Economics of Bicycle Business

[Arby99]

Hi All

Can anyone help me understand the basic economics of the bicycle business. In particular, aftermarket bicycle parts and accessories.

Lets take for example a part which retails for 100 pounds in a retail store. How much margin would:

a) the store make
b) the distributor make
c) the manufacturer make

I have seen some estimates discussed but interested in some real life examples (if possible).

Arb

[RickH]

From the limited trade prices I am familiar with, the retailer will typically be paying 50% of the SRP on parts & accessories.

The big chains will be able to get better details, possibly by going straight to the manufacturer rather than through a distributor.

[whoof]

From the limited trade prices I am familiar with, the retailer will typically be paying 50% of the SRP on parts & accessories.

The big chains will be able to get better details, possibly by going straight to the manufacturer rather than through a distributor.

It depends on what you sell you parts and accessories for. If a shop sells their parts at prices way in excess of those offered by the a large online retailer then they might be able to get near 50% otherwise the margins are pretty low. I once made a profit of £10 selling a Dura-Ace groupset.

Only very large shop chain deal directly with manufacturer everyone else deals with a distributor. As some distributors also run retail operations they can occasionally sell items retail for prices the same and in some cases cheaper the a shop can buy from the distributor.

I still have a few trade list catalogues at home. They're a couple of years old but I'll have a look through and post some what where trade prices of stuff like STI levers and rear-mechs.

[foxyrider]

From the limited trade prices I am familiar with, the retailer will typically be paying 50% of the SRP on parts & accessories.

The big chains will be able to get better details, possibly by going straight to the manufacturer rather than through a distributor.

The actual buying price will vary greatly depending on what it is. Many components have very low margins, accessories tend to have higher. Buy more and you can get a couple of percent more. As an example, working in a bike shop I couldn't get Campagnolo at even close to Ribble prices - and that was from one of the bigger LBS with several sites and internet sales so what chance the tiny one man band?

Remember of course that the final retail price has to include a percentage to cover staff and other overheads even before any 'profit' is made. Any extra discount given / demanded will be out of a slice that is already in most instances quite small. A small IBS will be on the worst level of purchase price from the distributors so they will - if they want to stay in business, charge higher prices than say Evans can afford to do.

It's very rare for anything other than bike own brand parts to be bought direct, in the UK there are maybe half a dozen distributors of parts and accessories - often with their own branded parts alongside the big names.

I'm as bad as anyone looking for the bargains, we all make a choice when we buy stuff. It's not surprising the small shops are disappearing - they really cannot compete with the big mail order set ups and national chains.

[whoof]

Hi All

Can anyone help me understand the basic economics of the bicycle business. In particular, aftermarket bicycle parts and accessories.

Lets take for example a part which retails for 100 pounds in a retail store. How much margin would:

a) the store make
b) the distributor make
c) the manufacturer make

I have seen some estimates discussed but interested in some real life examples (if possible).

Arb

I couldn't find my catalogues but I did find some supplier and sales invoices. These are cost including VAT, sale price and gross mark up.
These are from 2006

Mavic Carbone Wheels £624, £705- 13%
SKS Raceblades £20, £25, 25%
Stronglight chainring £6.23, £10, 61%
Duraace STI levers £174.58, £175, 0.2%
Vittoria Innertubes: 0.96, £2.50, 160%
Flite saddle £35.24, £38.95, 11%
Time RSX carbon pedals £96.64, £120, 24%
Fizik Arione saddle £50.53, £67.95, 34%
Ultegra 9 speed chain £9.81, £15.00, 53%

I'll you can find enough people who will queue up to by inner tubes, chainrings and chains you can make a good living.

[fastpedaller]

Hi All

Can anyone help me understand the basic economics of the bicycle business. In particular, aftermarket bicycle parts and accessories.

Lets take for example a part which retails for 100 pounds in a retail store. How much margin would:

a) the store make
b) the distributor make
c) the manufacturer make

I have seen some estimates discussed but interested in some real life examples (if possible).

Arb

I couldn't find my catalogues but I did find some supplier and sales invoices. These are cost including VAT, sale price and gross mark up.
These are from 2006

Mavic Carbone Wheels £624, £705- 13%
SKS Raceblades £20, £25, 25%
Stronglight chainring £6.23, £10, 61%
Duraace STI levers £174.58, £175, 0.2%
Vittoria Innertubes: 0.96, £2.50, 160%
Flite saddle £35.24, £38.95, 11%
Time RSX carbon pedals £96.64, £120, 24%
Fizik Arione saddle £50.53, £67.95, 34%
Ultegra 9 speed chain £9.81, £15.00, 53%

I'll you can find enough people who will queue up to by inner tubes, chainrings and chains you can make a good living.

But that's theory based on the percentage mark up, and those three items are low-value ones. You'd have to sell an awful lot of chains and tubes in a week to even pay the electricity bill.

[foxyrider]

Hi All

Can anyone help me understand the basic economics of the bicycle business. In particular, aftermarket bicycle parts and accessories.

Lets take for example a part which retails for 100 pounds in a retail store. How much margin would:

a) the store make
b) the distributor make
c) the manufacturer make

I have seen some estimates discussed but interested in some real life examples (if possible).

Arb

I couldn't find my catalogues but I did find some supplier and sales invoices. These are cost including VAT, sale price and gross mark up.
These are from 2006

Mavic Carbone Wheels £624, £705- 13%
SKS Raceblades £20, £25, 25%
Stronglight chainring £6.23, £10, 61%
Duraace STI levers £174.58, £175, 0.2%
Vittoria Innertubes: 0.96, £2.50, 160%
Flite saddle £35.24, £38.95, 11%
Time RSX carbon pedals £96.64, £120, 24%
Fizik Arione saddle £50.53, £67.95, 34%
Ultegra 9 speed chain £9.81, £15.00, 53%

I'll you can find enough people who will queue up to by inner tubes, chainrings and chains you can make a good living.

But that's theory based on the percentage mark up, and those three items are low-value ones. You'd have to sell an awful lot of chains and tubes in a week to even pay the electricity bill.

Not only that but the assumption is that it's all sold at full SRP. Potentially possible in the past but in 2017 everyone wants to price match or get a discount so actually selling stuff doesn't actually make tons of profit.

[landsurfer]

My business works on a margin of 66% .. So we double the sell price of all components we buy in .... If you are not in business and understand margins do not fall for the trap .....
Other industries work on different accounting models ... We have made a net margin of 17 - 19% over the last 3 years.
The multi national engine manufactures we support aims at 4% net and is happy to make 3% .....
For a short period of time I worked for a steel processing company in Doncaster ... They worked on the value added principal ..

[Heltor Chasca]

My business works on a margin of 66% ..

66% huh? I could of guessed Mr Diablo. I guess that makes you a soul trader. [emoji48]

[landsurfer]

My business works on a margin of 66% ..

66% huh? I could of guessed Mr Diablo. I guess that makes you a soul trader.

BUT .....
Thats quite normal .... it pays for salaries (32 staff) vehicles, pensions , holiday pay .... et al.
The margins in retail are much larger, and our margin is gross not net ....

[whoof]

Hi All

Can anyone help me understand the basic economics of the bicycle business. In particular, aftermarket bicycle parts and accessories.

Lets take for example a part which retails for 100 pounds in a retail store. How much margin would:

a) the store make
b) the distributor make
c) the manufacturer make

I have seen some estimates discussed but interested in some real life examples (if possible).

Arb

I couldn't find my catalogues but I did find some supplier and sales invoices. These are cost including VAT, sale price and gross mark up.
These are from 2006

Mavic Carbone Wheels £624, £705- 13%
SKS Raceblades £20, £25, 25%
Stronglight chainring £6.23, £10, 61%
Duraace STI levers £174.58, £175, 0.2%
Vittoria Innertubes: 0.96, £2.50, 160%
Flite saddle £35.24, £38.95, 11%
Time RSX carbon pedals £96.64, £120, 24%
Fizik Arione saddle £50.53, £67.95, 34%
Ultegra 9 speed chain £9.81, £15.00, 53%

I'll you can find enough people who will queue up to by inner tubes, chainrings and chains you can make a good living.

But that's theory based on the percentage mark up, and those three items are low-value ones. You'd have to sell an awful lot of chains and tubes in a week to even pay the electricity bill.

I don't quite understand your post. Those prices aren't theory these are actual cost and sale prices from invoices. I know you would have to sell at lot of small items to pay the bills, it's a bit like a café the mark up on a cup of tea is huge but you would need to sell lots of them to make a living. Most independent bike shops have a relatively small space for components, sometimes a single glass cabinet with some stuff that's been in there for years. They make their money out of selling and repairing bikes not having holding a range of components in stock. If you do need to replace say a rear mech during a repair you would probably charge a lot closer to RRP and get a better margin.

[fastpedaller]

Sorry if my statement was ambiguous.
I was referring to
"If you can find enough people who will queue up to by inner tubes, chainrings and chains you can make a good living."
as being the 'theory'. I appreciate the factual evidence is what it is, but (and we are probably in agreement here?) You would have to sell an awful high number of small value items. I can see that the bulk of the income would be from the value added of the fitting. Unfortunately difficult to make a living from a bike shop. I had a friend who tried, but it was always a struggle, but that was 20 years ago, and some things have changed. My observations at that time a)The 'lightweight' buyer buys quality items which last many years eg campag hubs 20 years+, so repeat sales low, and b) The 'casual' cyclist who buys a bike and it spends most of it's life in a shed and never wears out. More recently the manufacturers have marketed 'this years new' items more effectively and fashion dictates 'upgrades' to boost sales.

[Arby99]

Thanks everyone for your input on this. Really very helpful and much appreciated.

Being a little more specific does anyone know what the typical retail margins are on Brooks saddles as I know they have a RRP and typically I do not see them heavily discounted? The reason I am interested in these is that you would imagine they are more healthy than some other lower end branded parts.



Regards

Arb

[fastpedaller]

Brooks saddles as I know they have a RRP and typically I do not see them heavily discounted? The reason I am interested in these is that you would imagine they are more healthy than some other lower end branded parts.



Regards

Arb

Not more healthy for the cow

[chocjohn9]

Brooks margins may or may not be higher than lower end parts, but margin is a dangerous way of looking at things - it's cash profit that's the key. Cash is king!

As for RRP, it's against the law to tell a retailer how much to sell a product for, hence the "Recommended RP" but what they can do - and do, do - is threaten a retailer by cutting off supply if they do not sell the saddles for £X. The exception would be if Brooks instigated an offer, which can happen for several reasons (some companies like to "buy" market share, there could be a year-end coming and targets have been missed in the past, competitor activity, end of line (EOL) promo, it could be on a dud colour or style etc) and in these cases, normally margin is maintained but obviously cash profit is reduced. In theory, sales go up to compensate. It's a very good buyer indeed who can get a cash maintained promo.