Business Advice - Teaming with Music Store

[Robbie Collins]

I got a call from the owner of a local music store. He wants to partner and offers to take in repairs and send them to me. He wants 25%. I said my prices were market but on the low side without padding for middlemen.  He suggested I mark up my prices so that I would get the same net.

I feel that 25% is steep since the cost to him is minimal and that (1) I can't discount my rates 25% and make up for it in volume and (2) he can't mark up my prices 25% without pricing himself out of the market.

There are some other considerations. The store has the clinical vibe of a piano store and is quiet and orderly.  There isn't anyone on staff that knows guitars....all of which says to me that they aren't really in the guitar business and, hence, won't generate many repairs.

Can someone tell me if there is a industry standard for structuring this deal and things I should look out for?

[Russell Vance]

Hello Robbie,

We have been in the business of doing significant repairs for the major shops in town for many years now and will continue to do so as it generates a significant part of our repair trade. 

In days gone by standard markups for this arrangement were up to 30% however, times have changed due to effects of the GFC and various fears of recessions and economic down turns etc etc.  

Your statement " (2) he can't mark up my prices 25% without pricing himself out of the market."  is irrelevant to your business and I would never do business with this sort of reasoning in mind.   Our business model says we charge what we need to charge to make a profit and stay in business.  

Given that this offer involves a retail entity making a commercial margin for doing nothing, assuming no risk, making no investment but asking for a premium reward/margin I suggest you offer a standard 15% "shop to shop" discount on your retail prices and the other party can work with how much premium/mark-up they wish to try to achieve in the market-place. 

It is not your job to do their marketing and price structuring for them.

If you lose the deal you will simply not have the "opportunity" to work for nothing while someone else skims all your profit.   Negotiate firmly and if they accept your offer of 15% everybody "gets a drink" as we say.  If they win 25% from you they will not respect you and treat your business accordingly for obvious reasons.

As far as credentials for this "standard"  goes, furniture and art galleries (in our economic sphere here in Australia) use a margin/markup of around 30-40% (usually in the form of a commission of consignment fee).  They provide floor space, advertisement, conduct sales pitches and provide salesman-customer interface - which accounts for their need to charge a significant markup.   Middle men music shops simply write a receipt for the instrument which you repair and then take the cash. 15% discount on your retail rates is a fair margin.

Regards,

Rusty.

[Robbie Collins]

Thanks, Rusty, for the sound advice. My remark (#2) was just to point out one of the reasons why I didn't think they'd send me a lot of work.  I agree that the thing to do is give them a small but non-trivial discount and let them work out the rest.

[David Collins]

Run away....

[Robbie Collins]

Because of the 25% or because they don't know guitars?

[David Collins]

I could quite easily write a novel about everything that can (and frequently does) go wrong in arrangements like these, but I guess I could just say all of the above, and much much more.

[Mike Kolb]

Hi Robbie... it's always tempting to get some more work... regardless of how it arrives.  I can relate my experiences with the situation and let you see how (or, if) it fits your dilemma.

I had a very similar situation with a local music store... (the only one in a town of 35K). They were mostly a band shop, although somewhat "guitar-oriented" and would, in fact, do the majority of their own small repairs (set-ups, nuts, etc).  The work they gave me was neck resets, crack work, refrets or anything major that they weren't prepared to do... which was most work beyond the mundane.  

Our financial relationship was set at a 10% discount to them of what I'd normally charge a walk-in customer at the shop.  I work out of my home (but with a dedicated, separate shop). They would typically call me on a Wednesday, I'd go to town and pick-up whatever they had waiting... and also deliver what I had finished. Pretty cozy, actually. 

It all worked rather smoothly... until Guitar Center in the closest major city (Portland, OR) and the Internet drove 'em flat out of business last year~!  

Now I'm sorely missing that avenue of work.  Oh sure, I run an ongoing Craigslist ad and rely on repeat business and word-of-mouth... but the work has all but dried-up for me.  The bench has been virtually empty 80% of the time, the tools are dusty and, frankly, it's no fun and I'm bored.

So, if that's your best avenue of getting work.... take it, but see if you can get a more favorable percentage. It's better than nothing... and 'nothing' sucks. 

[Robbie Collins]

Guitar Center opened here last year. I stopped by on Dec 23rd and 24th looking for a used bass amp and they were empty and overstaffed. Nevertheless, the local pie is so small that another mouth leaves everyone hungry.

My worry about pricing is that in such an environment pricing mistakes will cost dearly. Luckily, GC doesn't appear to be discounting their already low prices. I assume the creditors holding their $3 billion debt are testing their price sobriety.

I made friends with GC's luthier and I stop by and say hello when I can. GC doesn't do the hard stuff so there's a chance for referrals.

So...I'm thinking that in response to you and Russell's comments I should stop worrying about my shop owner and just offer him a small discount between 10% and 15%. I tend to think that a single number might not scale well across all repairs. Setups, for example, are a kind of "loss leader" for me.

Something I've started doing is hitting performance venues at sound check time so I can meet musicians and hand out business cards.  I'm also volunteering as a guitar tech at charity concerts. Like they say..it's who you know.

[Hesh Breakstone]

Don't do it..... Music store business is fraught with pitfalls the greatest being expectations cannot be initially.... Set... By.... You!

Instead a formal referral agreement would let the triage AND initial expectations be set by you. Throw the store a referral fee instead of a percentage AND advise clients to go direct after the initial visit/work. Let this be known in the agreement too.

After all music stores can be a competitor to you so cation Will Robinson....

[Mark A. Kane]

Robbie,

Russell's suggestion of around 15%, combined with Hesh's idea of a formal referral agreement is a great way to approach this. My experience with having less-than-knowledgeable store clerks offer even the slightest opinion as to the nature of a particular malady before I could take a look was almost always a disaster. The customer would invariably have an expectation that didn't jibe with reality. After a disaster or three, and from that point forward, any time a repair was accepted at the front counter, the clerks were instructed quite pointedly to refrain from offering any opinions in the least, so as to avoid upsetting the customer (and the tech!!!). It's not an issue anymore as I've set up shop on my own. But, I'd make a real issue of this with your potential partner. Good Luck!

[Robbie Collins]

Thanks, Hesh and Mark.

I agreed to discount my service fee 15%. Parts are not discounted. I stipulated that anything more than a setup would require a phone call and that all customers should have the option to speak to me.

This is a piano store and there are only a few employees and they are all women. None play guitar so they won't be offering opinions. I'm not expecting much out of this, but if it goes downhill I'll reset with a referral agreement.

There are so many ways this could go wrong such as payment deferral, customers who try to cut out the middleman, etc.

BTW, Hesh...Will Robinson's robot was designed by Robert Kinoshita who also designed Forbidden Planet's Robbie the Robot.

[Thomas James]

For what it's worth: I would have considered just leaving a stack of cards and having a friendly talk with a review of services. If you get a few jobs, then buy them a gift and cross reference them. That's easy and almost free! If they actually start to flow steady biz; then work out an agreement.

edit: I admit I am confused by the first post about a guy making a business proposal vs. the three piano women that don't play guitar? 

[Russell Vance]

The three women are identified as employees - the person making the business proposal is probably their employer. QED.  Rusty.