Reasonable Profit?

[spoonbender]

This topic might not be the most appropriate for this site, maybe even impolite, but I'm curious as to what most folks consider a reasonable profit for handpainted crankbaits. I'm not in it to get rich but would like to show a little something for the labor involved and recover the material costs. I've only sold lures to guides and individuals previously, ranging from 10 to 15 bucks, but have been getting requests from tackle shops for custom patterns in larger quantities. How much do they make on commercially available lures? One shop suggested they double their cost, which sounds a bit excessive. Thoughts?

[jim45498]

This topic might not be the most appropriate for this site, maybe even impolite, but I'm curious as to what most folks consider a reasonable profit for handpainted crankbaits. I'm not in it to get rich but would like to show a little something for the labor involved and recover the material costs. I've only sold lures to guides and individuals previously, ranging from 10 to 15 bucks, but have been getting requests from tackle shops for custom patterns in larger quantities. How much do they make on commercially available lures? One shop suggested they double their cost, which sounds a bit excessive. Thoughts?

If you are going to sell your lures remember a few things...you have put in all the labor, all the cost for the materials, all the pain and agony of getting them perfect for use.Don't be afraid to make a nice profit for yourself.

The bait shop wants them as cheap as they can get them to make a profit and most (not all) could care less about the time and trouble you put into each bait

So with that being said....don't be afraid to price your work.You can't make them and sell them and compete with large companies. Your baits are one of a kind.

[mark poulson]

Only you can say how much your time and effort should be worth.

Hand made lures cost more. Custom paint jobs cost more.

People pay for having something hand made, hand painted, and unique.

Don't sell yourself cheap, because there will always be someone who will meet that price.

Ask for what you consider fair, and let the market tell you if you're overcharging.

If it takes you more to make and paint a lure than you can get for it, you should probably rethink trying to sell lures, or you need to streamline your production methods.

I know it takes me 2 1/2hrs. start to finish to make a four piece swimbait, provided I do them in six bait batches. I price my work accordingly.

I suggest you look at how much time and money goes into your lures, and price them accordingly, too.

[bassrecord]

...........

If it takes you more to make and paint a lure than you can get for it, you should probably rethink trying to sell lures, or you need to streamline your production methods.

Mark, may I suggest another option after cutting production cost and that is to develop a lure that is so good that it wins umteen tournaments (or some other technique) such that he can sell it wholesale in the $50 to $100 range and higher. Then he could ramp up and/or hire and/or subcontract others to make his lures for him. This wonderful but lucky "demand pull" in retail/wholesale/distributor price setting will then let him focus on streamlining his production methods and reap as much profit as possible before competition drives prices down.

Good luck!

John

[Vodkaman]

It does not seem right to me either, that I do all the work, design, R+D, testing, process development, building and finishing, to produce a bait that is unique to the market and the shop keeper takes at least as much profit, if not more than I do. But that is the way it works, unless you sell direct, you cannot get around this fact.

Producing baits to order is not as much fun as making baits for yourself and very close friends. You will probably have delivery dates to meet and be compelled to work instead of desiring to work. If the customer shows his/her appreciation by paying what they are worth, then you will feel the desire to produce and enjoy the experience. If the rewards are not enough and you find yourself thinking, “why am I doing this”, then you should probably put your tools away and turn down the order.

If times are hard and money in demand, then everything changes, needs have to be taken care of. Don’t be afraid to negotiate hard for your labors. You may be a regular customer at the shop and consider the proprietor as a friend, but this is business, not favours and don’t forget, the tax man will be sticking his finger into the pie for his share of the profits.

Dave

[MEISTERICS]

I have never sold a lure. But there are a few things I do KNOW about business.

NEVER cut the market, people will pay for QUALITY, selling high quantities does NOT necessarily mean greater profits.

I would rather make and sell fifty lures at $75 than sell 75 lures at $60. No matter what it still takes me the same amount of time to make the lure(s), materials are fixed. At least for me.

In the big picture, if running in batches you save 15 min on a 2 hr bait the time savings is negligible unless running in large quantities.

Quality is biggest key. If you have a quality and unique product that is usefull people will pay.

Just my opinion.

[wcgood]

Having taken a bait to market from scratch I can attest to the fact that custom bait making is not a great business model. Yes, you can make some money and it is certainly rewarding. The large bait companies make money on volume. Profit per lure is relatively small and they are quite automated. If you choose to hand carve and finish or even use a high tech duplicator as I did, at the end of the day you are working for minimum wage or maybe less. It's simply a volume business and volume will make you a slave to it. The market demands a certain level of quality and achieving this quality can cost you tens of thousands and don't expect not to break even for several years. I'm really not trying to sound negative or discouraging here but sometimes hobbies are better as hobbies and not businesses. I'm just sharing my personal experience. Some guys here may be doing well at it, I don't know. Bait making is labor intensive and unless you can hire cheap labor to do the work it's not real profitable or you work for small wages yourself. If it's for love, wonderful. If it's for profit, not so wonderful. A leader in balsa bait manufacturing once told me "if you like to fish...don't go into the bait making business". How true this was. Now I enjoy bait making as an art and without the baggage of bottom lines. Good luck.

Another things to keep in mind. If you sell direct to the public you will maximize your profit, assuming there is any. If you sell directly to a retailer, they generally like to make 40% (there goes your profit). They are making at least that on mass produced baits. If you use a distributor then cut another 20% from the 40%. Advantage is you will sell more baits.

I like the idea of selling fewer baits for more money. Problem is the market will only bare so much. To get your production cost down you have to make a certain volume. Commercial grade paints and coating don't have a long shelf life so you have to use it with larger productions putting you into the volume business game of small margins.

Hope this helps or at least it is personal experience and insights.

[wcgood]

Also forgot to mention that legally you need to comply with the IRS excise tax. It's a whooping 10% of gross sales. Which is just not fair for the little guys.

[Vodkaman]

Good post WC, pretty much what I discovered, without getting too involved. Ironically, a lot of the skills that I learned in my lure building education are serving me well in other fields of fiscal persuit.

Dave

[CNC Molds N Stuff]

This question is really two part:

1. What you should charge.

Price your work to pay all the expenses and make money. If you are not making money at it do not work any harder than is fun. Filling orders and meeting production demands makes it work.

2. What the tackle store should charge.

A privately owned store needs to average about 35% margin on their retail price in order to make money.

$100 item needs to gross $35. (They might take home $1 or $2)

They have to buy the item and stock it not knowing for sure its going to sell. They need to dispose of those that do not sell. They need to pay for electric, and rent or mortage, and property taxes, and employees, and shoplifting, and insurance, and the phone, and everything else necessary to just keep the doors open... and they still need to make a couple bucks to feed their family and make their house payment.

I have literally been in business my entire life. When my grandmother would send me money for Christmas or my birthday when I was 4-5 years old I wasn't allowed to spend it or even just put it in the bank. I bought merchandise and put it on the shelves in my parents grocery store.

The only thing I can add beyond that is IF the tackle stores become a large percentage of your trade it is unethical for you to undercut them and sell direct to their mainstream customers for less. Some of the big companies like Venom and Spro will sell direct, but only at a published full list price that is usually higher than what you can find the same products priced at in tackle stores. You can have a prostaff/captains/guides/clubs program, but it should be managed not to just include anybody who asks.

Just my opinion. Its worth exactly what you paid for it.

[CNC Molds N Stuff]

It does not seem right to me either, that I do all the work, design, R+D, testing, process development, building and finishing, to produce a bait that is unique to the market and the shop keeper takes at least as much profit, if not more than I do.

Dave

GROSS profit. Not net profit. He probably nets a lot less than you do.

Ask a shop keeper sometime if they will tell you what their COG and gross sales are for the year. The difference is their gross profit. Then ask them what they pay taxes on. And even then that number is actually higher than net if product doesn't sell, because they have to pay income taxes on any increase in inventory on the shelf until it is sold or they throw it away.

I know of businesses that gross $3-4 million a year, and the owner pays taxes on around $100K, Not takes homes. Pays taxes on. They actually take home around $50-60K. As an owner its worse than as an employee too. You get to pay 100% of your own SS & Medicare. As an employee you only pay half. The owner pays the other half.

[dlaery]

This is just from my point of view, or from another side, not disputiing anything that has been said here.

When selling you product to a retailer, in order for him to make 35%, he will have to mark up 50%

In Bob's example of:

$100 item needs to gross $35

That means the dealer paid me $65, marked it up 50%, and sell it for $100, to make 35% on his $100 sale.

In order for me to make 25%, in the $65, subtract $6 for FET, now my selling price is $59. To make 25%, I will have to produce that product for $39

Now I have the same expenses on less Gross profit. I have machines, tools, molds to replace or repair, plus the building, but no traffic.

[BobP]

It's simple but some don't realize: if it costs you $10 to make something that sells for $9, the more you sell, the faster you go broke.

[dlaery]

It's simple but some don't realize: if it costs you $10 to make something that sells for $9, the more you sell, the faster you go broke.

In this case you need a bigger truck.

[spoonbender]

Good points here on both sides of the coin, just what I was looking for. I've done lure making all my life, mostly just for my use and a few fishing buddies. I'ts now taken on a life of it's own with more requests for custom patterns. I realize how quickly an enjoyable hobby can turn into an ugly mistress and would rather not lose money at something that begins to resemble another job. I'm flirting with retirement in a few years and wouldn't mind a part time business so need to start putting the wheels on a program now.....hopefully with a clear, objective viewpoint of the tackle industry. Thanks guys, good info.

[CNC Molds N Stuff]

This is just from my point of view, or from another side, not disputiing anything that has been said here.

When selling you product to a retailer, in order for him to make 35%, he will have to mark up 50%

In Bob's example of:

That means the dealer paid me $65, marked it up 50%, and sell it for $100, to make 35% on his $100 sale.

In order for me to make 25%, in the $65, subtract $6 for FET, now my selling price is $59. To make 25%, I will have to produce that product for $39

Now I have the same expenses on less Gross profit. I have machines, tools, molds to replace or repair, plus the building, but no traffic.

Margin Please!!!

Not meaning to pick nits here, but I think you should always figure profit margin based on selling price not on cost. There are some odd terms in business that are based on "markup" like "keystone", but in general you should work based on selling price. Keystone is just a fancy word for 50% margin and its usually calculated by multiply instead of dividing because its easier to teach to idiots.

I learned at a very young age you calculate a 35% gross margin by dividing your cost by 0.65. You never make a mistake that way. Well, unless you forget something that dictates you need a larger margin.

Let me go one further to illustrate the point. It is 100% impossible to make more than 100% profit on anything. When I hear somebody say, "he's making 150% on that," I just cringe. In this example "he" is making 66.6667% profit, and probably a lot less because a person making a comment like that definitely doesn't see all the costs involved.

Anyway, most modern retailers do not "markup." They calculate margin. Cost / (1 - (Margin *.01) ) = Selling Price

As far as having the same costs.

Do you really? How do you know?

Is your industrial mortgage / rent the same per square foot as his retail location rent / mortgage? Prime retail cost a lot more than industrial warehouse space around here.

Do you have shoplifting in your shop? Its a pretty measurable and significant percentage of all retail business. Tackle stores get it pretty bad according to a couple owners I know.

Do you have tons of baits sitting your shelf that you are never going to sell? Not just the baits from you, but the baits from all the lines a retailer handles have to sell and he has to make enough on the ones that sell to make up for the ones that get stolen, don't sell, get given away, or go in the trash.

Do you have to have excess inventory of certain key items because you know a customer will just take all their business elsewhere if you don't have that key item they came in for right now? (It kills me to see a tackle store send a customer to Wal-Mart to buy a fishing license. In Arizona they lose money on every license they sell. I think they have a fixed return of something like 50¢ per license. Its not worth their time to process, so some don't. The problem is that customer then buys three rods and reels and a couple boxes of worms at Wal-Mart too.)

Do you have the added outrageous cost of retail liability insurance to protect yourself from the con artist who spills bait scent all over the floor and then deliberately falls on it so he can sue you for more than you made in your entire life?

I'm telling you that it really doesn't matter what the retailer sells your bait for. He has his headaches and costs and expense and a personal goal for what he wants to make for his work just like you do.

All that should matter to you is if you can sell your bait for enough to make it worthwhile for you. If you can't, then don't sell it.

Personally I hope my clients (I'm a communications contractor) make lots of money so they can keep paying me and having me upgrade their systems as they need to.

If somebody else seems to make more on your bait, who cares. He lost his ass on that half truck load of dipsy doodle danglers he bought last year, never sold, and finally donated to the girl scouts.

One more thing.

Then there is turn rate. Sure he might get 50% margin on your $100 (retail) custom made crankbait, but if he only sells a couple or even a dozen a month he has to. He could make more money on his initial investment in that same month by selling beefsticks and cheese doodles on the front counter at 20% margin. (Notice there are a heck of a lot more convenience stores than tackle stores?)

Higher turn rate lower margin required to stock. Because you get your investment back quicker.

Even if you limit to tackle... how many dollars worth of bags of worms does he sell vs dollars worth of $100 crankbaits? A lot more than $100 worth.

**********

Bonus Round

You know how mega corps like Wal-Mart, Home Depot, Bass Pro Shops, and Ford do it?

They don't even pay you until long after they have sold your product.

They make you eat every little thing.

You have pick up anything that doesn't sell.

Even stuff that was broken by customers or clerks due to carelessness.

They put all the risk back on you so they can sell at a lower margin.

If they over order they don't care, but you should. If it doesn't sell you have to take it back.

(And remember, they haven't paid you for it yet)

If you don't agree they just don't buy from you. Then they tell you what you will sell it to them for or they will just contract it out to a plant in Malasia and cut you out completely. AND they tell you exactly how much inventory to keep on hand for them... that doesn't even enter into the equation for them until they tell you to send it to them. You not only have to sit on inventory in their store, that you will probably get some money for, but you have to sit on inventory in your shop that they have no obligation to even try and sell.

Just my opinion... ok lets be honest. I personally think its a little more than opinion. I might have stayed awake in a business class once or twice in college, and my mom definitely would have whupped my ass with a flyswatter handle if I failed to get some of these lessons right the first time or atleast by age 6.

Business is tough. I have been in business my entire life (at age 44 I did my first retail investment over 40 years ago) and I do not think I am particularly good at it. That is why so many intelligent people are satisfied to work for somebody else. When I left home I never wanted to be in business for myself. It just worked out that way.

I iterate:

All that should matter to you is if you can sell your bait for enough to make it worthwhile for you. If you can't then don't sell it.

Don't get pissy or greedy if it APPEARS that somebody else is making more. Either you are selling your bait for enough for YOU or you aren't. Cover your own expenses and pay for your own time at a reasonable rate and be happy if it sells at just the rate you want to produce. Demand gets too high raise your prices. Desperate for some cash? Lower your prices.

[JSC]

Bob gave a good summary of the subject.

Having been in it (Tackle Biz) more ways than one ... the tackle industry at one time broke the margins down as follows (since that time it will vary slightly according to deals & etc)

Retailer Sells an item for 1.00

it cost him (60%) (40% profit) .60 (.40 profit)

the jobber sold it to him at that price

it cost the jobber 50%-10% off of the 1.00 (.45)

That leaves him with a 25% profit (.15)

(All of this is Gross profit)

In order to do it up right the Mfg should have a good Sales Rep orginization (or individual)

and this part is 10% of what he sells it to the jobber (.045) .. So we are now down to .405

and out of that comes another 10 % FET == .36 (that is off of the .45 it sold for)

All of this with out taking in all the over head and there is a bunch of it in every level of sales.

Wal Mart went so far as to tell the Mfgs that they did not need the Reps and wanted that 10% ..

Make sure you have all your Ducks in a row before you take it any further than a hobby or as a custom made item.

Hope this was not confusing

2 cents worth

JSC

[MEISTERICS]

Many people often confuse Margin & Mark-up.

Margin is the percentage or dollar value of profit a person makes on the sale of a good.

$100 sale with $60 cost = 40% margin. The $60 is presumed to be your direct and sole cost to physically get the good.

the mark-up of this good is 100/60 = 1.667 or 166.7%

The 1.667 is the estimated increase in direct cost of a good to cover general and overhead cost. Buildings, utilities, marketing & so fourth. Along with making a "take home" dollar value.

Generally speaking, a good company knows what amount they have to mark-up the good in order to break even and make a worth while profit. If they don't, they go out of business.

Hope this clear things up.

[Seeking 56]

All good points!

If you know and you've been told you craft a quality bait with quality components, paints, clear etc.. don't be afraid to sell them at a premium price.

If you make musky lures for example, that is a very specific niche. Musky fishermen will pay for a good crafted bait that is durable and catches fish.

You should also consider consignment. If the retailer is receptive to this and if your lures don't occupy a large amount of space it could be the best of both worlds. He doesn't have to buy them and you may benefit from a higher percentage.

You can produce a limited amount of baits and in the end you reward yourself with an acceptable return for your efforts.

Just a thought.

S54

[RiverMan]

There's a reason why 90% of all commercially available lures come from overseas and that's because it's very difficult to make a reasonable profit by producing in the USA. For what you pay one person in the USA you can hire a half dozen or more in China. After you figure in all your materials, equipment, wear and tear on equipment, and your time, it's pretty much a labor of love. You can make a little money at it but don't expect to make much. How much to charge depends on how much your competitors are charging and what customers are willing to pay.

RM