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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.

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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! ◆

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Questions: Crownless Frets

Questions: Crownless Frets

by James Westbrook and R.M. Mottola

Originally published in American Lutherie #89, 2007

 

Gilles Danis from the Internet asks:

I have been asked by a museum to restore an old guitar. It is a rather cheaply made thing from the early 20th century. The frets do not have crowns. They are just thin flat bars on their sides with barbs at the bottom. Do you know of a source for such fretwire?


James Westbrook from England
replies:

I get my bar fret stock from Makoto Tsuruta in Japan. I think there are a few different sizes. His website is www.crane.gr.jp., and his e-mail address is mmm@st.rim.or.jp.


The Questions Column editor
adds:

Nickel-alloy sheets of various thicknesses and alloy composition are available from McMaster Carr (www.mcmaster.com) but they need to be cut into strips for use as bar frets. Sheet metal places or machine shops that have shears can do this cheaply. ◆

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String Spacing

String Spacing

by Sylvan Wells

Originally published as Guild of American Luthiers Data Sheet #103, 1979



After reviewing most, if not all books on guitar construction I realized that there was no proper spacing for cutting slots for strings in the nut or laying out centers in order to drill the holes for bridge pins.

It really is quite simple and I’ll explain the method and then conclude it with the mathematics already completed in an easy to use table.

First, it is essential to understand that although you are placing six points you are really dealing with 5 spacings (Space between strings, 1–2, 2–3, 3–4, 4–5, 5–6). The distance for those 6 spacings is determined by the distance desired from the centers of the outside holes (E & E or 1 & 6). For the bridges, the distance is the same as the width of the neck at the 12th fret. That distance centered on the bridge blank are the center points for holes 1 & 6.

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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.

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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.

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Questions: Workbench Plans

Questions: Workbench Plans

by Ellis McMullin and Wolodymyr Smishkewych

Originally published in American Lutherie #81, 2005

 

Kevin from cyberspace asks:

Where can I find plans for a guitar builder’s workbench?


Ellis McMullin of Kent City, Michigan
 answers:

The short answer is that you can use any workbench with the proper jigs and fixtures. I doubt you will find two identical benches unless they are in the same shop.

The longer answer: I recommend The Workbench Book by Scott Landis (Taunton Press, 1998; ISBN: 1561582700) as a guide in choosing a workbench style. In Chapter 14, workbenches used by Dan Erlewine, Ervin Somogyi, Mark Stanley, and Richard Schneider are discussed. A general plan of the bench that Richard used is included in the book. The book is a wealth of information and includes four detailed plans of workbenches in the Appendix.


Wolodymyr Smishkewych of Bloomington, Indiana
adds:

In addition to the Landis book, if you have a spare barber’s or dentist’s chair handy, you might take a look at AL#9, “Barber Chair Workbench” by Michael Sanden (also in The Big Red Book of American Lutherie, Volume One, p. 343). In the end, your bench will be a combination of your needs, ideas both yours and others’, and the materials at hand. And your needs will be dictated by what you build, as in my case: what is the best bench height for hurdy-gurdies? Good luck!