A normally calculated 40% gross retail margin is figured by multiplying the actual landed cost by 1.67. So a $1000 item would sell for $1670. A 50% gross margin (cost x 2.00) on a $1,000 item would be $2000.
To keep things simple, the amount of margin a dealer needs to make on average is determined by his rent/mortgage, payroll, utilities, city property taxes, etc. as well as the cost of goods. Payroll as a percentage of gross sales can be zero if it’s a family run business (but usually isn’t) and as high as 25% or so in areas that need higher quality staff. High turnover businesses such a grocery stores can have gross margins as low as 5% on average due to cash flow.
Unless there is a need to have extremely sharp pricing on particular items (such as a $65 pair of Grado headphones), retailers have higher margins percentage wise on less expensive items (a record clamp that costs $2.50 might sell for $10.00 or more), and lower margins percentage wise on higher priced items. In the jewelry business, a $10,000 diamond ring may have as small of a gross margin as $500 if it was special ordered and didn’t have to sit in stock waiting for a buyer, or $1000-1500 if it were going to sit awhile. Those $10k speakers could have a landed cost of at least $9k, depending on the manufacturer and how much business the dealer does with them.
But, unlike the auto business, where more profits come from financing, add-ons and maintenance than from actual car sales, most retailers don’t have multiple profit streams available. A high end dealer that offers installation, room tuning, etc can use the profits from those services to cut the margin they normally would have to get on equipment. A dealer that "only" has equipment sales for income can’t afford to discount as much, unless he is turning a lot of product each month.
Finally, like the auto business, if you’re looking for a deal as you’re paying cash, etc, you’re better off asking for it at the end of the month than the beginning, especially if business is slow. Best deal I ever got on a new car was at the end of the month during a recession when interest rates were in the high teens. The dealership hadn’t sold a car in over a week, and very few that month.
To keep things simple, the amount of margin a dealer needs to make on average is determined by his rent/mortgage, payroll, utilities, city property taxes, etc. as well as the cost of goods. Payroll as a percentage of gross sales can be zero if it’s a family run business (but usually isn’t) and as high as 25% or so in areas that need higher quality staff. High turnover businesses such a grocery stores can have gross margins as low as 5% on average due to cash flow.
Unless there is a need to have extremely sharp pricing on particular items (such as a $65 pair of Grado headphones), retailers have higher margins percentage wise on less expensive items (a record clamp that costs $2.50 might sell for $10.00 or more), and lower margins percentage wise on higher priced items. In the jewelry business, a $10,000 diamond ring may have as small of a gross margin as $500 if it was special ordered and didn’t have to sit in stock waiting for a buyer, or $1000-1500 if it were going to sit awhile. Those $10k speakers could have a landed cost of at least $9k, depending on the manufacturer and how much business the dealer does with them.
But, unlike the auto business, where more profits come from financing, add-ons and maintenance than from actual car sales, most retailers don’t have multiple profit streams available. A high end dealer that offers installation, room tuning, etc can use the profits from those services to cut the margin they normally would have to get on equipment. A dealer that "only" has equipment sales for income can’t afford to discount as much, unless he is turning a lot of product each month.
Finally, like the auto business, if you’re looking for a deal as you’re paying cash, etc, you’re better off asking for it at the end of the month than the beginning, especially if business is slow. Best deal I ever got on a new car was at the end of the month during a recession when interest rates were in the high teens. The dealership hadn’t sold a car in over a week, and very few that month.