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Discussion Starter #1
I can't recall where exactly, but I read somewhere that Honda's profit margin on the Goldwing is 20%! That doesn't make sense, how is that even possible?
Can anyone verify this?
The average price is $24,000. 20% of that is $4800! Comments?
 

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Motorcycle companies seem to keep their actual costs pretty well hidden. Considering that the dealerships need to keep the lights on and their staff employed, 20% probably isn't that much. They are usually only selling a few of these a year each.
 

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Discussion Starter #3
Oh, okay. But isn't the cost of running the dealership essentially an expense? Profit would mean that the expenses have already been deducted from the revenue. Correct?
 

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I'm not sure what the 20% figure is based on. Is that the amount the Honda factory makes on each model before they send it to the dealer or the final retail minus the production cost?
 

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Discussion Starter #5
Not sure, but from what I remember, it's the final retail minus the production. That is why, it didn't make sense to me.
 

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On the other end of the spectrum, from 1999 to about 2006 or so, the profit margin on a 250 Rebel was what the dealer could make off DOC/freight/prep.
 

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Profit

The chances of finding out the profit margin of the manufacturer, the importer wholesaler, or the dealer, are about zero at best.
I could probably write several pages of inventory and pricing strategy, but who cares? In general times the manufacturer would be the least flexible, followed by the wholesaler. Getting a break from either of them is about zero again.
Meanwhile the dealer lives in the real world. He knows which models sell well in his area, and adjust the pricing accordingly. Often the dealers that close, may have been a bit short on inventory control strategy. That includes the used bikes traded in on new ones.
When you run a store, other than your overhead costs, the only thing you know for sure, is the landed cost of a new product. Everything else is generally a moving target, that revolves around sales and service.
Unlike the British, the Japanese had a strong desire for their products not to fail. Honda led the group in that area in the seventies.

And one last thing. The study book on Marketing 101, confuses mark up and mark on, to the point it makes no sense.

Unkle Crusty*
 

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Mark up

The terms are designed to confuse.
Lets start with an item that cost $1,000.00. A 20% markup would be $200.00.
For me this is the only logical way of determining a retail price of $1,200.00.
A mark on starts at the other end where a desired retail price is established, and then you work backwards to your cost. Makes no sense to me, and our instructor could not really explain it very well.
Realty and marketing 101 often to not coexist.
I may have even used the terms backwards according to the book. However a mark up, is the amount over cost that you offer an item for sale.
Mark on is for the studious types, that can not get a job in a retail outlet.
Or at least have anything to do with pricing strategy.

Unkle Crusty*
 

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I think I get it.

Mark on sounds like you have an item you want to sell for a specified price. You then determine what you can put into manufacturing and distribution to bring it to market.

Looks to me like the method of killing US jobs by a significant retailer in the US. A certain brand of bikes are an example. A handful of large retailers became their biggest distributors and one in particular subsequently gave them an ultimatum on price. Soon after the remaining plants for one brand of bikes became products of Mexico and China. And ultimately products only from China.

The mark up method involves the manufacturing and transportation costs determining sale price and in mark on the sale price determines manufacturing and transportation costs. I am intrigued that shipping a load of bicycles made in China, then distributing them to 1000s of stores in the US is that much cheaper than manufacturing and subsequent handling on domestic shores.

If you want cheap crap, buy cheap crap. I recently had the pleasure of assembling a bicycle for a niece. Christmas. I was thrilled to be asked. Once I started unpacking the bike I had to hid some of my thoughts. The bike seems a bit flimsy to be honest. The fenders and the struts for them and the basket she wanted on it were paper thin.

Low prices = soon to be landfill fodder.
 

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I think I get it.

Bwana. That is close enough.
The margin of profit can be described as mark up, or mark on, but the book on marketing confuses the issue. It does the same with warranty and guarantee.
The study books are mostly written by academics, and not folks actually involved in business. But we have to write the exam using what is written in the book. Nothing like credentials, even if they are fuzzy. I went to the classes with a kid that worked for me. It was his resume that needed padding. I encouraged him to go, and as an incentive went myself.

Modern marketing involves consumer surveys, the kind of thing a small business can not afford. Surveys can be a good tool, but folks are generally sick of participating. Excuse me if any of you like doing surveys, for the benefit of a large firm.

A good book is "Buying America Back" Have it here somewhere.

Unkle Crusty*
 

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Honda's profit margin is taken on wholesale cost, not retail as sold by the dealer. So on a $20k bike, Honda probably sold it wholesale to the dealer for $15k. A 20% margin on 15k, while still pretty darn good, is only $3k. And yes, profit is calculated after all costs are figured in, otherwise it wouldn't be profit.
 

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The study books are mostly written by academics, and not folks actually involved in business.
Unkle Crusty*
"Those that can... do. Those that can't... teach."

Unfortunately that reality catches up over the years and we end up with people that can't run a successful business teaching how to run businesses.

A few years back, a local man started a tool rental business. There really was a market for it but within three years he filed bankruptcy. The business was acquired by a guy that had been a lineman for the local power company. He's still going 20 years later.

The guy that went bankrupt was hired on at the University and now sits as a Professor of Entrepreneurship.
 

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A few years back, a local man started a tool rental business. There really was a market for it but within three years he filed bankruptcy. The business was acquired by a guy that had been a lineman for the local power company. He's still going 20 years later.

The guy that went bankrupt was hired on at the University and now sits as a Professor of Entrepreneurship.
That's our education system. And people wonder why there are so many idiots wondering around.
 

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I worked for a truck parts and repair company many years ago, in their Parts Department. I remember being advised to do 100% markup on all items on the shelves.

That said, 20% sounds a little low. That's not building enough Profit Margin into the price to afford a "Sale Price" scheme, as a model year comes to a close and you want to clear your Showroom Floor.

-soupy
 

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I worked for a truck parts and repair company many years ago, in their Parts Department. I remember being advised to do 100% markup on all items on the shelves.

That said, 20% sounds a little low. That's not building enough Profit Margin into the price to afford a "Sale Price" scheme, as a model year comes to a close and you want to clear your Showroom Floor.

-soupy
Make enough high priced widgets (and sell them) and 20% is pretty good.

Oh, and we're talking profit margin (I think), not mark up. If you buy hand cranked nose pickers for $1 each and sell 'em for $2 that is a 100% markup. You're not making a dollar. You still gotta pay the cashier, the elecritic, phone, water, etc. What ever is left over is your profit.
 

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I worked for a truck parts and repair company many years ago, in their Parts Department. I remember being advised to do 100% markup on all items on the shelves.

That said, 20% sounds a little low. That's not building enough Profit Margin into the price to afford a "Sale Price" scheme, as a model year comes to a close and you want to clear your Showroom Floor.

-soupy
If that was correct then it would mean that's Honda's earnings for each bike after all expenses are paid.... AFAIK...
 

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I can't find 'mark on' defined anywhere. When I do a search, it always comes up 'margin'. In any case, if you have a 20% margin, that means you have a 25% markup. In the case of the $24000 bike with a 20% margin, the cost must be $19200 (24000-4800); 4800 is 25% of 19200. But Honda's margin is likely not a per cent of the dealer sales price, but dealer cost, and it is very hard to determine that value, so you don't know how much room the dealer has to negotiate. The dealer's margin is the amount charged above dealer cost, less overhead, and most manufacturers negotiate a number that allows the dealers to stay in business, while not pricing itself out of the marker (except for certain luxury items, where the higher the retail price, the more likely it will sell).
 

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More stuff

Just to help confuse some of yuse some more.
If a unit of merchandise cost $10,000.00 and you sold it for a 20% profit, you made $2,000.00 on the sale of that item.
Your overhead costs are paid for from your total sales and service.
How you apply the overhead costs to different areas of the business is another issue.

The 20% above would be if you sold one only in a 12 month period. But what if you sold one every month? Your profit on the sale of that particular model would be much higher. Simple math says 12 times $2,000.00 return for a $10,000.00 investment.
What you do not want is product celebrating anniversaries.

So you calculate the times money earned on different areas of your merchandise.
Those that understand the above and the many variables, usually survive. Those that don't usually sink.

In the first instance, if you took a trade in and allowed $2,000.00 or more, then you do not have any profit from the sale, until the trade in is sold, for at or above the trade in value. Simple math again using the above numbers.
20 bikes sold, twenty trade ins. 10 trade ins sold by the end of our calendar year. That cut our profit in half.

Unkle Crusty*
 
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