Pricing Are You Short-Changing Your Golf Shop

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1 Pricing Are You Short-Changing Your Golf Shop Presented by: Becky Wilkins Retail Management Associates AGM Education Team The Educational Voice in Golf Merchandising Since 1989 All AGM educational materials are protected by U.S. Copyright and cannot be reprinted or used without the expressed written consent of the Association of Golf Merchandisers.

2 Pricing Are You Short Changing Your Golf Shop Presented by: Becky Wilkins Retail Management Associates AGM Education Team Pricing Are You Short Changing Your Golf Shop This seminar covers the procedures for creating the right pricing strategy to achieve your planned net profit. Learn to reach your goals by optimizing how you price your products and how you utilize markdowns to increase profitability in today s business environment. Pricing Are You Short Changing Your Golf Shop Understand how utilizing the right formulas to determine your retail pricing strategy will make your golf shop more profitable.

3 The right formulas: Determine initial markup to achieve your planned profit goal. Analyze markdown procedures and plan your strategy to fit within your profit goal. Calculate Maintained Markup Pricing Are You Short Changing Your Golf Shop Create a pricing structure to achieve your net profit goals while accounting for special membership programs and vendor minimum and suggested pricing. The right formulas: Determine retail pricing strategy to accommodate membership discounts and manufacturer s minimum and special pricing policies. Review the pros and cons of membership discount programs vs. Mill River programs.

4 Tools You Can Use 1. Determine markup needed to obtain profit goals 2. Calculate maintained markup 3. Plan markdowns for profitability 4. Determine pricing strategy 5. Compare member discount programs Determine Initial Markup What is initial markup? The Initial Markup is the amount of money or percentage you place on top of your product cost to determine the retail price. Setting and achieving markup and profit goals are a key factor in achieving gross margin goals. Markup goals are determined by the type of merchandise carried and the perceived retail worth of the product. Determining Initial Markup The two methods for achieving higher markup are: 1. Raising the retail price Warning: Raising prices too high can price merchandise out of the competitive range and therefore, decrease its salability. 2. Lowering the cost price through vendor negotiation or purchasing similar merchandise from another vendor which costs less.

5 Determining Initial Markup Every golf shop needs to determine the amount of initial markup which is necessary to meet profit goals. If your year end profit goal is 30%, you will need to determine your initial markup on each product to achieve this goal after markdowns and reductions in price. Determine Initial Markup Profit + Markdowns Retail Sales + Markdowns = Initial Markup % Example using planned Total Retail Sales for the golf shop of $300,000 Net profit goal for the total golf shop is 30% of the total retail income $300,000 x 30% = $90,000 Markdowns/Reductions are 25% of the total retail income $300,000 x 25% = $75,000 Determine Initial Markup Percentage Method: 30% + 25% (55%) 100% + 25% (125%) = 44.0% Dollar Method: $90,000 + $75,000 ($165,000) $300,000 + $75,000 ($375,000) = 44.0% In this example, the total golf shop needs to have an average initial markup of 44% to meet a total golf shop net profit goal of 30%

6 Determine Initial Markup These components do not total 100% or $300,000. They total 55% or $165,000. The other 45% or $135,000 is the cost of inventory purchased for resale in the golf shop. Net Profit $90,000 30% Markdown/Reductions + 75, % = $165,000 = 55% Cost of Inventory + 135, % Total Retail Sales = $300,000 = 100% Maintained Markup Maintained Markup is the final profit result you achieved after markdowns and other reductions occurred during retail selling. Maintained Markup Example: Purchased 60 $30.00 =$1800 Potential $60.00 =$3600 Sold 40 $60.00 =$2400 Sold 15 $45.00 (25% off) =$ 675 Sold 5 $30.00 (50% off) =$ 150 Total Retail $3225

7 Maintained Markup Initial margin of profit was 50% 50% of the retail price is cost Actual profit margin: Cost of Sales 1800 = 44% Retail Sales of 3225 Even though 1/3 of the items were sold on sale, it only affected the profit margin by 6% Pricing Are You Short Changing Your Golf Shop Create a pricing structure to achieve your net profit goals while accounting for special membership programs and vendor minimum and suggested pricing. Determining Initial Retail Price for Membership Discounts and Pricing Programs It is common for private clubs to have a discount program set up as a benefit for their membership. The most common program is an agreed upon discount off of the Suggested Retail Price of each item. Soft goods and accessories traditionally have a larger discount than hard goods because of the larger Initial Markup percentage.

8 Determining Initial Retail Price for Membership Discounts and Pricing Programs Soft Goods and Accessories commonly receives a 20 25% discount off of regular retail in most member pricing programs. Hard Goods and Equipment commonly receives a 10 20% discount off of the regular selling price in member pricing programs. You must be careful to adhere to MAP pricing (Minimum Advertised Price) if you promote your pricing in any way. Determining Pricing Strategy Example (using Keystone Pricing): Determining Member Pricing at 20% Discount off of Retail Note: Keystone pricing suggests doubling the cost of the item so that 50% of the Retail Price is equal to the cost of the item. Item Cost x 2 = Retail Price $33.00 x 2 = $66.00 Determining Pricing Strategy Applying Member pricing discount at 20% Initial Retail Price 20% = Member Pricing $ % ($13.20) = $52.80 Most facilities will round this price to a whole number such at $ It is highly suggested that your price tags show BOTH the Suggested Retail Price and the Member Price to enhance the benefit to the membership.

9 Determining Pricing Strategy When an initial markup goal has been established for various types of merchandise, the following is a quick way to establish the correct retail price: Divide the known cost price of the merchandise (from the invoice) by the cost complement of the markup goal. Then round off the answer to a price point suitable for your shop's pricing policy. Determining Pricing Strategy Example: A group of shirts has been received from a vendor at a cost of $30.00 each. The shop's markup goal for that type of shirt is 52%. Find the Cost Complement: 100% 52% (Markup Goal) = 48% or.48 (Cost Complement) Divide the cost of $30.00 by the Cost Complement of the 48% Markup Goal. Item Cost Cost Complement = Original Retail Price $ % or.48 = $62.50 Determining Pricing Strategy INCORRECT Example: A group of shirts has been received from a vendor at a cost of $30.00 each. The shop's markup goal for that type of shirt is 52%. 100% Markup Goal + 52% Markup Goal =152% or 1.52% Cost x Markup Goal = Original Retail Price $30.00 x 1.52 = $45.60 (Rounded to $46.00)

10 Determining Pricing Strategy Now compare the pricing options: Correct retail price using Cost Complement: $63.00 Incorrect retail price using an incorrect markup application: $46.00 If the golf shop had applied the incorrect marking as illustrated in the example it would have represented a loss of $17.00 in markup dollars due to an incorrect application of the initial markup! This loss represents just one item. Think about how much profit would be lost for the total grouping or total merchandise if the markup is applied incorrectly. Comparing Discount Pricing Programs A true Mill River program has the members pay a fee to join the program, and in turn they receive the discount. The key is that the fees that are paid by the members goes into the budget of the shop as a portion of revenue to obtain a normal profit margin. Members only benefit if they purchase enough items to recapture the initial fee in discounts. Comparing Discount Pricing Programs Mill River Programs typically determine their pricing as a cost + procedure. Example: 20% over cost Wholesale cost divided by.80 (cost compliment of 20%) Example: divided by.80 = $37.50 There is no accommodation for additional shop profit based on buying practices that can produce additional profit. It is hard to have creativity in making any extra revenue. For example, if you get product off price you still need to price it at the same markup, so the discount is passed on to the customer. The largest complaint of pricing up from cost is that there is no way to mark items down.

11 Comparing Discount Pricing Programs Benefits of Member Discount Program no fee, no rules! Take advantage of prompt pay discounts off of invoices. Take advantage of great pricing with off price and special purchases. Utilize MSRP suggestions to obtain additional margin on some products. Use these additional profit dollars to help offset markdowns and shortage. Members are happier if they receive a benefit without the negative costs or obligations. Pricing Are You Short Changing Your Golf Shop Determine initial markup to achieve your planned profit goal. Analyze markdown procedures and plan your strategy to fit within your profit goal. Determine Maintained Markup Determine retail pricing strategy to accommodate membership discounts and manufacturer s minimum and special pricing policies. Review the pros and cons of membership discount programs vs. Mill River programs. Presented by: Becky Wilkins Retail Management Associates Retail Buying Consultant AGM Education Team becky@golfretailbuyer.com (541)

12 The Educational Voice in Golf Merchandising Since 1989 Association of Golf Merchandisers