Hey bike shop owners-
what % of revenues come from your service department? could a shop exist only as a service center w/ inventory being small parts and add-ons?
thanks in advance for your input.
I know a guy who has a bike mechanic operation out of his garage. He seems busy enough and has no overhead to speak of. He’s not becoming a millionaire, but seems to be getting by OK. It probably helps that his wife has a decent job.
Typical larger shop
Repairs - 60% +
Bikes - 20%
Clothing / Helmets - 20%
Small Parts - 20%
Labor and small parts certainly have a higher profit margin than that of bikes and clothing.
umm…record9…
60+ +20+20+20 = 120%+…i dont get it?
-kg
re:120%
new math.
Are you talking about profit margins?
Don’t get me started: What percentage of our INCOME is service? It’s a negative number. It’s a loss. Service is the most expensive thing we provide to customers and there is increasing pressure to give it away free. Consumers are increasingly savvy about working a weird “Catch-22”. When we calculate our labor costs for a given job, i.e. C.O.G.S. (Cost of Goods Sold) for a given labor job, add in a 6%-11% net profit margin (a pretty healthy margin above operating costs, TRUE operating costs at the end of the day) and then charge what is, from my perspective, a “fair” price (i.e. I can acheive break even and have a sum of money left over above break even called profit- contrary to what many consumers believe that is not a felony) the customer freaks:
“$75 for a tune-up!?!” The tune-up cost me at a minimum $65-69 to do. No shit. No exageration. Some costs you may not have considered: Alarm, $40 per month, City Sewerage, $80, Waste removal, $140 per month, Health insurance (when we can afford it…) between $300 and $600 per month per employee, wages- see the thread about bike shop wages.
So people hear the cost and freak. The same people who pay top dollar for service on their BMW at the dealer. That is a permium vehicle, they expect (and accept) premium costs for labor. One of my employees had a 325i, it cost $60 to put windsheild wipers on it. What would you tell me if I charged you $60 to install four brake pads on your Dura-Ace bike and adjust your brakes? You’d freak.
Then there are the shops that give labor away for free. Let me ask you this: Would you want somebody who is doing it for free to work on your $1500+ bike? It’s like the (former) president of United Airlines said, “Do you REALLY want a $199 air fare from New York to Los Angeles? What does that say about the quality of the aricraft maintenance or training of the flight crew?”
In the bike industry right now there is a consumer driven sentiment that service is a give-away. But when there is a problem consumers are perfectly willing to hold you accountable for it. While I would never say this to a customer becasue it is rude and inappropriate and customer’s sign my (very small) paycheck I often want to say, “You have a problem with a repair from a shop that did it for free? You got what you paid for: Nothing.”
I suppose its too late to apologize for the rant…
I’m looking for a low risk business plan. My thinking is this, create a revenue stream with little risk and move into the retail side as the shop becomes more established. Just thinking right now…it’s slow at work and i feel as if i need a change.
“Low risk business plan”: That’s an oxymoron.
Unless you have a backgound in special operations and intelligence keep your day job.
thanks for your insight, tom. i thought you might have something “interesting” to say. it seems any business in the recreation industry has small margins. actually it’s amazing that people still want to own and opererate shops.
Thanks Micky! For all the bitching and whining I do like a little girl I love this job. I absolutely love it. Even when I hate it I love it.
"I know a guy who has a bike mechanic operation out of his garage. He seems busy enough and has no overhead to speak of. He’s not becoming a millionaire, but seems to be getting by OK. It probably helps that his wife has a decent job. "
Where does he order his parts from? I’ve wanted to start doing something similar, but I can’t find a relaible source for components and parts at below full retail. QBP (the wholesale supplier for most bicycle shops) insists on proof of a separate storefront, phone number, etc. before they’ll let you open an account.
Thanks,
J
“Where does he order his parts from?”
Dunno, but he seems to have some sort of a deal with the LBS. They send him over flow work during peak season and anything that is older that they don’t want to be bothered with. He’s actually IMO a much better mechanic than the guys in the shop. In return, he probably has his customers buy the needed parts direct from the LBS. That way he doesn’t have to bother with the inventory end of it and can just concentrate on the service end.
He also has bins and bins of bits and pieces. Probably scours garage sales, police auctions, ebay, etc. for old Campy, frames, wheels, etc. He’s always got a nice old classic bike or two for sale that he built up.
I think he started the business as a part time thing and once it got going well enough, then quit his day job. I also know a guy who has a camera repair business in his basement. He’s set up the same sort of way.
This is so scary. Does this guy have a minimum of $1,000,000.00 liability insurance (that’s a minimum, I have $5 million)? Does he have a tax i.d. number? For the shop that is “farming out” excess work to him, who carries his workman’s compensation insurance? These things are mandated by law for a reason. State sales tax paves the roads you ride on. Don’t like paying the tax? Then don’t bitch about the crappy roads. For the bike shop that farms their work out to this guy, what are they going to do when a brake cable slides through the clamp and a customer overshoots a busy intersection and gets killed? Happens with alarming frequency.
Come on guys, this is full-on shady. What if you took your new Lexus to the dealer to have the work done and found out it was really done by some guy’s buddy in his garage? Aside from the obvious liability/tax/legal issues it is downright misleading.
This is exactly like holding a snake by the tail: Sooner or later the head will come around to bite you.
“This is so scary…”
How can this be a big deal? The shop’s too busy at certain times and tells the customer to see the guy down the road? The shop won’t be responsible if the guy screws up. The guy is a qualified bike mechanic. It’s like me sending a referal out to another chiro or the local MD. Once that patient leaves my office I’m not responsible for what the other docs might do.
The shop isn’t getting a “cut” on this from the mechanical work. They’ll only benefit if the independent mechanic needs parts and sends the customer back to purchase off them. There is no “kick back” here as the mechanic charges only for his work and the shop only for the parts. If an independent bike mechanic sent someone over to your shop to buy some parts for the job would you consider this “shady”. Sorry Tom, I just don’t see where you’re coming from.
You guys are obviously talking about two separate situations; 1) LBS makes simple referral when they are too busy, and 2) LBS sends to garage-man without the knowledge or consent of the customer.
Clearly, #1 is no issue, but #2 comes with all the stuff Tom mentioned…
I’ve recently quit my job to open a run/swim/tri store. (I’ve mentioned that a few times in recent days, but a little publicity doesn’t hurt, right? I’m opening in less than 3 weeks in Brooklyn. Come on down!).
So when I tell triathletes that I’m opening a tri shop, they immediately ask about bikes. Here’s what I’ve discovered: there’s no money in bikes. Lucky for me I didn’t have to go through Tom’s experience to come to that conclusion. (Sorry Tom. 
)
However, I’ve been considering carrying “Tri-specific” bike stuff. Low cost things like Bento boxes and back of the seat bottle carriers and pieces like that, where it doesn’t matter if I’m a dollar or two more expensive than the guys on the web. So I’ll relate a little story which reinforces my conclusion that there’s no money in bikes.
A group of local triathletes asked me if I could get them a deal on a specific brand/model fluid trainer. I said sure, called the company, got a distributor, proved that I wasn’t just working out of my basement, and got a price. I came back to the group with a pretty agressive price – I would have made a little but more would have bought some loyalty. In that time, someone else in the group had found someone on the web who would sell them the same trainer, shipped to their door, for about $20 more than I would pay wholesale. Meeting that price point would mean losing money, so I had to let it go.
Point is, there’s only a few reasons why someone will go to a retail store: they need it right now, or they need the service (or ability to try it on) and they’re willing to pay a little more. That’s why I’m focusing on running shoes, clothes, swimsuits, and relatively inexpensive running & swimming doo-dads – they’re all products that require service or where convenience matters. As soon as I hear “I’m shopping around for a such and such” I know I’ve lost.
Lee
In tucson there is a bike shop down the street from me with a kick ass mechanic, awesome pricing and he sells no bikes, soft goods only. He claims his profit margain is better as is his take home pay. He has faster turn around time than most of the other shops to boot. His shop is about the size of my living/dining room. It can be done. You have to find your niche. Best of luck.
These numbers are not even close to realistic of a pro road or tri shop. Try 5-7% off gross sales going towards service from a $1.4 million dollar year. This has been typical of my shop and many other true pro shops that my friends own and manage. Seldom does a shop that sells high end equipment truely generate enough money through repairs to pay their service staff and still make a profit off of that work equal to the profit off of innertube sales or accessory sales per time invested. The smaller mom and pop shops will generate more percentage towards service. 15 years and in the bike business with three true pro shops and this is always the case. The garage’s low overhead idea might work???