Posted on June 6, 2024May 23, 2025 by Dale Phillips Questions: Industry Pricing Standards Questions: Industry Pricing Standards by Dana Bourgeois, Mark Campellone, and John Greven Originally published in American Lutherie #92, 2007 Noel B. from the Internet asks: Could you give me any insight into pricing standards in the industry? One of our retailers says that they get 40% margin on instruments from all their smaller builders, i.e., they get $400 on a $1000 retail banjo and the builder gets $600. Once you deduct the cost of materials it appears the retailer is turning a better profit than the builder. Is this the industry standard? Until recently they were content with a smaller margin. Dana Bourgeois from Lewiston Maine replies: The retail pricing structure varies, and is negotiable between builder and retailer. The most common wholesale discounts are 50% (“A” discount), 40% (“B” discount), and 25% (“C” discount). In the case of the “A” discount, the retailer usually sells the product at a considerable discount from the suggested list price. For example, a guitar wholesaled at 50% and retailed at a 25% discount off list price would yield a gross margin of 25%. A guitar wholesaled at a “B” discount is usually sold at a lower retail discount than that of an “A” discount guitar. In the case of a “C” discount, the guitar is usually sold at full list price. The “C” discount structure is usually used between individual builders and retailers. In this case, the retailer and builder can offer the same guitar to the same customer at the same price. Become A Member to Continue Reading This Article This article is part of our premium web content offered to Guild members. To view this and other web articles, join the Guild of American Luthiers. Members also receive 4 annual issues of American Lutherie and get discounts on products. For details, visit the membership page. If you are already a member, login for access or contact us to setup your account. Questions: Industry Pricing Standards by Dana Bourgeois, Mark Campellone, and John Greven Originally published in American Lutherie #92, 2007 Noel B. from the Internet asks: Could you give me any insight into pricing standards in the industry? One of our retailers says that they get 40% margin on instruments from all their smaller builders, i.e., they get $400 on a $1000 retail banjo and the builder gets $600. Once you deduct the cost of materials it appears the retailer is turning a better profit than the builder. Is this the industry standard? Until recently they were content with a smaller margin. Dana Bourgeois from Lewiston Maine replies: The retail pricing structure varies, and is negotiable between builder and retailer. The most common wholesale discounts are 50% (“A” discount), 40% (“B” discount), and 25% (“C” discount). In the case of the “A” discount, the retailer usually sells the product at a considerable discount from the suggested list price. For example, a guitar wholesaled at 50% and retailed at a 25% discount off list price would yield a gross margin of 25%. A guitar wholesaled at a “B” discount is usually sold at a lower retail discount than that of an “A” discount guitar. In the case of a “C” discount, the guitar is usually sold at full list price. The “C” discount structure is usually used between individual builders and retailers. In this case, the retailer and builder can offer the same guitar to the same customer at the same price. In order to cover the cost of overhead and also realize a profit, most average-sized dealers need to make a gross margin of between 25% and 30%. This calculation assumes turnover within around 60 days. If the dealer thinks he can’t make a sale within that time frame he may need to realize a greater gross margin, or choose to invest his money in other brands. If turnover needs to be proven to the dealer, it may make sense to sell a first guitar on consignment, then negotiate a future wholesale arrangement. Mark Campellone from Greenville Rhode Island replies: Because independent builders produce instruments in far smaller numbers than large-scale manufacturers, a standard discount rate of 40% to 60% isn’t practical. Builders like myself usually discount at a rate about half that of the manufacturer’s standard. Of course, most dealers are more inclined to invest in a builder who already has an established reputation. For those who are not yet well established, offering instruments to dealers on consignment, at least initially, can be a good option. John Greven from Portland Oregon replies: Traditionally dealers paid the makers of guitars half of the retail price plus shipping costs. This was true for Martin, Gibson, and others from their earliest days of production. Martin never did any “incentive discounting” to their dealers and, to my knowledge, still does not. Gibson had a “floor plan” sales scheme for decades whereby dealers had to take a minimum number of instruments in order to qualify as a dealer and get the specific models they really wanted to sell in their market. This system assured that Gibson could move targeted numbers of all of their various models and keep production steady. Gibson did, however, discount an addition 5%–10% if overall sales were slow or they had excess inventory of a particular model, but for the most part it was the usual 50% discount to dealers. Then came handmade guitars gradually infiltrating what had been a locked-down, manufacturer-only market. Individual makers had to set their prices with very different issues involved. They did not have the advantage of large scale production in reducing material and time costs, but they also did not have the high overhead. From the 1960s through the mid-1980s, most individual builders (and there were only a handful of us then) sold direct to the consumer with no discounting. Others, me included, sold both direct and through a small network of exclusive dealers. The standard dealer discount for us was 40%. This is now certainly not uniformly true. I know a number of makers doing only 15%–20% if the market will bear it. Today, with the plethora of large and small guitar dealers around the globe, discounting is all over the map; from none at all for the top makers on down to the 40%–50% builders. It is a combination of what the market will bear and what the builder needs to have to make a living and continue in business. I still have a small number of dealers around the world and domestically, and I still offer them a decent discount. The bulk of my production is divided about evenly between wholesale and retail and I like it that way. I always have plenty of work and a steady, dependable income stream, even in “hard times” when the market goes soft. The only way I was able to survive the steep recession and near market collapse of 1982-3 was through sales of my guitars in Japan. Even though I made less money overall, I was able to stay in business and continue to work. A number of hand builders at that time went back to their day jobs to survive. While the dealer seems to make more money than the maker at the 40% discount, bear in mind that the dealer is taking care of your marketing and sales and all of the potential hassles that can follow a sale. As a maker, you do not have to deal with any of those aspects directly, and you can better manage your cash flow. For established makers with a good reputation and long track record, direct sales are the way to go. For new makers trying to find a niche, dealers make better sense until your market is better established. The goal is to build what you love and sell what you build. If dealers can make the difference between success and failure for your business, they’ve earned their markup. Over the decades, I have enjoyed working both with my dealers and individual customers. They are like family now. Some of my dealers go all the way back to 1975. The combination of dealer/individual sales has allowed me to make and sell over 2000 of my guitars over a forty-three year period. I could not have accomplished this without them. They have provided me with a continuing education and kept me in touch with the subtle changes in the market on a global basis. It is a good, working system for me and (the good news is) the costs are all deductible! ◆ [/wcm_restrict]
Posted on June 6, 2024May 28, 2025 by Dale Phillips Letter: Patents and Acknowledgement Letter: Patents and Acknowledgement by Harry Fleishman Originally published in American Lutherie #81, 2005 Dear Tim, GAL members, and anyone else, Largely because of my involvement in GAL, I have some visible presence in the lutherie community. Because I have always been interested in solving the problems, imagined or real, that I saw in conventional instruments — whether that meant developing a more repair-and-adjust-friendly neck joint or trying to wring a stronger low end from my basses without introducing too much “twang” — I've preferred to take risks, accept failure, and appreciate occasional success. Additionally, and most importantly, I have worked hard over the thirty years I have been designing and building to maintain my integrity as a luthier, if nowhere else in my misbegotten life. (Bear with me, I’ll get to the point.) It is, therefore, with some consternation and much sadness that I have heard rumors questioning the legitimacy of my use of some of these unusual features. To be blunt, I’ve heard accusations that I have ripped people off for their ideas and not given appropriate credit, either in the form of acknowledgment or, in some cases, in the form of required licensing fees. Become A Member to Continue Reading This Article This article is part of our premium web content offered to Guild members. To view this and other web articles, join the Guild of American Luthiers. Members also receive 4 annual issues of American Lutherie and get discounts on products. For details, visit the membership page. If you are already a member, login for access or contact us to setup your account.
Posted on June 6, 2024May 23, 2025 by Dale Phillips Questions: Charity Lutherie Questions: Charity Lutherie by Brian Flaherty Originally published in American Lutherie #98, 2009 Christ Kacoyannkis from Springfield, Illinois asks: I am an amateur luthier and I donated the last instrument I made to a charity. Can I deduct the value of the instrument on my taxes, or only the cost of materials? Brian Flaherty, research librarian at the New England School of Law in Boston, Massachusetts responds: Although I, like the GAL, cannot offer tax or legal advice, I can suggest the book The Tax Law of Charitable Giving by Bruce R. Hopkins, which includes this: “An individual may make a contribution to a charitable organization of an item of property that was created by the donor, such as a painting or manuscript. The charitable deduction for this type of gift is not based on the fair market value of the property; instead, it is confined to the donor’s cost basis in the property. This tax result is occasioned by [IRC section 170(e)(1)(A)].” The exception to this is if it’s your stock in trade — if it’s your business. Then you do have “fair market valuation” — which is the “price at which property would change hands between a willing buyer and a willing seller” (the language the court always uses to define “fair market valuation”). ◆
Posted on March 7, 2024May 8, 2025 by Dale Phillips The Business of Lutherie, 1984 The Business of Lutherie, 1984 by Ted Davis, Steve Grimes, Bob Meltz, and Matt Umanov from their 1984 GAL Convention panel discussion, moderated by David Sheppard Originally published in American Lutherie #2, 1985 and Big Red Book of American Lutherie, Volume One, 2000 See also, The Business of Lutherie, 1980 by Richard Bruné, George Gruhn, Steve Klein, Max Krimmel, and Robert Lundberg Where Are They Now? by Tim Olsen We’ve got four people up here who are involved in the business of lutherie in various areas. We’re going to start by letting each of them take a few minutes and tell you about their situation currently. Then we have some questions, some of which we thought up out of our own heads and some of which were turned in by you. So then we will ask these questions and let each person give a brief answer as regards his particular situation. After that, if we have time, we will take questions from the audience. So let’s start down at the end and find out a little bit about each person. Bob Meltz: I did my first repair in 1969, when I was actively involved as a sound man for a variety of rock-and-roll bands in my area. I was one of the first people in the area to rent out small sound systems, to fill the gap between Shure Vocalmasters and humongous concert systems. Become A Member to Continue Reading This Article This article is part of our premium web content offered to Guild members. To view this and other web articles, join the Guild of American Luthiers. Members also receive 4 annual issues of American Lutherie and get discounts on products. For details, visit the membership page. If you are already a member, login for access or contact us to setup your account.
Posted on March 3, 2024May 6, 2025 by Dale Phillips The Trade Secret, a true story The Trade Secret, a true story by Michael Dresdner Originally published in American Lutherie #3, 1985 and Big Red Book of American Lutherie, Volume One, 2000 I had just turned twenty-three and had my first “real” job in a finishing and furniture repair shop after serving a one-on-one apprenticeship for what seemed like forever. Although I was convinced that I knew far more than I really did, the lure of learning offered by a different and much larger employee pool was strong, and I was eager to start. As was to be expected, there was a wealth of new finishes and techniques to absorb. Little by little, cans and bottles of strange brews became familiar and controllable tools, and a baffling array of effects was unveiled. Eventually I got to know the names and uses for all of the coatings and colorings as well as the companies that provided them. Become A Member to Continue Reading This Article This article is part of our premium web content offered to Guild members. To view this and other web articles, join the Guild of American Luthiers. Members also receive 4 annual issues of American Lutherie and get discounts on products. For details, visit the membership page. If you are already a member, login for access or contact us to setup your account.