Margin on speaker sales by high end dealer

zombiedad
 

What is the nature of the licensing arrangement? I thought dealers bought the product marked it up and sold it.

What? It's not a GM Dealership for pucks sake. 

I got friends that used to be McIntosh, Anthem....etc dealer.   He closed his business cause not getting too many buyers.     In order to be a dealer, you need to pay license fee to those brands.   He can get almost like 50% off from any items.  

McIntosh won't allow them to sell discount price.   If they do, they probably do it under the table, or no sales tax.

 

The ultra high end speakers, controversial for some, would seem to pull up prices on lower high end speakers. High end speaker manufacturer have many price points that serve to stretch a buyers purse strings. It can be a costly upgrading process. All hifi component manuf do this. Just a few thousand more gets you so much more, or so they want you to believe. A consumer struggles with a path to getting good value, it is not easy.

Selling 50k speakers qland making 25k is way too much..thats why they are so high priced

Hi i don't think this thread is about dealer margins, at all, as everyone has said it's been done to death, 
Its about not being happy about the price  of hi fi, its shocking, and we ALL know that, prices going up over 4-5 times inflation, just look what Dartzeel did, shocking price rise, i have always said price will kill this hoby, nothing else ,price will eventually,price  everyone out ,  when you can get a huge house, for the price of an amp, its over, when they sell you speakers , for the price of a top lamborghini, laughable, 6 cones and a box to put them in, cost's the same as thousands of highly manufactured parts, and assembly of a lambo,don't make me piss myself,, hi fi is dead,, it just doesn't know its dead,,

No, after the dealer pays $5000 for a $10000 speaker, he has to pay the sales person, the rent/mortgage, insurance, taxes etc. But the mark up is 50% of the retail price, minus shipping costs, which are sometimesy the reps commission.  The B&W rep showed me the invoice for the speakers he sold me.  He would deliver them to make the extra 10% commission  (of wholesale).

they are not making enough to get rich that is for sure!

With all the pissing and moaning over the demise of retail audio, it’s wise to remember that retailers do not work for free. The only material benefit I can think of for an audio retailer is the opportunity to buy gear from their manufacturers at “accommodation” prices—which are typically 50% off MSRP (below cost!). QUICKSAND!!
Take it from an old store manager: Audio is sold by proper businessmen and women on the basis of Gross Margin.
Gross Margin = [Total Revenue – Cost of Goods Sold]/Total Revenue x 100. If the cost on an amp was $1000, I would multiply that times 1.65 and come up with a 35% deal—$1650 very acceptable except where “policies” dictate no discounting. Speakers are very hi-margin typically: 40% plus. TV’s are a problem. If you can get 20% margin on a TV, you’ve made a killing. Accessories and cables 55%+. So with hi-margin speakers and cables in a system, I can have plenty of room for “package” deals, discounting or hammer-and-tongs bargaining. Cost X 1.65 keeps the doors open. These are not secrets, but worth remembering.

For many years I have purchased mostly High End used equipment.  I elect this option because I can purchase equipment based on what the market will bear and not the anti-competitive MSRP that is used to protect dealer margins.  To that end, I just cannot foresee any reason to change my purchasing habits in the future.  Most dealers now use the excuse that their cost is excessive because of the building, heating and cooling, utilities, etc.  However, many dealers are not selling online to take advantage of the reduced cost of doing business.  Seems unfair that "brick and mortar" stores are cutting it both ways and as usual the poor consumer is getting the raw deal. 

good responses, hopefully the input from the knowledgeable folks on here have provided some clarity and education to those who need it about how the high end hifi retailing biz works ... it is a tough business for sure

some financial education is always a good thing

What do you think retailers like Nordstrom and Macy's make?  You know this when they offer their 50% off sales.  A shirt selling for $100 suddenly selling for $50.  You can't tell me their cost is $45.  I am sure they are paying $25 which means their garments were not high quality to begin with.

I agree that just because you mark up something 50% means you cleared a $50 profit.  Merchants have to invest in their inventory, sit on it for possibly months and they have to pay for their rent and employee salaries.  By the time it is over, they would often realize a 20% net profit if lucky.  What I don't understand is how dealers cherry pick their inventory and assume a consumer would not spring for more expensive models.  It is their job to show the values of paying more to enjoy music longer term.  Consumers then turn around 2 years later, sell their gear for 50% on the dollar when they could have just been sold from the beginning what they will love long term.

I still think the way to buy gear is to attend audio shows to hear audio gear sold direct in order to get higher quality gear.  Manufactures do not have to pay for rent and pay sales people commissions so they can afford to manufacture their gear using higher quality components.  Most retailers simply do not stock a full line anyway so what purpose do they serve.  

Great question. Most new sales average to 15% net profit in my store. I have to sell 2 million dollars to cover all expenses. Home Theater sales and installations lead to 10% net profit. 

"The product cost is 12k and his gross profit is 8k, a 40% margin.
This is helpful to know."

Are you opening an audio dealership?

Mammothguy54-you definitely know what your talking about. Spot on.

d2girls-that is way off on mcintosh. Something was wrong with that invoice.

Upscale Audio carries many brands.  They are the US Distributor for Prima Luna and maybe one other, that I am not certain of.  The majority of the brands they carry are the same as with any other quality audio retailer.  I have known the owner for over 40 years and he is an upstanding guy and runs a wonderful business, catering to his customers very well.  I'm not quite sure what the issue is with the McIntosh unit cited above, having a dealer cost of $6K and a selling price of $21K.  Something is odd about that.  Trust, the margin for most electronics is about 40% and is not 3 to 6 times markup from cost.  A $10K retail item has a dealer cost of about $6K.
I worked in the consumer electronics industry for over 40 years, both home and car audio electronics of high end brands.  I managed the Western States of sales teams and for total sales & distribution.  I engaged with about 250 independent retailers and over 400 outlets, in total.  Not bragging, but I know this industry well.  High quality electronics have a profit margin from a low of 35% to a high of 45%.  Speakers have a profit margin from a low of 40% to a high of 55%.  There are typically backside business program benefits that range from 3% to as high as 10% but on most of the high cost electronics and speakers the average is around 4% to 5%.  And that is only if you are doing some substantial business volume.  The small retailers quite often do not see any backside program benefits.
This notion of exorbitantly high profit margins is simply incorrect.
Support your local independent retailer as often as possible.  If you can't because where you live there are no brick & mortar retailers then seek out any of the manufacture authorized e-commerce retailers.  The playing field is fairly level for all of these retailers and the vast majority of them are honest and upstanding business people.

three_easy_payments and also paradisecom are both exemplifying exactly what I outlined, above.  We are on the same page.
emergingsoul, however, seems to have a view of business whereby the consumer would only be purchasing directly from the manufacture.  He doesn't state it that way, but his ideology of how business should operate, regarding profit margins, leaves only the "Direct to Consumer" business model as an option.  I imagine he would then complain they should be selling the items at a lower price since they have cut out the middle man.  An endless cycle of simply not understanding any business models at all, and that he (and all consumers, I guess) should basically be able to purchase products with little to no profit in play for the manufacture and/or the retail process to flourish.  An utter lack of understanding of business.

Three_easy_payments is correct. 40%-50% GROSS margins might seem like a lot. However, once rents, utilities, insurance(s), wages, unemployment, flooring costs, etc. have been paid, the dealer might be left with 10-15%, if they are lucky. Then, they get the privilege of paying income taxes on that. So net profits could be less than 10% when all the smoke clears.

Too many people have no idea about business or how they run so they try looking at things like gross profits in a vacuum and think that when they buy a $12k pair of speakers, the whole store closes early and rents a private jet for a trip to Milan for the week, or something.

Someone mentioned, buy used. I have done this several times (at a dealership). If they have a demo item you are in the market for, you can get a good deal and a full factory warranty.

You can't look at gross margin in a vacuum.  You need to understand the dealer's monthly overhead cost/cost of operations.  That's why it's so important to push volume through.  Only through volume can you even start to cover the fixed monthly overhead.  If you don't sell enough widgets you could easily post monthly losses on your P&L even if you show a 40% gross margin on a single product sale.  This is really a ridiculous analysis the OP is trying to apply because the equation is far too dynamic for a linear thinker.

When you call a dealer and order a pair of 20k speakers, which he then orders and when received will deliver. He does not have your model in his listening room and a consumer has to go through the dealer to get the speaker. Seems a margin of 40% or more is a lot. Maybe dealer spoke with you for awhile, sent a quote and then took a credit card number and delivered it.
Fortunately there are multiple dealers in the area and competition would seem to be present. Maybe order out of state for a longer range delivery to avoid state taxes.

i really don’t need the services of a dealer so 8k 40% seems too high. Maybe 3k.
If margin is really 40% it impacts resale of product in secondary market so it would seem. Dealer or any other dealer certainly ain’t gonna pay you more than 12k as a credit during an upgrade effort. That’s why I am interested in learning what the margin is so I can get a feel for speaker value if I upgrade.

A normally calculated 40% gross retail margin is figured by multiplying the actual landed cost by 1.67. So a $1000 item would sell for $1670. A 50% gross margin (cost x 2.00) on a $1,000 item would be $2000.

To keep things simple, the amount of margin a dealer needs to make on average is determined by his rent/mortgage, payroll, utilities, city property taxes, etc. as well as the cost of goods. Payroll as a percentage of gross sales can be zero if it’s a family run business (but usually isn’t) and as high as 25% or so in areas that need higher quality staff. High turnover businesses such a grocery stores can have gross margins as low as 5% on average due to cash flow.

Unless there is a need to have extremely sharp pricing on particular items (such as a $65 pair of Grado headphones), retailers have higher margins percentage wise on less expensive items (a record clamp that costs $2.50 might sell for $10.00 or more), and lower margins percentage wise on higher priced items. In the jewelry business, a $10,000 diamond ring may have as small of a gross margin as $500 if it was special ordered and didn’t have to sit in stock waiting for a buyer, or $1000-1500 if it were going to sit awhile. Those $10k speakers could have a landed cost of at least $9k, depending on the manufacturer and how much business the dealer does with them.

But, unlike the auto business, where more profits come from financing, add-ons and maintenance than from actual car sales, most retailers don’t have multiple profit streams available. A high end dealer that offers installation, room tuning, etc can use the profits from those services to cut the margin they normally would have to get on equipment. A dealer that "only" has equipment sales for income can’t afford to discount as much, unless he is turning a lot of product each month.

Finally, like the auto business, if you’re looking for a deal as you’re paying cash, etc, you’re better off asking for it at the end of the month than the beginning, especially if business is slow. Best deal I ever got on a new car was at the end of the month during a recession when interest rates were in the high teens. The dealership hadn’t sold a car in over a week, and very few that month.

40% profit margin may seem like a lot, but it's not.  There are so many costs to run a proper business, not to mention the state and federal taxes the business must pay.  Overhead, in total, consumes a very high percentage of the profit that a business makes.  Consumers only see what is up front, such as the employee they interface with.  That is only the beginning of the cost of operations.  Of course, a lot depends on the total sales volume that a dealership accomplishes over the business year.  Smaller dealers will have fewer employees and larger dealers will have more.  The list of business operating costs goes on and on.  On average, a dealer of this industry needs to make about 45% annual gross margin in order to keep the business running and take home a respectable paycheck for him/herself.  Speakers at 45%, electronics at 40%, cables and accessories typically at 55% to 60%.  Most dealers nowadays are very willing to negotiate a discount of around 10% +-  That is a great service to their customer and leaves the dealer with a respectable profit, providing they do sell enough units to keep the business successful.  The fewer the unit sales the more difficult it becomes for that dealer to provide such a discount and remain in business.  Keep that in mind when you do business with a smaller dealer.

So I buy a jbl bw or klipsh group of speakers and some equipment with delivery from a 3 man shop and I pay 20 thousand.  The product cost is 12k and his gross profit is 8k, a 40% margin.
This is helpful to know. Thanks.

Gross margin is usually 40-60%, which means dealers charge 100% mark-up on cost of goods. Depending on the brand it's sometimes higher or lower. 

Fair enough and my assumption may have oversimplified. Car dealers are in fact protected by state dealer laws. All that being true, if the OPs experience has been that his dealer is acting purely as a middleman without the service that some of the best provide, I still do not see his questions as being over reaching. And prepping oneself for a negotiation is prudent in my opinion. Further, the reduction in audio dealers Is not dissimilar to a consolidation in nearly every space- maybe even more so due to a shrinking customer base, suppliers consolidation causing a change in focus. I don’t intend to create argument- my initial point was that the OP has a right to gain as much knowledge as possible to negotiate his best deal.  

I assume those of you throwing stones also refuse to use internet tools to find the dealer pricing on that new auto you are considering? Why are audio dealers a protected class?

Why would you assume that? It’s just a flat-out wrong assumption. There’s no fear, and audio dealers are not a “protected class.”  The OP was implying audio dealers make a lot of money most of the time for doing next to nothing, which is oversimplified and just not true — witness the ever-shrinking number of brick-and-mortar audio stores. And yes you could say the same thing about auto dealers and it would still be wrong for much the same reason. But that said, if anything auto dealers are the more protected class because almost all cars have to be bought from a dealership where they all have the same overhead costs to bear whereas audio components can frequently be purchased online from a site with next to no overhead. Apples and oranges in that regard.

Curious why the animosity towards someone who is attempting to even the playing field. I assume those of you throwing stones also refuse to use internet tools to find the dealer pricing on that new auto you are considering? Why are audio dealers a protected class? If a dealer is providing excellent service, most buyers should be able to assign a value proposition to the transaction. Why all the fear? I am truly curious.

@ p05129  - going to shows, that's probably the very best way to truly get an overall view of the marketplace, and experience it for one's self. When I am able, that's surely a goal of mine, thanks.

The reality is that the vast majority of audio dealers are not getting rich.  The only way to make real money in this business is to scale up large and push a ton of volume through every month.  Music Direct and Upscale Audio do this and probably make very hefty profits below the line.  The rest are hustling for every sale and I therefore prefer to work with the little guy whenever possible.

My answer is "I don't know"

I'd expect the mark-up to be 30-50% - this is typical for consumer goods/electronics.

The range will differ at price points, according the distributor agreement and the like.

Many manufacturers provide specific requirements such as demo units, stocking levels and on top of that then include promotions based on annual volumes and such.

A dealer that doesn't abide by their distribution agreement can get dropped and companies with strong brand names will penalize poor actors.

Manufacturer's also have 'upgrade' programs to provide additional revenue opportunities for dealers.  This provides dealers incentive to promote their products. 

Back when I was selling audio, speakers were a rather high profit item and offset the low profit on electronics.  The two biggest profit generators were phono cartridges and, by a mile, fancy cables.

All those added costs is how svs and tekton design can give you great products much cheaper by direct sales.

I don’t use dealers and I don’t tire kick products at a dealer then buy online: new or used.
I take advantage of going to as many shows as I can during the year to narrow down my search, then make the purchase. Most dealers don’t have all the products that I like so it would be very hard to compare what their speakers with their gear sounds like vs those speakers in my room with my gear

"jetter
Not so sure I see a negative intent of the Ops post that a few of you are implying. Give it a rest!"
I did not address it in my prior response, but the negative intent is pretty clear. The subtext in the initial comment quoted below is "The dealer did not really do much of anything. I spent $10k and did not go to their shop. How much did they make for a minimal effort"

emergingsoul
"So you spend 10k on a pair of speakers. Seems very simple to do by a high end dealer. And most often done without an Instore visit.
So how much are they making?

Not so sure I see a negative intent of the Ops post that a few of you are implying.  Give it a rest!

The point of any business is to make money. The margin is fairly high in this business but the products are also generally high quality and if your dealer is good it should be a good investment.

Why is it your concern how much someone makes on a product or service?  
If said product or service is worth the fee to you, buy it, if not don’t.

 Perhaps you should publish your occupation and compensation so the community can judge your worth?  See how ridiculous that sounds.  

question asked and answered

next!

@ebm ,
Well put!

As a gardener, I have to put up with this kind of 'logic'- I don't see the value in your service, so why should I pay for it?

If you are so concerned about what a dealer is making, then just buy your equipment used.
B

Everybody got to make money after all dealers must put up with many tire kickers.

When I sold Audio in the 70's and early 80's, the margin on speakers was anywhere between 40 and 55%  The speakers that came in at 40% were usually the lower priced speakers that were brand names but built on a tight margin.  The more expensive speakers usually came with a higher margin.  This applied to speakers only.  Margins on electronics peaked at about 40%

Or for that matter, any other type of business! 

So you spend 10k on a pair of speakers. Seems very simple to do by a high end dealer. And most often done without an Instore visit.

Why do you assume that? Where’s your evidence for saying “most often done without an in-store visit?” I’ve never bought an audio component from a dealer without listening to it, or at least some other stuff, in their store. What about the many customers who come in and listen, ask questions, and take up valuable time and resources and buy nothing and/or just buy the item online? Seems like you’re trying to imply dealers make a high margin for doing very little work. That may happen sometimes, but probably not nearly enough from a dealer’s perspective. If that was the case there’d be a lot more high-end audio dealers rather than them unfortunately being a dying breed. I’d invite you to open up an audio dealership and see just how easy it is these days.

Asked and answered many times over in the thread below and other similar threads

https://forum.audiogon.com/discussions/mattresses-not-stereos-is-where-the-money-is/post?highlight=margin&postid=1831963#1831963

The post is about margin, not operating costs below this line.
Further it helps to understand this as a way to further understand credits offered for returning product when upgrading.
As a consumer upgrading can be very costly, and negotiating a return credit can be a challenge. This is part of the business model and a dealer making profits from returned goods can be lucrative.
Getting good deals is part of a buyers process while respecting a sellers ability to receive a fair profit.