LBS reasonable markup - Page 20 - Cycling Mob: Road Cycling, Mountain Biking and More

06-15-2004, 12:39 PM

In article <[Only registered and activated users can see links. ]>, [Only registered and activated users can see links. ] says...
> Curtis L. Russell wrote:
>
> > 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.

....

--
Remove the ns_ from if replying by e-mail (but keep posts in the
newsgroups if possible).

06-15-2004, 01:02 PM

On Tue, 15 Jun 2004 14:14:31 -0500, Todd Kuzma <[Only registered and activated users can see links. ]>
wrote:

>It's a mechanism, but not necessarily a good one. Retail
>price should be based on the market, not the wholesale cost.

The first sentence is correct - not necessarily. It depends on the
business and item/class of item. OTOH, the second is not meaningful.
Very few people survey the market except in a cursory manner before
setting prices, therefore it makes a better concept than a pricing
mechanism - and when you are pricing 10,000 or more items over six or
more market groups, you need a meaningful mechanism.

I doubt that any serious business uses one single pricing mechanism.
Markup is useful in most businesses for a significant number of items,
often a majority. Many of these are brought closer to market through
customer discounts, price level discounts and other adjustments. OTOH
many items are inherently unsuited for markup, beginning with joint
products that have poor underlying numbers.

That said, markup on purchased inventory is easily the most common
starting point for pricing retail items. It is also the easiest way to
add a mandatory margin level across a wide number of items in
inventory. Margin and markup are hardly exlusive of each other.

Curtis L. Russell
Odenton, MD (USA)
Just someone on two wheels...

06-15-2004, 01:02 PM

On Tue, 15 Jun 2004 14:14:31 -0500, Todd Kuzma <[Only registered and activated users can see links. ]>
wrote:

>It's a mechanism, but not necessarily a good one. Retail
>price should be based on the market, not the wholesale cost.

The first sentence is correct - not necessarily. It depends on the
business and item/class of item. OTOH, the second is not meaningful.
Very few people survey the market except in a cursory manner before
setting prices, therefore it makes a better concept than a pricing
mechanism - and when you are pricing 10,000 or more items over six or
more market groups, you need a meaningful mechanism.

I doubt that any serious business uses one single pricing mechanism.
Markup is useful in most businesses for a significant number of items,
often a majority. Many of these are brought closer to market through
customer discounts, price level discounts and other adjustments. OTOH
many items are inherently unsuited for markup, beginning with joint
products that have poor underlying numbers.

That said, markup on purchased inventory is easily the most common
starting point for pricing retail items. It is also the easiest way to
add a mandatory margin level across a wide number of items in
inventory. Margin and markup are hardly exlusive of each other.

Curtis L. Russell
Odenton, MD (USA)
Just someone on two wheels...

06-15-2004, 01:02 PM

On Tue, 15 Jun 2004 14:14:31 -0500, Todd Kuzma <[Only registered and activated users can see links. ]>
wrote:

>It's a mechanism, but not necessarily a good one. Retail
>price should be based on the market, not the wholesale cost.

The first sentence is correct - not necessarily. It depends on the
business and item/class of item. OTOH, the second is not meaningful.
Very few people survey the market except in a cursory manner before
setting prices, therefore it makes a better concept than a pricing
mechanism - and when you are pricing 10,000 or more items over six or
more market groups, you need a meaningful mechanism.

I doubt that any serious business uses one single pricing mechanism.
Markup is useful in most businesses for a significant number of items,
often a majority. Many of these are brought closer to market through
customer discounts, price level discounts and other adjustments. OTOH
many items are inherently unsuited for markup, beginning with joint
products that have poor underlying numbers.

That said, markup on purchased inventory is easily the most common
starting point for pricing retail items. It is also the easiest way to
add a mandatory margin level across a wide number of items in
inventory. Margin and markup are hardly exlusive of each other.

Curtis L. Russell
Odenton, MD (USA)
Just someone on two wheels...

06-15-2004, 01:02 PM

On Tue, 15 Jun 2004 14:14:31 -0500, Todd Kuzma <[Only registered and activated users can see links. ]>
wrote:

>It's a mechanism, but not necessarily a good one. Retail
>price should be based on the market, not the wholesale cost.

The first sentence is correct - not necessarily. It depends on the
business and item/class of item. OTOH, the second is not meaningful.
Very few people survey the market except in a cursory manner before
setting prices, therefore it makes a better concept than a pricing
mechanism - and when you are pricing 10,000 or more items over six or
more market groups, you need a meaningful mechanism.

I doubt that any serious business uses one single pricing mechanism.
Markup is useful in most businesses for a significant number of items,
often a majority. Many of these are brought closer to market through
customer discounts, price level discounts and other adjustments. OTOH
many items are inherently unsuited for markup, beginning with joint
products that have poor underlying numbers.

That said, markup on purchased inventory is easily the most common
starting point for pricing retail items. It is also the easiest way to
add a mandatory margin level across a wide number of items in
inventory. Margin and markup are hardly exlusive of each other.

Curtis L. Russell
Odenton, MD (USA)
Just someone on two wheels...

06-15-2004, 01:02 PM

On Tue, 15 Jun 2004 14:14:31 -0500, Todd Kuzma <[Only registered and activated users can see links. ]>
wrote:

>It's a mechanism, but not necessarily a good one. Retail
>price should be based on the market, not the wholesale cost.

The first sentence is correct - not necessarily. It depends on the
business and item/class of item. OTOH, the second is not meaningful.
Very few people survey the market except in a cursory manner before
setting prices, therefore it makes a better concept than a pricing
mechanism - and when you are pricing 10,000 or more items over six or
more market groups, you need a meaningful mechanism.

I doubt that any serious business uses one single pricing mechanism.
Markup is useful in most businesses for a significant number of items,
often a majority. Many of these are brought closer to market through
customer discounts, price level discounts and other adjustments. OTOH
many items are inherently unsuited for markup, beginning with joint
products that have poor underlying numbers.

That said, markup on purchased inventory is easily the most common
starting point for pricing retail items. It is also the easiest way to
add a mandatory margin level across a wide number of items in
inventory. Margin and markup are hardly exlusive of each other.

Curtis L. Russell
Odenton, MD (USA)
Just someone on two wheels...

06-15-2004, 01:18 PM

David Kerber wrote:

>>>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
[Only registered and activated users can see links. ]
[Only registered and activated users can see links. ]

06-15-2004, 01:18 PM

David Kerber wrote:

>>>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
[Only registered and activated users can see links. ]
[Only registered and activated users can see links. ]

06-15-2004, 01:18 PM

David Kerber wrote:

>>>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
[Only registered and activated users can see links. ]
[Only registered and activated users can see links. ]

06-15-2004, 01:18 PM

David Kerber wrote:

>>>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
[Only registered and activated users can see links. ]
[Only registered and activated users can see links. ]