weighted markups

[Mitch]

I recently reread the article "Pricing for Profit" by Stacy Kirincic, appearing in the June 1999 issue of PFM. It explained the benefits of having a "weighted markup"; to sell more expensive - value added - glazing products. The more expensive the glass the lower the markup.

Does anyone use this type of pricing strategy to make the expensive moulding or glazing more attractive to the customers?

[Bob Carter]

I love this thinking by the manufacturers of high end products. They will tell you to shrink your margin to help you sell more of their product, explaining that your gross profit dollars will still be more , therefore, you will make more dollars. I wonder if they use the same philosophy on their product. I'll bet not. The reality is at the end of the month your cost of goods is an average of all the products you sell. If you shrink your margin on high end anything, where will you make it up,elsewhere? I think the vendors hope for a lower price so that the item they are selling will be more attractive to the end user. The truth is High end products typically carry a higher than average margin because you sell so few of them. Factor your turnover and other holding costs and it may be clearer. Do you think the margin on a Cadillac is higher than on a Hyundai? You bet it is, in both gross profit dollars and percentage. The lower margin theory works if you can turn your product quickly, and create a critical mass of volume (like Wal-Mart). Otherwise stay away from it. Next time your La Marche or Denglas rep(among others) trys to sell you that line, tell them "I will, if you will". That should end the conversation

[MerpsMom]

I'm in total agreement. I understand the vendors' philosophies as they want you to buy more from them, but figuring in holding, float money, risk of damage, etc., it makes little sense. Theoretically, those buying higher end products expect to pay for them, and isn't it up to us to help them concur that it's reasonable to think so?

This same thinking applies to moulding mark-up with me. Why should I reduce my markup on a higher end moulding just because it's expensive? The risk is always higher on it as you lose huge if you screw it up, and the customer expects perfection (which should apply to all stuff, but... http://www.thegrumble.com/framer/ubbs/smile.gif )

Aren't we all tempted to cut the price just to get half a loaf? I try to resist that.

[JRB]

Bob Carter, you are right on the money.(so to speak )
We have a set mark up and it does not vary on any regular item. If you have to sell at a lower margin, your wasting your time. It is far better to show the customer a lower priced item instead. Most of the time the more expensive mouldings are harder and more time consuming to work with. Why would you want to work for less ? Ask some of your employees if they will work for less on the more expensive projects, see how that flys.
John

[Bogframe]

I price everything by the running (not united) inch. With the inch prices on a printout taped to my table, my customers never question the prices, and being that I tell them why I think they should buy a specialty product (ie: AR/Museum glass, v-groove designs, etc) they ususally thank me, rather than curse me for paying the higher price.

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Seth J. Bogdanove, CPF
21 years framing and still loving it
It's my 40th Birthday today, so take it easy on me!

[This message has been edited by Bogframe (edited September 01, 2000).]

[MerpsMom]

Happy B-Day to Seth! You're still young enough not to care about posting the number. Of course, you're also male. http://www.thegrumble.com/framer/ubbs/wink.gif

[ChrisW]

Hey, you're as young as you want to be. I turned 40 in May and I got an Airedale Terrier puppy and a mountain bike..... hmmmm?... didn't I get the same thing for my 10th birthday?


Oh yeah... the topic.

I do weight my prices.
On some high end profiles it can vary the price by $150 to $200, it can make or break the sale, and I still make more money.

I also weight my glass. We use UV as standard in our shop and I have lowered my markup ( but not by much ) but make it palatable by raising the markup on regular glass. This way I can show the customer the difference, which isn't alot, they feel better by protecting their project and I make more money.

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Wal-mart...the Ferengi of our times.

[Bob Carter]

Have you ever thought of giving selected discounts to "make or break" a sale? It might save you some margin when price really isn't an objection and your salesmanship has been exhausted. You might win a few more. The one good point is to balance your margin by selectively pricing your various items to maintain an effective over-all cost of goods. Do you monitor your balance of sale to insure the proper mix? If you do, you are one of the few in this trade able to do so. My hat's off to you in that case. My suggestion was really more for the average operator unable or unwilling to monitor effectively their cost of goods in a structured pricing scheme. Good for you

[Greg Gomon]

I agree with Bob and the others on this one.
We have the same mark-up on all mouldings regardless of base price. I love it when a sales rep suggests a lower markup on high end mouldings, it shows they have never been on the retail end of a frame shop and are simply parroting a sales pitch from their marketing dept. If you double your cost (keystone) a moulding lets say Munn and it is cut wrong,or blemished, or the customer doesn't like it, there goes your profit margin out the window.
For a high-end moulding we consider the additional frustration factor for the potential of something going wrong and price accordingly.

[Le]

Most of this conversation seems slanted toward a perseived loss of profit on high end moulding. If you markup 4 times length, does that mean I can buy moulding that cost you $.70 for $2.80 a foot? I have been using a standard markup, but that will change before I open up after vacation. I can figure my costs on a frame by frame basis. I just can't control my costs on a frame by frame basis. It's like herding cats.

[po' framer]

Le,

I'm going to take the plunge and remark that I don't quite understand what you're saying. Forgive me for being the dense one and all that

[Le]

There are basically 2 options. Either use the same markup on all moulding and make the same rate on each, making much more on expensive mouldings and less on cheap mouldings (using 4x markup as an example), or using a sliding scale where cheap mouldings would be marked up 6 or 7x and expensive mouldings would be marked up 2.5 to 3x. Each time I go through the process my rates rise along with my anxiety.

[Framing Goddess]

FWIW...
I consider 3X mark-up the minimum. I REALLY want to make those big expensive mouldings more affordable at 2.5X but experience has taught me to be VERY NERVOUS about the lack of "slush room" in that mark-up. Gotta have that slush room... And less expensive mouldings that I buy in length I will mark up to whatever the market will bear, really. The TSAR method. (you all know that..."that sounds about right")

[Greg Gomon]

This may sound absurd but I will try to explain my thinking for not doing a graduated markup. With a graduated markup there is an equalibrium point when a cheap moulding is marked up to the same price as a more expensive moulding at a lower markup. Does the same price for two different mouldings with two different base costs make sense? What if you buy box price for quantity, does this moulding have the same markup as a cheaper moulding not purchased at a discount?
As my uncle once said to me: "keep it simple stupid" (KISS) Not being terribly bright I have tried to keep it simple.

[Frank]

<BLOCKQUOTE>quote:</font><HR>Originally posted by Greg Gomon:
With a graduated markup there is an equalibrium point when a cheap moulding is marked up to the same price as a more expensive moulding at a lower markup. Does the same price for two different mouldings with two different base costs make sense?<HR></BLOCKQUOTE>

John Ferens of FerenSoft once told me that if you take your footage price and add $1 (or $2 or whatever) then take it times your standard markup you end up with a weighted price without having this problem. And it's even simple!