however, it can often be used
    to get a good estimate of the market price.

    My point was that, as a business owner, margin is a
    much more useful figure for me. I don't think in terms
    of markup

    That makes sense, but how do you determine a basis cost
    (including your rent, salaries, etc) for setting your
    selling price on (for example) individual bearing balls?
    It seems like trying to allocate all of your expenses to
    little stuff like this is far more effort than it is
    worth, and that it would be much more efficient for you to
    simply set a markup amount.

    Ideally, your selling price shouldn't be based on any cost.
    It should be based on what they market will bear. When I
    look at my financial reports, I look at what my gross
    margins, my expenses, and my net margin. From that I
    determine how to best improve my net margin.

    That might be done by reducing expenses. For example, I
    might reduce inventory overhead by trying to increase
    inventory turns. It might be done by improving gross
    margins. For example, I can shift my inventory and sales
    efforts towards items that sell at a higher margin.

    I can also increase gross margins by increasing retail
    prices. However, if I have already priced items according to
    my market, I will have to find a way to increase the value
    to the customer while I increase the price. Otherwise, sales
    will drop off.

    So, perhaps I offer a better selection or sizing advice.
    Maybe I promise 24-hour delivery of special order items.
    Maybe I install new carpeting and lighting to make the store
    a more comfortable shopping environment.

    The key is that I justify the price in the mind of my
    customer by providing a sufficient value. You can't do
    that by simply looking at yur wholesale cost and applying
    some markup.

    I should note that before owning Tullio's and Heron, I was a
    product manager at Motorola. One of my specialties was
    pricing. I learned here that our cost to produce an item was
    one of the least important considerations when pricing it.

    Todd Kuzma Heron Bicycles Tullio's Big Dog Cyclery LaSalle,
    Il 815-223-1776 heronbicycles.comheronbicycles.com
    tullios.comtullios.com

  2. Todd Kuzma <[email hidden]> wrote in message news:<[email hidden]>...

    Quoted message said:
    Quoted message said:

    I recall learning that little semantic trick to avoid
    letting the consumer know that we took 100% markup on
    just about everything. I don't object to a store taking
    keystone markup. It is generally necessary to make any
    profit at all. I just prefer that a retailer I do
    business with call a spade a spade.

    This is no semantic trick. In running a business, "markup"
    is not a useful accounting term. "Margin" is. If you look
    at a profit and loss statement, it shows you margin, not
    markup. Margin is the number used in profitability
    calculations. Gross margin is the number used in industry
    benchmark comparisons. Nobody uses "markup" in any sort of
    business analysis.

    See, you're still doing it. You are using the semantics of
    accounting to distract people from the fact that you use
    keystone markup which is 100%.

    Quoted message said:

    However, thanks for giving us an insight into your
    character by telling us that you tricked your customers.
    Just don't accuse me of the same.

    I didn't say that I did it. I said that is how retailers
    did it when I was in the business. I seldom had occasion
    to discuss markup with the customers and, when I did, I
    didn't tell them we were taking 50% markup when we were
    taking 100%.

    [censored] Durbin

  3. "[censored] Durbin" <[email hidden]> wrote in message
    "]news:[email hidden]...

    Quoted message said:

    I didn't say that I did it. I said that is how retailers
    did it when I was in the business. I seldom had occasion
    to discuss markup with the customers and, when I did, I
    didn't tell them we were taking 50% markup when we were
    taking 100%.

    Whatever, I'm suprised you would be pricing goods at less
    than 300% of cost. That's the pricing I remember way back
    when I worked Xmas in a department store.

    Of course, some retailers do sell for less...

    Doug

  4. in article [email hidden], [censored] Durbin at
    [email hidden] wrote on 6/15/04 7:22 PM:

    Quoted message said:

    See, you're still doing it. You are using the semantics of
    accounting to distract people from the fact that you use
    keystone markup which is 100%.

    Who exactly am I distracting and why? I told you that all of
    my financial documents use "margin" rather than "markup" and
    why. I told you why I don't like using a straight markup
    formula to determine pricing. Yet, you choose to ignore all
    that and continue to attack my integrity. I'll be happy to
    discuss LBS management, strategy, pricing, etc. with any
    reasonable person. Unfortunately, you don't seem to be
    interested in that. So, I'm done with you.

    Todd Kuzma Heron Bicycles Tullio's Big Dog Cyclery
    LaSalle, IL

  5. GS said:


    The whole topic got me wondering... how many on this group
    who are gung-ho on supporting the LBS don't support the
    local guy in other areas of their consumerism? I'll bet
    some of you here are on a Dell computer - bought through
    mailorder. Why not go to the local computer guy? You
    would've gotten much better service.

    I've had a Dell, now I've got a budget mail order system.
    Works great for what I need. Why go local? Most computer
    products are commodities now days and often not cost
    effective to repair. Price is the driving factor for me on
    computer purchases. Additionally, I've found that local
    doesn't always mean good. Nothing worst than paying a
    premium for local service and winding up stuck dealing with
    a bunch of knuckeheads. Same can be said for dealing with
    mail order customer service, but at least the price is
    usually better.

    Quoted message said:

    Some of you probably buy your books and CDs on Amazon. Why
    not spend full-price at the mom and pop book store down on
    Main Street?

    Price vs convienence. Depends on what I'm looking for. If I
    can wait and I know what I want -- Amazon. If I need
    something soon, want to touch it first, or just want to
    browse then a bookstore. If I need to replentish reading
    material -- the local used book shop.

    Quoted message said:

    Ever send flowers or candy through 1-800-Flowers.com, or
    FTD.com? Why not go personally to the local florist or
    candy shop?

    Flowers for the wife, I'll go local (probably not often
    enough). Obviously internet/phone are great for sending
    gifts to out-of-towners. Different market niches. It strikes
    me there's room for both models there.

    Quoted message said:

    Even when you're not using mail order, sometimes your
    shopping patterns have just as much impact. Ever notice
    how the local hardware shop is now almost extinct? Yet we
    all willingly go to Home Depot because we know that their
    prices will always be the best and we can get everything
    we need in one shopping trip.

    The market speaks. If Home Depot didn't deliver what the
    majority of people want then they wouldn't be so successful
    -- all conspiricy theories aside. It's kind of funny how you
    hear so much criticism about the Home Depots and WalMarts of
    the world, but the parking lots are always full. Money talks
    -- these place attract customers and make money, that's a
    successful business model. Like it or not, that's just
    reality. Can't the LBS's of the world adapt to those
    circumstances?

    Quoted message said:

    How many of us go to Starbucks instead of the small,
    privately owned coffee shop? The list goes on and on.

    Starbucks or local -- people are going to go where they get
    the best value for their money. Obviously individuals
    compute "value" differently, but it is the aggregate of
    those computations that defines the market -- classic
    microeconomics. That so many otherwise educated people seem
    willing to argue that the traditional LBS should be exempt
    from that mechanism is truly strange.

    Tom

  6. GS said:

    The whole topic got me wondering... how many on this group
    who are gung-ho on supporting the LBS don't support the
    local guy in other areas of their consumerism? I'll bet
    some of you here are on a Dell computer - bought through
    mailorder. Why not go to the local computer guy? You
    would've gotten much better service.

    This computer was custom built for me by a local guy.

    Quoted message said:

    Some of you probably buy your books and CDs on Amazon. Why
    not spend full-price at the mom and pop book store down on
    Main Street?

    Sadly, we have no mom & pop bookstore within seven miles,
    AFAIK. Barnes & Noble drove them out of business. Hell,
    Barnes & Noble even drove Little Professor (another chain)
    out of business here.

    But FWIW, my all-time favorite bookstore is Powell's
    in Portland OR. It's about 3000 miles from here, but
    it's amazing!

    Quoted message said:

    Ever send flowers or candy through 1-800-Flowers.com, or
    FTD.com? Why not go personally to the local florist or
    candy shop?

    I've always gone personally to the local florist. But, sign
    of the times: Their shop is now flattened to make room for a
    Walgreens mega-chain drug store. :-(

    Quoted message said:

    Even when you're not using mail order, sometimes your
    shopping patterns have just as much impact. Ever notice
    how the local hardware shop is now almost extinct? Yet we
    all willingly go to Home Depot because we know that their
    prices will always be the best and we can get everything
    we need in one shopping trip.

    <sigh> About ten years ago, our terrific local hardware
    chain, Stambaughs, folded in the face of competition from
    Lowes and Home Depot. I still hate it. Lowes gives me my
    choice of 18 styles of toilet paper holders, as if that
    matters to me. Stambaughs used to carry every fastener
    known to mankind, every obscure bit of hardware you could
    ever need, sold by pleasant old guys who had been working
    the hardware business since the 1950s. Now it's Lowes or
    Home Depot.

    Quoted message said:

    How many of us go to Starbucks instead of the small,
    privately owned coffee shop? The list goes on and on.

    Sorry. I drink tea. Preferably oolong.

    --
    --------------------+ Frank Krygowski [To reply, remove
    rodent and vegetable dot com, replace with cc.ysu dot edu]

  7. "tcmedara" <[email hidden]> wrote

    Quoted message said:


    The market speaks. If Home Depot didn't deliver what the
    majority of


    people

    Quoted message said:

    want then they wouldn't be so successful -- all conspiricy
    theories aside. It's kind of funny how you hear so much
    criticism about the Home Depots


    and

    Quoted message said:

    WalMarts of the world, but the parking lots are always
    full. Money talks -- these place attract customers and
    make money, that's a successful business model. Like it or
    not, that's just reality. Can't the LBS's of the world
    adapt to those circumstances?

    If LBS's adopted the Walmart model, we'd have one.
    Performance/Nashbar. Like it or lump it.

    Pete

  8. "Frank Krygowski" <[email hidden]> wrote

    Quoted message said:

    <sigh> About ten years ago, our terrific local hardware
    chain, Stambaughs, folded in the face of competition from
    Lowes and Home Depot. I still hate it. Lowes gives me my
    choice of 18 styles of toilet paper holders, as if that
    matters to me. Stambaughs used to carry every fastener
    known to mankind, every obscure bit of hardware you could
    ever need, sold by pleasant old guys who had been working
    the hardware business since the 1950s. Now it's Lowes or
    Home Depot.

    Actually, Lowe's usually has that obscure bit of hardware or
    fastener. The problem might be finding it, because that
    pleasant old guy isn't ther to point you in the right
    direction.

    Pete

  9. "Frank Krygowski" <[email hidden]> wrote in message
    "]news:[email hidden]...

    Quoted message said:

    Sorry. I drink tea. Preferably oolong.

    Oolong? You struck me as a sencha kind of guy.

    --
    Warm Regards,

    Claire Petersky Please replace earthlink for mouse-potato
    and .net for .com Home of the meditative cyclist:
    home.earthlink.netWelcome.htm See the
    books I've set free at:
    bookcrossing.comCpetersky

  10. Claire Petersky said:

    "Frank Krygowski" <[email hidden]> wrote in
    message "]news:[email hidden]...

    Quoted message said:

    Sorry. I drink tea. Preferably oolong.

    Oolong? You struck me as a sencha kind of guy.

    I don't know what you can tell about a person by their tea
    choice (as opposed to their tea leaves) - but I'm definitely
    an Oolong kind of guy.

    --
    --------------------+ Frank Krygowski [To reply, remove
    rodent and vegetable dot com, replace with cc.ysu dot edu]

  11. Claire Petersky said:

    Book store: I'm lucky enough that I have a used bookstore
    in my neighborhood, and a branch of the public library,
    as well as a Barnes & Noble. The library and the used
    bookstore get the first crack, but the B&N is there as
    back-up.

    you shouldn't steal from the public library, claire. or at
    least move them to the third place.
    --
    david reuteler [email hidden]

  12. tcmedara said:

    The market speaks. If Home Depot didn't deliver what the
    majority of people want then they wouldn't be so
    successful -- all conspiricy theories aside. It's kind of
    funny how you hear so much criticism about the Home Depots
    and WalMarts of the world, but the parking lots are always
    full. Money talks -- these place attract customers and
    make money, that's a successful business model. Like it or
    not, that's just reality. Can't the LBS's of the world
    adapt to those circumstances?

    The WalMart model is lowest price. That's it. Folks
    don't really care if their underwear is made by 6-year
    olds chained to sewing machines 20 hours a day as long
    as it's cheap.

    The downside of this business model is that we are a high-
    wage country in a low-wage world. Just about everything that
    we do can be done by somebody else cheaper.

    Todd Kuzma Heron Bicycles Tullio's Big Dog Cyclery LaSalle,
    Il 815-223-1776 heronbicycles.comheronbicycles.com
    tullios.comtullios.com

  13. Todd Kuzma said:

    The downside of this business model is that we are a high-
    wage country in a low-wage world. Just about everything
    that we do can be done by somebody else cheaper.

    And yet, we still have one of the lowest unemployment rates,
    and highest standards of living.

    Matt O.

  14. Matt O'Toole said:
    Todd Kuzma said:

    The downside of this business model is that we are a high-
    wage country in a low-wage world. Just about everything
    that we do can be done by somebody else cheaper.

    And yet, we still have one of the lowest unemployment
    rates, and highest standards of living.

    Well, yes and no. Here is our current worldwide ranking
    according the the latest UN statistics in several key
    indicators:

    4th Per Capita GDP 36th Unemployment Rate 10th Years of
    Schooling 32nd Life Expectancy (Male) 31st Life Expectancy
    (Female) 33rd Infant Mortality

    We aren't always as good as we think we are relative to
    the rest of the world. What the future holds for the US is
    not clear.

    Todd Kuzma Heron Bicycles Tullio's Big Dog Cyclery LaSalle,
    IL 815-223-1776 heronbicycles.comheronbicycles.com
    tullios.comtullios.com

  15. In article <[email hidden]>,
    Todd Kuzma <[email hidden]> wrote:

    Why do I get involved in political-statistical bunfights in
    bicycle newsgroups? To paraphrase Homer Simpson, maybe I can
    be the voice of wisdom that guides the mob.

    Quoted message said:
    Matt O'Toole said:
    Todd Kuzma said:

    The downside of this business model is that we are a high-
    wage country in a low-wage world. Just about everything
    that we do can be done by somebody else cheaper.

    And yet, we still have one of the lowest unemployment
    rates, and highest standards of living.

    Well, yes and no. Here is our current worldwide ranking
    according the the latest UN statistics in several key
    indicators:

    unstats.un.orgdefault.htm

    The UN Statistics website annoyed me until I gave up trying
    to use it, and went elsewhere.

    Quoted message said:

    4th Per Capita GDP

    worldfactsandfigures.comgdp country desc.php

    This listing (mostly based on 2002 estimates) gives the US
    as second, $37,600 pcGDP, behind only Luxembourg ($44,000!),
    but fourth is possible in the latest data. What is
    interesting about the listing I have referenced is that
    there are only two nations in the top ten with a population
    over 30 million people: the US and Canada (a distant 9th
    with $29,400). Going down the list, the next big country is
    Japan, 13, $28,000 (Japan's science-fiction economy should
    be analyzed with some caution, but that's a posting for
    another day), and then Germany at 18th and $26,600. No G-7
    nation makes less than $25,000 (hello Italy!), but the gap
    between the US and any large nation is substantial.

    Quoted message said:

    36th Unemployment Rate

    worldfactsandfigures.comgdp country desc.php

    Forbes says 18th in 2002, a figure I find much more likely,
    but this is a relatively volatile number. One caveat is that
    unemployment rates are affected a lot by structural issues
    within a country, and that different countries use subtly
    different ways of measuring unemployment, which makes
    comparison difficult when dealing with small differences.

    The top 20 countries include Japan (see previous warning
    about science-fiction economics), a bunch of Eurasian
    "tigers" from Portugal to Malaysia, all the Scandinavian
    nations, notorious statistical anomalies Switzerland and
    Luxembourg, and interesting anomalies China and Mexico. I
    would be very interested to see how China calculates its
    unemployment rate, but the Chinese economy is hot by any
    measure. As for Mexico, clearly it's sucking up all those
    NAFTA jobs, but it's not clear where they're sucking them
    from, since the US and Canada (28th on the Forbes list) have
    unemployment rates that are as low as anything seen since
    World War II.

    Quoted message said:

    10th Years of Schooling

    You wouldn't want your favourite country to rank way off on
    this one, but I wouldn't worry too much about it, as long as
    you're still making more money than all those smarter
    countries. One curious thing is that despite all that
    schooling, the common metrics of real academic research and
    advancment (Nobel prizes and research publications) are
    still disproportionately dominated by Americans. So whatever
    they're doing, the smart kids are not getting left behind.

    Quoted message said:

    32nd Life Expectancy (Male) 31st Life Expectancy (Female)

    The diseases that kill Americans early, are, rather
    hilariously, related to to overeating. I don't mean it's
    funny if Uncle Mike has a heart attack and dies at age 50
    because he liked Cheetos too much, but from either a
    historic global or a contemporary third-world perspective,
    it is malnutrition that is the classic problem (well, in the
    third world the major killer is diarrhea, which is only
    funny until you find out how effective and cheap Oral
    Rehydration Therapy is at saving lives...). In order to get
    US life-spans up to Japanes and Scandinavian levels, I
    propose a vast new government program in which social
    workers will be trained to walk up to fat people eating
    unhealthy snacks, slap them silly, and give them a bunch of
    leafy green vegetables to take home (physician, heal
    thyself...).

    Quoted message said:

    33rd Infant Mortality

    geographyiq.comranking Infant Mortality
    _Rate_aall.htm

    My numbers are actually worse than yours. 35th for the us,
    6.75 deaths/1000 live births. Japan has 3.30, and the US is
    worse in this stat than any other G7 nation. Some
    perspective should be kept: the US is better than Israel and
    worse than Italy, at 7.37 and 6.19 respectively, so this
    isn't an insane rate for a developed nation. But I think
    pulling even with Greece (6.12, and this in a country where
    my relatives there are afraid of the hospitals) would be a
    reasonable goal.

    To give some idea of the spread between prosperous nations
    with apparently functional health systems, Canada is in
    20th at 4.88.

    And why on earth is Greenland reporting 16.80 deaths/1000
    live births?? Are mothers there routinely exposing their
    babies if they don't like them? Seriously, they're below Sri
    Lanka, at 15.22.

    Quoted message said:

    We aren't always as good as we think we are relative to
    the rest of the world. What the future holds for the US is
    not clear.

    Oh for sure. And as a humble Canadian, I keep a distanced
    but still sharp interest in these stats. But by any measure,
    the US is an economic powerhouse.

    China and India want to be the next superpowers, and both
    have a legitimate shot at the title, and have made huge
    progress. The US doesn't have a large amount of control over
    that at the moment, aside from ridiculous and nihilistic
    solutions ("we begin bombing in five minutes."😉 But if I had
    to bet, I'd say that India, starting from well behind, is
    going to find that being something like a functional
    democracy is going to give it a substantial advantage over
    China. For China to stay ahead of India, I suspect it will
    have to start giving up on Communism even more completely
    than it has already. And if it does that, the US can
    probably look forward to the kind of happy dotage Europe has
    experienced in the presence of a US superpower: no longer
    fully in control of its own destiny, but not going anywhere
    terribly scary, either.

    Quoted message said:

    Todd Kuzma Heron Bicycles

    ObBike: The migration of the bicycle industry has been
    practically a microcosm of industrial transitions in the
    20th century. It started out with dominant English and
    American industries, plus European componentry, now largely
    reduced to specialists at the high end of the market or
    domestic companies with overseas production. Then it moved
    to Japan, and when things got pricey, the same formula
    repeated as the industry moved to a cheaper "tiger" economy,
    in this case Taiwan. And now the pattern is repeating again,
    as Taiwan finds China eating away its low-end business, and
    showing all signs of improving itself into the high end.
    Don't fret for Taiwan too much, though: just like Europe,
    America, and Japan, the outgoing bike industry will leave
    behind a high-priced residue of designers and marketing
    companies, plus top-end manufacturing, that will be a going
    industry for the forseeable future.

    What was the question?

    --
    Ryan Cousineau, [email hidden]
    sfu.cawiredcola President, Fabrizio
    Mazzoleni Fan Club

  16. "Todd Kuzma" <[email hidden]> wrote in message
    "]news:[email hidden]...

    Quoted message said:

    We aren't always as good as we think we are relative to
    the rest of the world. What the future holds for the US is
    not clear.

    We are like the Spanish Empire of about 400 years ago --
    wasting our wealth on consumer goods and foreign military
    adventures. We look invincible now, but once we slide, it's
    going to be very hard to pull us out of the hole that we are
    currently digging.

    I believe the US will remain a country that has the capacity
    to inspire the world for another generation. The generation
    after that -- I agree, it's not clear.

    --
    Warm Regards,

    Claire Petersky Please replace earthlink for mouse-potato
    and .net for .com Home of the meditative cyclist:
    home.earthlink.netWelcome.htm See the
    books I've set free at:
    bookcrossing.comCpetersky

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