Competing in the Internet World.

An LDS certifies a class of 10 divers. At the end of the class, 5 of them are going to buy their own gear. (Lets just use a computer as an example.)

List price of said computer is $379.95 cost is $189.98
If you sell the computer at 10% off list for $341.95 1 of the 5 buys it for a total profit of $151.97
If you sell the computer at 30% off list for $265.96 3 of the 5 buys it for a total profit of $227.94
If you sell the computer at 35% off list for $246.96 5 of the 5 buys it for a total profit of $284.90

I'm being conservative on my estimates saying that only half of the people certified will buy their own gear. Surely it's more than half. I also used 35% because that will get you pretty close to everyone on the internet. Usually anything lower than that is a closeout of some kind.

You also should consider that if you can sell to all 5 of them some will by a higher end computer when presented with such good deals. In that case you will increase your profit even more because of the higher priced computer.

If you look at this example you see that it does not take huge volumes to realize greater profits. You have also created a happy group of repeat customers. You have a captive group of students that already trust you. Don't let them go somewhere else. These are your customers to loose. When they go home and research the internet they will find one of two things. Either they are getting as good a deal at the LDS as offered anywhere in the world, or they will find a better deal somewhere else.

There are shops out there right now making this model work and being very successful at it. I just wish more would do it but some cities have only the 10% off type shops so people go home and buy from the internet.

Being new you probably dont know how much this subject has been kicked around already....

Welcome to the board and have fun.

Your understanding of how retail sales work is flawed - there is no profit on an item until you have paid for shipping, receiving, stocking and selling the item (direct costs of the sale) and net profit has to take into account indirect selling costs (rent, utilities, office staffing, etc). It is also inaccurate to assume that all items are sold at keystone mark-up or that multiple sellers are paying the same wholesale costs. Your wholesale price is based on the volumn of items you purchase from a manufacturer or distributor - then you have to take into account the terms on which you are able to make purchases ... and so on and so forth.

The key to selling at small margins is turning over inventory. You need a large customer base to do that. My business sells mostly on the net and we turn inventory every 30 days with Net 30 from our suppliers. Companies like Dell turn inventory every 10 days. A retail store is not going to be able to turn inventory that fast and will incur a cost of holding inventory that's not moving.

catchaser:

I'm being conservative on my estimates saying that only half of the people certified will buy their own gear. Surely it's more than half.

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Really? Where are you getting these numbers?

Hoyden:

Your understanding of how retail sales work is flawed - there is no profit on an item until you have paid for shipping, receiving, stocking and selling the item (direct costs of the sale) and net profit has to take into account indirect selling costs (rent, utilities, office staffing, etc). It is also inaccurate to assume that all items are sold at keystone mark-up or that multiple sellers are paying the same wholesale costs. Your wholesale price is based on the volumn of items you purchase from a manufacturer or distributor - then you have to take into account the terms on which you are able to make purchases ... and so on and so forth.

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I'm not comparing any other shops but merely showing what purchases are available to this individual shop.

TheRedHead:

The key to selling at small margins is turning over inventory. You need a large customer base to do that.

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I'm trying to show with this example that you don't have to turn huge amounts of inventory to make a difference. Were talking sales of five units and less and the profit still refelcts the benifit of selling a lower margins to increase profit.

dherbman:

Really? Where are you getting these numbers?

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It's just a swag really based on my observations. When students finish their class and get their certification they are excited and ready. This is the time draw them in to the sport and make them divers for life. Not make the most you can off them not caring if you ever see them again.

I would like to see how many classes of ten you're going to get to be able to sell half of the students gear after the class. I'd be happy with classes half that size.

pir8:

I would like to see how many classes of ten you're going to get to be able to sell half of the students gear after the class. I'd be happy with classes half that size.

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Agreed - the numbers I've seen/heard quoted suggest that 50% of people that pass OW never dive again, much less buy their own equipment then and there.

Further, I dive out of one of the five largest PADI training shops in the county and I've never seen an OW class of 10. (Nor would I want to be in an OW class of 10!)

Far from being conservative, I think the numbers being tossed around here are interesting, but really have no basis in reality whatsoever.

Other than that, I think the assumptions are spot on!

catchaser:

I'm trying to show with this example that you don't have to turn huge amounts of inventory to make a difference. Were talking sales of five units and less and the profit still refelcts the benifit of selling a lower margins to increase profit.

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It's costs a lot to hold inventory. It ties up you capital. Your premise is selling more inentory, but you don't take into account how long it will take to sell it. Selling more inventory increases sales, but it doesn't necessarily increase profit. You can have more people doing more work to make the same profit.

I don't really know the dive business, but I would assume that a customer would take up a lot of time to purchase 1 regulator. You would have to calculate the real cost of selling a regulator. If you can make twice as much profit selling 2 regulators, then you are no better off selling 4 regulators at a reduced price because you have increased labor.