One area that people new to retail store operations will tend to become familiar with is the Product Pricing methods. The producer-to-market pricing levels do not match the products that are commonly purchased at well known stores. In the clothing industry during the early 1980s, the keystone markup was twice cost. For example a product which was pre-priced at $20 would cost the retail store $10.00. By 1990, due in part to the rise of outlet stores, the keystone was four times cost. So the item which cost the retail store $10.00 was pre-priced at $40.00. This new pricing policy allowed clothing stores to sell items at %0% off and the store would still double their money. I am out of the clothing business now but I have been told that the keystone with many distributors is five times with large chain stores having an even greater profit margin. I relay this personal experience in order to emphasis to companies that they need to get across to customers that the hobby business does not operate at such profit levels. Most customers see clothing stores (for example) giving such large discount and feel that hobby stores should be able to operate the same way.

The basic mark up in the retail Hobby business is less than double. A retail store normally has to pay 60% of the retail cost (ie. A 40% discount). So an item that retails for $10.00 will cost the store $6.00. Magazines and some products operate on only a 35% discount. Higher discounts may be given for very large purchases or early payment but this only averages four to five percent. Of course stores that are owned by a manufacturer would technically operate at a higher discount since the store is stocked by the manufacturer and no distributor is involved.

If you going to run a casting company you have to be prepared to give distributors 70% discount which sounds like a lot but you require that they buy in quantities of 3, 6 or 12 each. On a $10.00 item the distributor will pay $3.00 and charge $6.00 to retail store clients, so they are not making a huge profit of the producer. In a lot of cases including free shipping to the retail store and early pay discounts by the retail store client most distributors will not double their money on a product sale.

When there is a price increase from the manufacturer, notify your customers with posted notices and effective dates. If you are a ‘brick and mortar’ store’, resist the temptation to increase prices on product already in stock. If it is already in stock, regular customers will be able to notice the change. It may hurt your reputation. An item may come from the manufacturer pre-marked with the old price but you are charged the higher rate. (This happens more often with some rules and book companies than others) if this happens place a card with the date and price change in the book. People will peal off price stickers and often ask you about the change. So be up front about the situation.

Hobby Business: Discussion of Considerations/Issues by Topic

Shipping Considerations
Finances: Accounting and Budget Preparations
The Initial or Expansion Bank Loans
Pricing Methods
Marketing and Advertising
Selecting the Best Site For Non-retail Companies
Glossary