Nah, I'm not going there. I'm not trying to be evasive, I just don't think it is appropriate for people to reveal margin structures. But it is a lot less than most people think. Further, people have vastly different ideas on what "fair profit" is.....see above w/ the guy who thought a 20-30% markup (not margin, but markup) was "high". Uh, OK.

---

Chicago Cubs - 2016 WORLD SERIES Champions!!!!

"If ever the time should come, when vain and aspiring men shall possess the highest seats in government, our country will stand in need of its experienced patriots to prevent its ruin." - Samuel Adams

I'm struggling to leave my sarcasm this side of the keyboard.

I bought my P3 in January at full price - so I'm definitely too far removed to have strong feelings about this sale. But, it's a sale. Companies have sales. I'm very pleased with my whip even though I paid full price. The same way that I might be pleased if I paid full price for a B12. It's a great bike.

Would I be happier if I paid less? Most certainly. But I didn't. I just think there are better and more important things to lose sleep over. Like what design I should paint on my aero helmet or what color scheme my next kit should be.

Fair enough. I'm not expecting to hear the details. I guess the point is that sales of this magnitude give the impression that "regular" prices are greatly inflated to the point that it can make previous or future consumer be pretty disgruntled. We're not talking about a few $100 off a $2500 bike as end of year clearance on previous year stock. The only limitation on this sale is that it doesn't apply to 1 series bikes.

When I bought my Project 1 Speed Concept on Nov 14th, 2010 it was at normal cost. In December Trek was giving 300.00 off on Project 1 buys. I didn't even have to say or ask about it. I was given a check for 300.00!

Mark up from dealer to consumer is pretty straight forward. Cervelo sell a bike to the dealer for X and the dealer sell it for y. When people hear what x and y are they thnk the difference is profit. But how much of the difference goes to running the shop is a big number and can't be ignored.

Mark up or profit for Cervelo is really tough to know. I doubt Cervelo can tell someone exactly (say +/- $50) what the cost to produce a S5 is. Sure they pay X $ to the factory that builds them per frame, but how much do you ascibe for the engineering and marketing? How much for liability and returns? They may hav afigure for engineering, but they have no idea how many they will sell. They hope returns will be minimal but every company has manf issues.

Typically even when "numbers " get out they aren't accurate and are look like more profit is in them than in reality.

---

Styrrell

Lol at this response. I don't blame you for not posting some real information because the secret markups are the only thing that preserves the markups in the first place. Plus, I'm sure that bigger shops get a better deal than smaller ones, so markup is a relative term dependent on order size and frequency. That's business. But don't even bother disputing the size of the markup if you aren't going to discuss it. I don't work on bicycles other than my own, but I know enough about the industry from insiders and I'll leave it at that. My real question is: if you aren't going to discuss anything, why even bother responding? I didn't even ask you about the percentage markup.

You can also post photos. It's worth pointing out because your semantics left that out. ;)

Because when people start spouting nonsensical BS without people refuting it, it can lead others to believe it. The margins AREN'T high in the bike biz. Proclaiming that this sale is somehow a reflection of huge margins on bikes is simplistic, at best.

---

Chicago Cubs - 2016 WORLD SERIES Champions!!!!

"If ever the time should come, when vain and aspiring men shall possess the highest seats in government, our country will stand in need of its experienced patriots to prevent its ruin." - Samuel Adams

If that's correct it's kind of a bad deal for shops, great deal for Cervelo.

The most likely explanation for the sale is that Cervelo is:

a. Running low on cash
b. Carrying too much inventory at this time of year
c. Fixing their balance sheet by converting their excess inventory into cash

Their recent financing deal with Pon also suggests they may be low on cash.

Doing a deal like this would be suicide if they were a public company as it will drastically reduce their gross margins and kill their net income this year.

[quote

My understanding is that the LBS gets an R5 frame set instead of the $2000. The problem is that hardly anyone buys R5 frames. Building them will bring the cost up to the same as a complete bike so there's no upside for the LBS. They dump bikes people buy and get stuck with bikes people don't buy so much.[/quote]

If that's correct it's kind of a bad deal for shops, great deal for Cervelo.[/quote]

This is an accurate understanding of the situation.

Chris
Athletes Lounge

The shop gets "reimbursed" from Cervelo five months from now with an R5 VWD frame - no cash, only the $4900 frame. It's bullshit, actually. The LBS is getting screwed in this promo.

And to the poster who made a comment about "how high the margins are" - in some instances, Cervelo has shops selling for right at or below COST. It depends which bike.

Btw your shop is pretty awesome.

If that's correct it's kind of a bad deal for shops, great deal for Cervelo.[/quote]


This is an accurate understanding of the situation.

Chris
Athletes Lounge[/quote]
So you're saying I can get an R5 frameset cheap in a couple months? haha

Proclaiming that this sale is somehow a reflection of huge margins on bikes is simplistic, at best.

Bingo!

If you want to operate in a business with high margins and the potential for high profits steer away from anything in the sporting goods business - believe me. It's always struck me as odd that people think there is a HUGE margins in this business.

I lost my power cord for my BlackBerry a last year. Had to buy new one while I was out on a road trip. I seem to recall it cost $30+. Something that maybe costs a $1 or slightly more landed in North America!! That's the business you want to be in - Electronics, accessories and peripherals. Not sporting goods.

---

---

Steve Fleck @stevefleck | Blog

I think the key is to be in the "you need this right now and I have one for you here" business. You can get your blackberry power cord for $2 on the internet if you're prepared to wait 3 days for it....

Margins on latex tubes sold at the LBS at the weekend are probably just fine, because you need to fix a flat right there and then. New bikes, not so much.

I lost my power cord for my BlackBerry a last year. Had to buy new one while I was out on a road trip. I seem to recall it cost $30+. Something that maybe costs a $1 or slightly more landed in North America!! That's the business you want to be in - Electronics, accessories and peripherals. Not sporting goods.

What you really need to be in is the sports electronic business. The price for the cords of Shimano Di2 are shockingly high, considering the are just wires and connectors with 0 electronics. ;-)

---

Styrrell

This "sale" does go to illustrate how huge the mark-ups are on bikes though.

I agree with others, that it's a companies business to reveal or not reveal what the margins are. Go ask Apple what the exact margin is on an iPad?( I can tell you it's WAY more than on any bike - lots of chumps out there walking around with iPads!)

As others have said on any good there is the exact math of the margin along the way, then there is all the other variables that make coming up with that number hard to do. We just air-freighted a shipment of wetsuits in from Asia, at 6X the normal sea shipping costs for the same weight! How do we factor that in? We can, but it needs to be averaged. We can't pass along the 6x shipping costs to you - most consumers always expect less, less, less.

Part of the challenge in the bike business is that it's still run somewhat old-school - the retailers for the most part are small business independents and the vendors/mfg. are a mixture of bigger businesses and micro businesses. Shipping and logistics costs are crazy and the volumes are very low, compared to say the way a big box retailers works, which is what many people's retail experience and expectations revolve around these days.

---

---

Steve Fleck @stevefleck | Blog

Go ask Apple what the exact margin is on an iPad?

That you can google. There is a website that buys electronics and dismantles them, them prices out the components. Even something like an ipad is almost entirely "stock" components. Interestingly one of the hot video boxes from a few years ago was priced significantly below what it would be possible to manufacture, but that was to get them in hands and sell content.

---

Styrrell

thanks man.

Chris

That has been the strategy for years for video game consoles. Microsoft, Sony and Nintendo sell the first-gen versions of their boxes for losses (sometimes significant), but eventually make it back through royalties and licensing on the software / games.

Now, the bike biz is nowhere near that intricate, but the above illustrates why you can't look at one aspect of the cost / price equation and make assumptions about profitability.

---

Chicago Cubs - 2016 WORLD SERIES Champions!!!!

"If ever the time should come, when vain and aspiring men shall possess the highest seats in government, our country will stand in need of its experienced patriots to prevent its ruin." - Samuel Adams

guys, for all of you that are focused on the "profit" of a retailer, please do yourselves a favor and look up the difference between gross margin and operating profit. There's quite a bit of overhead and sg&a that goes into running a shop that reduces the profit from their gross margins.

disclaimer: i don't run a shop and i'm not an accountant, but this seems like common sense.

I agree. A p2 at full retail is a great product. I know several bike shop owners. It is a tough business, labor of love and I applaud any small business owner who can make it. The local bike shops have to compete with the amazons of the world who have a huge competitive advantage. If markup was 20 to 30 percent, they would not be in business long as this doesn't even cover overhead. I don't really care what Cervelo's motivation is. It is business.

Yep. Gross margin is pretty good. Profit, not so much in fact many lose money.

Profit, not so much in fact many lose money.

Consumers are funny. They think nothing of dropping $5 on a Latte at Starbucks, not ounce, but sometimes twice a day, yet think they are getting screwed when buying a bike! ;-)

I do the opposite - make my coffee at home, and shop at small local independents - for a lot of what I shop for. But I know I am the outlier!

---

---

Steve Fleck @stevefleck | Blog