I believe this is the mark up on Firewires? Is this going to be the standard retail mark up on surfboards several years from now?
I have no crystal ball so I can’t answer your question about the future…
However, I do carpentry as my primary paying job and can offer my personal insight to mark-up…
Twenty percent “Overhead and Profit” AKA mark-up is a fair return on the investment of capital and time that is diverted from other potential investments…
When I estimate a job and present it to a potential client, I show my Materials and Labor costs as the raw costs…I also show the “Overhead and Profit” as a separate cost, in addition to Labor and Materials…Not hidden, but a line item…I’m the only contractor I know who doesn’t hide the Overhead and Profit into he estimate…
I’m often asked about that…I explain it to my clients like this… "Over several decades I have invested my money into my tools, shop, office, vehicles,etc…I also invest my money on a regular, monthly ongoing expenses such as office overhead, insurances, accounting and legal fees, vehicle repairs, fuel and maintenance, tool repairs and maintenance, advertising, and much more…I also invest my time that’s not directly billable to any one client…Things like the time to order materials, prepare estimates, billing, maintaining professional relationships, etc… I should be paid for that time, even though I can’t directly bill it to a specific job…The monetary investments that have gone into my business could have also been put into a longterm semi-guaranteed investment that would ease my life in the future… I would hope to get a fair return on my money if I invested it into something other than my business…That’s what is my Overhead and Profit "…
Is 20% a fair return…???.. As I see it, yes…A smart investor should be able to get that long term…
Every client I explain it to understands when I put it that way…
Now, Firewire is an above the board company (no pun intended) with most of, or more of the expense categories I mentioned above…Someone took money from their nest and put it somewhere (Firewire) and hoped that it would grow and increase…Whether that happens here or not is another discussion, but the principle of return on invest is the same…
Underground businesses really have similar expenses, but often do not recognize that what they spend on doing business is money they could grow another way, and do not charge enough to make a profit, continuing a downward spiral…
We all have choices on how much we choose to spend as well as how much we choose to charge…Everyone is looking for value, and it’s seldom the lowest cost…
That’s how I see it…
BTW: I have no college education, I’m not a financial planner, just a guy who know which side of the tool is sharp, so some academic descriptions of specific financial or legal terms, are just as likely to be not exact…but it works for me…
Paul
Very well put Paul, where elsewhere, sporting goods get a 40% markup. Early in my career, while still working out of garages/carports, I was lucky if I could get labor from building a board, the desire/drive to get one product/name out there has a cost when up against true other professionals.
Unfortunately, for a large percentage of the fringe/ underground part of the industry, this has become the norm.
With the costs of raw materials skyrocketing, it has put a lot of pros and amateures out of the loop. Building boards for labor only, if you have to eat or be housed, just doesn’t work in todays economy.
Profit is the reward for a job well done
Paul,
I also charge 20% as a line item charge to my customers (Am a one man operation - cabinets and woodwork). I have had to explain it many times as you describe with the caveat that when others do not declare their mark-up - i.e.: they hide it within the costs - the client has no idea just how much percentage is tacked on.
I even go so far to include time sheets and all actual invoices for materials and any sub-contractors used with every requisition for payment.
One client - a lawyer (go figure) - asked for a reasoning for the 20% on top of what he considered an already generous hourly rate for labor costs. After explaining it much as you describe and adding that though the reason for a business to exist is to make a profit, rarely do I realize all of 20% (new tools, unexpected vehicle expenses, etc.). Some jobs may net me 5%…
Then I asked him how long he studied to become a lawyer (8 yrs.) and said I could assume, from experience, about how much his office charges hourly - including that little clock on their desk they click on to time every phone call with clients. Then explained how long (35 yrs +/-) I’ve been doing what I do and how much of that time was spent to get to the point I could even do the kind of work he has come to expect from me.
Now, every time I meet him with a bill for a project, he brings his checkbook and pays me on the spot.
So, no, 20% is not an extravagant mark-up. Sometimes is can be less than enough…
Pete
The standard for retail is keystone … double your cost. Surfboards have never fit into this and are therefore considered a lost leader. 20% at retail loses money, especially on a product that takes the space surfboards do. It’s really too bad that surfboards don’t offer anyone profit and it’s always surprised me that corperate entities get involved. An old business adage is don’t go into a business thinking you can do it better, faster, cleaner than the people already in it. Today, as a business, surfboards are just barely worth building and aren’t worth selling accept as a way to get customers through the front door.
IN large scale retail it’s all about numbers … getting people to show up at your door. The large department stores can gauge what the days gross will be by counting the number of people coming through the front door. It’s surprisingly accurate. Count the number of customers and then multiply by the average of what people spend and that will give you your daily gross within a percentage point or two.
Frankly there was some chip on the shoulders of the clothing guys who are involved with FW. I was driving back to Burliegh with one of the guys a couple years ago and he said, “I can’t believe how great this is all coming together, it seems so easy.” I said, “We have built a production yet.” From that moment on things got very hard. I didn’t mean to be particularly profetic at the time … but in hind sight I was.
Maybe the best post I’ve ever read on sway. A good buddy of mine, who is younger and just 3 or so years into his very successful local shaping business, has struggled with this issue or rather, some of his older peers have struggled with his high pricing relative to theirs. They feel his shape fee of 350 bucks for a mid length fish, built by a young guy is insulting to their price point of $x by as they see it, a more experienced pro. Board pricing has shot through the roof for sure and I tend to order maybe 3 boards a year so it sucks…but not really, Shaping is art, craft, science and toy manufacture all rolled into one undervalued trade. I’m proud to ride a board built by a friend to the exact specs I want. Money well spent. I think it’s about time the cost of a board reflects the labor and craftsmanship involved in it’s production. I represent artists for a living and I encourage them all to charge a fair price for their efforts and not to undersell themselves even if that is a market trend. Hold out and claim it. All artists deserve to make a living.
Quote:
I believe this is the mark up on Firewires? Is this going to be the standard retail mark up on surfboards several years from now?
20% is nothing. A retail business cannot survive on 20% markup unless the goods they are selling are super high cost.
What is the standard retail markup for domestically made boards from local shapers in local shops?
Mark up on 7-11 was 33% on average!
Beyond these numbers, if you are funding meaningful research and development (prototype designs trying new materials and contruction techniques) you probably need 40-50% margin to stay in the black.
when i used to run my own business designing and making furniture with clients ranging from plc’s to joe public i used to work on 50% markup. this helped me in the slow times and helped fund research and development. i had enquiries and sales from big name design retailers who stuck 300% on my product before they sold it!
i also on a sidenote asked for 50% of the total bill as confirmation of order and didnt pick up tools till it was in my bank.
i have thought about possibly going into business shaping boards but it only took a little bit of research to realise id never make 50% on a board in the uk unless it was one of my wood boards!
I think current competition from overseas is demanding a significant change in how labour is paid for in surfboards. No more per piece work but an hourly rate for one person to do “the rest of the work”. That is, if you don’t want to do the rest of the work yourself.
Going by this you would need to be cranking out at least twenty boards a week (shaping machine territory) to have one person employed full time (on an hourly rate) to complete the remainder of the work (glassing, hotcoating, sanding etc) if you want any sort of show of making a profit. For there you probably going to have to either sell the board yourself or pay someone else to do it for you (twenty percent commission).
This is the way I see the surfboard industry heading.
on the flip side
we as well as every large corporate entity out there like ()mart, ()co etc etc
will never pay anything more than 15%-30% less than the published RAC price.
And why do we do it
cause we can…
just look at the gas pump.
“You want our business you give me what I want cause I can go elsewhere…”
I hate being strong armed to give away something for less than what it costs me.
But I’m asked to do it all the time.
Either to save a relationship or to bring a new one in from a competitor.
Unfortunately what I lose to do this as well as from any other loss we incur gets passed on with increased fees to the rest of you know about it or like it. Cost of surviving…
80/20 rule
That’s how it’s done in the real world like how the pro’s and their managers or even retail shops handle board builders…
Normally we try and use 30% as an industry starting point and 15% as a minimum negotiation limit.
Contractors should also admit to the tactic of low balling to win the bid with plans to make up the difference with change order invoices that you structurally build into the design. That concept is being adopted everywhere especially recently with the airlines.
Bottomline is one’s long term pricing survival is in really knowing whether you are actually worth it or not and why and making sure that the rest of the world you’re dependant on realizes that as well.
regarding this: “…An old business adage is don’t go into a business thinking you can do it better, faster, cleaner than the people already in it.”, come to mind M Biolas that “kick” from the “first” place other brands
with all the hype and marketing involved around
–and in this tech world, no matter what trade, if a guy do a fine work, he always got work…but work doesnt mean money at all
the money are in business
In the dark days that I was an adveritsing suit we used to do calculations on the lifetime value of a customer to see how much we could give away in order to attract a new customer. Customers typically broke into classes like: repeat buyers over a long period (5 years or more) - your best source of word of mouth advertising; repeat buyers over a short period, one-timers, etc. Then we could estimate how much profit we’d make out of each customer over their lifetime and get some idea of adspend.
When I was with Readers Digest we found that long-term customers were unhappy because we offered so many incentives to new customers that the loyal customers felt they were being chiselled. RDwas bleeding money at the time. Therein lies a problem - how to maintain the relationship with past customers and yet also incentivise new customers. It’s a case by case decision that I don’t envy you having to make.
Five percent of sales for R&D is what I was taught.
Our shop in FL was an R&D shop for 25 years. We actually made a living doing what was essentailly R&D everyday. Our customers came to us specifically for the cutting edge we were doing. There are methods in acheiving this and there are others who have done this successfilly. Bert is one.
Everyone else seems to think you need to spend money on R&D but that doesn’t have to be the case. But when you go production, corperate, that’s when it gets expensive. IMHO every successful production entity should have what we had in FL behind them developing new products slowly with small profits on the development. FW was so intent on quick growth that there were many stumbles from the unprecidented uphill attempt.
Hey Greg,
That’s an interesting view of R&D. I have worked exclusively for BIG tech companies with in Billions of dollars in R&D spending each year. My perspective is clearly skewed as a consequence.
Do you think this model can extend beyond people you don’t know and sell to personally? If so, how far? It sounds like this would be a way for a diminished # of artisan/craftsman board builders to survive on customs, but impossible to extend into big volumes.
How does this contrast with your R&D spend for your epoxy biz? I expect a qualitative answer here.
Matt
In order to do what I did in FL the shop had to be small and work towards changes in product that could be controlled. It’s pretty easy at 10 a week to moniter everything and fix anything that may go wrong. We always sold to dealers who knew what the program was and would work with us. There are ways of dealing with the public which allow you broader latitude. Communication is key. And it definately takes a bit of savy. After the product is developed it can go to a production.
The epoxy end of the biz is primarilly done between the ears. A bit of actual R&D but once you know what your dealing with it comes down to common sense and math. That means it harder but easier. And I do it all myself and also work for two other resin companies as a formulator as well which are not surf related. But R&D there is real ceribral. In the formulating biz I really don’t have a lot of competition … most formulators aren’t very good … but there are some.
Something very important about manufacturing though. When it comes to production, it’s hard to find a product that sells. I’ve developed literally hunderds of different products and out of those maybe a dozen real successes. It’s even harder today with the excessive branding that goes on EVERYTHING. Custom guys are told what to make so as artisans they are essentailly doing what any custom manufacturer does and this doesn’t generally include any R&D. Unique, creative product doesn’t often hit the mainstream and just cause it’s good doesn’t mean it’ll sell. Timing is such a big aspect of any business. And most times R&D is really nothing without marketing behind it.
I envy anyone who has a large R&D budget to work with … I never have.
Quote:
I believe this is the mark up on Firewires? Is this going to be the standard retail mark up on surfboards several years from now?
Frankly…it’s not enough.
Quote:
In order to do what I did in FL the shop had to be small and work towards changes in product that could be controlled. It’s pretty easy at 10 a week to moniter everything and fix anything that may go wrong. We always sold to dealers who knew what the program was and would work with us. There are ways of dealing with the public which allow you broader latitude. Communication is key. And it definately takes a bit of savy. After the product is developed it can go to a production.
The epoxy end of the biz is primarilly done between the ears. A bit of actual R&D but once you know what your dealing with it comes down to common sense and math. That means it harder but easier. And I do it all myself and also work for two other resin companies as a formulator as well which are not surf related. But R&D there is real ceribral. In the formulating biz I really don’t have a lot of competition … most formulators aren’t very good … but there are some.
Something very important about manufacturing though. When it comes to production, it’s hard to find a product that sells. I’ve developed literally hunderds of different products and out of those maybe a dozen real successes. It’s even harder today with the excessive branding that goes on EVERYTHING. Custom guys are told what to make so as artisans they are essentailly doing what any custom manufacturer does and this doesn’t generally include any R&D. Unique, creative product doesn’t often hit the mainstream and just cause it’s good doesn’t mean it’ll sell. Timing is such a big aspect of any business. And most times R&D is really nothing without marketing behind it.
I envy anyone who has a large R&D budget to work with … I never have.
Thanks for the insight!!