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Wholesale cost


brewgoodbeer

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I have a student putting together a mock business plan for a business class. He is modeling a music store. He is trying to get either a formula used by retailers or a percentage of cost to retail so that he can forecast profit. He needs to show balance sheet and needs a number for whole expense of purchasing product and a total net worth including inventory.

 

Does any one have any idea on this. I am no help. I know street values, but have no idea as to what the retailers pay for an item.

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Well, whether it's for your student or you're just looking to finagle a better deal on your next guitar, these amounts vary based on the type of product. The amount of profit in a cable or set of strings or softshell case can be much higher than in a guitar or a drum kit or keyboard.

 

Typically for musical instruments, the retailer will try and maintain 40 points of profit between the wholesale and the manufacturer's suggested retail price, in theory. Due to retail practices in the industry, though, that number is often much smaller. By the time you get to "street value", or "minimum advertised price", profit can be half of that. On a blowout product that's priced to move inventory and get new products in, it can be 10% or less.

 

Like I said, it's a range.

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I knew it would range by items. That is why I was looking for an industry standard and not an actual item or category. There has to be a standard somewhere. Whether a particular retailer sticks to it is inconsequential for this project. I know that bankers actually have reference books that contain ratios from inventory to retail sales and that ratios exist. I just don't know what they are or where I could find that information. I was really looking for a website or something like that. I really didn't figure anyone would be answering the question directly. As for me, price never sold me anything.

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No, it would be by category.

 

It is that way for all modern retail. Jeff demurred on describing accessories as keystone markup, but that would be a reasonable assumption. 40 pts. overall would be about right.

 

Modern retailing is all about the attachment of accessories and services to less profitable sales.

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I knew it would range by items. That is why I was looking for an industry standard and not an actual item or category. There has to be a standard somewhere. Whether a particular retailer sticks to it is inconsequential for this project. I know that bankers actually have reference books that contain ratios from inventory to retail sales and that ratios exist. I just don't know what they are or where I could find that information. I was really looking for a website or something like that. I really didn't figure anyone would be answering the question directly. As for me, price never sold me anything.

A Boss

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It depends on the item and the type of store. If it's a mom-and-pop music store in a small town, where there isn't a lot of competition with mail order, if you use the formula of cost is 60% of selling price you'll be able to take that business plan to the (local small town) bank and they'll believe you.

 

If you're thinking of opening a music store in New York City and plan to compete with Sam Ash, you'd better be prepared to negotiate everything and buy in large quantities. You'll be dealing with major brands where the MAP is about 30% below the "list" price and your basic cost will be about 40% under list price. But then there are rebates and other deals where, for example, if you order 50 stomp boxes, you get 10 more free, or order 100 SM-58s and you get a $500 credit on your next order. But order one U87 and you'll pay about 20% below MAP.

 

I think that better than a business plan (unless that's the direct assignment), he could do a good paper on how prices on musical gear are derived, both from the bottom up and from the top down, and what would be a good strategy for a couple of different types of music store. Here in the DC area, we have a music store for which sheet music is the major portion of their business. They've been around for 50 years so they must be doing something right.

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I'm not sure how in depth your student wishes to get, but if he doesn't mind doing some homework, ThomasNet provides listings for wholesale suppliers in just about every industrial market.

Musical Instruments and etc.

 

Recording Gear

 

Above are just a few of the music/recording product searches that I quickly conducted.

 

You might inquire with individual companies as to what their minimum order and quantity discount pricing would be. Most wholesalers offer tier pricing; the greater the quantity, the deeper the discount.

 

A few things your student will want to include in his mock business plan in addition to the merchandise itself:

 

Operational expenses such as real estate leasing or mortgage expense, utilities, insurances, business licenses and permits, employee staffing expenses (payroll and benefits), of course the merchandise and ALSO, the transportation and travel expense of merchandising. Transportation and travel expense covers expenses incurred by sales representatives, buying agents, off site tech support representatives (if offered) and freight to move product from one point to another. Many wholesalers quote prices FOB their dock; that means that the customer will pick the product up at the warehouse of the supplier or they will arrange their own means of transportation for the delivery of goods. Don't neglect the transportation, lodging, and food expenses when out of town travel is required.

 

I could probably think of dozens more things that need to be included in a full blown business proposal, but there is a WHOLE lot more to putting a plan together than just the wholesale price of the product.

 

If one marks a product up 40% or even 60% over the price they acquired the product from the manufacturer, they would need to be sure to deduct operational expenses before even considering what the "profit margin" would be.

 

Personally, I would lay out a business plan that covered 2 years of business operating expenses if I were to put one together. I would build in a "reasonable" padding for projected cost of living expense increase, and I would also consult the SORKINS directory to show potential investors what competition existed in the immediate market and whether or not their company would pose a threat to the establishment and grounding of my proposed business. Also, lay out a plan as to how you intend to market your product/location to your target audience; who is your target audience and how will you get their attention.

 

 

Gotta go, but...... I'm not sure if this is what you're looking for, but... FWIW, that's what I have to offer for now.

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