The Art of Business: an open but serious thread about the framebuilding business

[11.4]

You can't.

That's delusional for a one man shop.

- Garro.

Exactly my point. They have lower costs, they can do floor planning, they have ad budgets and pro sponsorships.

Remember: handbuilt bikes are not what the pros are riding or what show up in race photos or even get the big reviews in periodicals any longer. The major (carbon) brands all have those additional advantages. The steel or ti builder (and even the superb carbon custom builder) is working around the fringes of that market. Probably less than 2% of the high end buyer market ever even knows there's a Sachs or a Crumpton -- they want a bike, they look around, they saw Armstrong or they perhaps see some current pro on a Specialized, and that's how they decide. You don't even get a chance to sell. And if they learn enough, you are then competing with six or eight other builders for that same 2% of the market. There's a living to be made there, but you have to be able to communicate exactly why your frame is a better choice and you have to be able to reach enough of that 2% to make your story. And then you have to figure that ... what? perhaps 20% ... of your actual discussions turn into an actual sale? Those are really tough numbers if you don't do it all perfectly. Meanwhile Specialized has a bike for each price point or market sub-group, with posters of pro riders using their bikes, and the dealer can have it ready to roll in a couple hours. What's the average sales guy on the bike floor gonna say about a traditional steel or ti frame? If you fight that fight, who do you think is going to win?

[crumpton]

i have no interest in sharing 2% of a multi billion$ market with Sachs, i want it all for myself.

[e-RICHIE]

Exactly my point. They have lower costs, they can do floor planning, they have ad budgets and pro sponsorships.

Remember: handbuilt bikes are not what the pros are riding or what show up in race photos or even get the big reviews in periodicals any longer. The major (carbon) brands all have those additional advantages. The steel or ti builder (and even the superb carbon custom builder) is working around the fringes of that market. Probably less than 2% of the high end buyer market ever even knows there's a Sachs or a Crumpton -- they want a bike, they look around, they saw Armstrong or they perhaps see some current pro on a Specialized, and that's how they decide. You don't even get a chance to sell. And if they learn enough, you are then competing with six or eight other builders for that same 2% of the market. There's a living to be made there, but you have to be able to communicate exactly why your frame is a better choice and you have to be able to reach enough of that 2% to make your story. And then you have to figure that ... what? perhaps 20% ... of your actual discussions turn into an actual sale? Those are really tough numbers if you don't do it all perfectly. Meanwhile Specialized has a bike for each price point or market sub-group, with posters of pro riders using their bikes, and the dealer can have it ready to roll in a couple hours. What's the average sales guy on the bike floor gonna say about a traditional steel or ti frame? If you fight that fight, who do you think is going to win?

What Lane says is key, and has been part of my conversation since the mid 1990s atmo. Industrial-made bicycles, sold by the LBS, and raced on the world stage (and every other stage for that matter...) relegates the hand-made sector to the margins. These are the bicycles that the average cat uses as a baseline. Lane used the word, "fringe". I wanna repeat his last two sentences again so that it's reinforced in this thread:

What's the average sales guy on the bike floor gonna say about a traditional steel or ti frame? If you fight that fight, who do you think is going to win?

The salient message is about traditional frames. It's not traditional or of the period if you have no connection. If all you're doing is making a frame by hand, with or without lugs, what are you trading on? The crafted aspect will only take you so far. The I have a UBI certificate will only take you so far. The I bleed for my art tangent will - well, you get the gist. Knowing the market and the sport, and their respective history is imperative. If you don't know where all of this comes from you'll have an uphill ride trying to compete in the present. Oh, and it goes without saying that making a metric shitload of frames helps too - even if it stalls that fateful day when you hang a sign above your door.

[Will Neide]

And if they learn enough, you are then competing with six or eight other builders for that same 2% of the market. There's a living to be made there, but you have to be able to communicate exactly why your frame is a better choice and you have to be able to reach enough of that 2% to make your story. And then you have to figure that ... what? perhaps 20% ... of your actual discussions turn into an actual sale? Those are really tough numbers if you don't do it all perfectly.

The statistics say that 2% of the market is still a sizable chunk of $$ to be earned. I don't know what the average builder is making dollar wise, or how many units they are producing, but I'm guessing yearly numbers probably hover in the 20-50 range for most with a few outliers.

There is some published data on the size of the market, but no real way to see how that translates into small builder sales, at least I don't think it can be extrapolated. http://www.bicycleretailer.com/sites...0,31_email.pdf

I think the 20% success rate is interesting, even if just a hypothetical number. If a builder sets, say one month aside to do a small batch for a shop, and they are paid for by the shop at a slight discount, you pass on that 20% sales success to the shop. I think that's enticing, but I'm not sure if the enticement is worth it when you've got a line of bikes to build already. This also assumes the shop finds the sales appealing in your small batch of frames. I think it would take a special set of circumstances to make the "small batch stock" frames/bikes work.

[EnginCycles]

Nothing is worth selling at 20% margin. 30% is what keeps the lights on. 35% is what allows you to keep employees. 40% keeps you in business. 50% is what allows you to stay in business the long haul and actually improve your business. This is not hard to understand. YOU DO NOT HAVE ENOUGH ABILITY OR PRODUCT TO USE AN OUTLET. If you want to sell your goods in a retail shop then open one.

[11.4]

OK, Nick. Game on. Here's a little food for thought -- nothing connected about these points, but ones to ponder:

1. NBDA for 2013 says the industry sold 11.3 million adult bikes for about $5.8 billion revenue, plus another $1.6 billion in used bikes. Two percent of that is still $116 million. Nick, I think you can spare Sachs a few cross bike sales every now and then.

2. In terms of economic efficiencies, Trek bicycle revenues are approx $925 million. With 2,200 employees, that works out to about $420,000 revenues per employee (that includes for every janitors, paper pusher, and parking lot guard). Purely for grins, for a custom builder at $5K per frame, that revenue is 84 frames per year. or 1-2/3 per week with no vacay. If you sell a complete bike at, say, $9K per frame, that's 46 frames a year, or one a week plus vacuum. And better net margins. Those aren't necessarily relevant numbers, especially comparing to Trek who has part of their volume manufactured under contract in Asia so the labor doesn't even get counted in the employment numbers, but just think about it in terms of your own ability to generate revenue when you are one person doing everything in 400 sq ft. When you're competing with that monster up in Wisconsin. So pay attention to Mr. Garro above.

3. If component groups tell a story, Shimano is reportedly selling a bit over $2 billion in product, of which they say about 75% are cycling and of that, about 80% are high end components (I wish I knew precisely what "high end" amounted to). We're talking dollars, not numbers of groups, but it looks like there are a fair number of higher end bikes rolling out the doors out there -- even if that's only 105, Ultegra, and Dura Ace plus MTB, downhill, and other "high end" specialty groups. That works out very crudely to around 1.5 to 2 million high end groups per year. Or a lot of high end bikes.

4. All this volume notwithstanding, the market doesn't have much growth and I would guess that numbers of frames are going down as prices per frames are going up. So all the major players are eating their competitors' children to stay on top in the game, and it's not an easy place for newcomers.

These numbers are enough to make your toes go numb, but get to know these kinds of numbers so you know what you're up against. Then commit yourself 100% with no personal life or escape or pleasure or anything but making and selling frames, and in five years your business might have gotten to a point where it's stable, growing, and you have a healthy backlog. Look, a lot of builders have over a year's backlog. It sounds great, though it can wither really quickly if you don't tend it. But that's where you should be aiming. And then every month and every year from then on, you have to keep others from taking it away from you. Remember, you're starting out trying to take it away from someone else; someone else will ultimately try to take it away from you. If that someone else is Specialized, dig a six-foot deep hole behind your shop before you start building.

[11.4]

Nothing is worth selling at 20% margin. 30% is what keeps the lights on. 35% is what allows you to keep employees. 40% keeps you in business. 50% is what allows you to stay in business the long haul and actually improve your business. This is not hard to understand. YOU DO NOT HAVE ENOUGH ABILITY OR PRODUCT TO USE AN OUTLET. If you want to sell your goods in a retail shop then open one.

To be clear, the 20% number thrown out in a post above was not a margin number. A subsequent post suggested it be treated as such, but I agree with Drew -- there's simply no way to survive. Perversely, what helps is to have a 3-5 year waiting list because it gets rid of the casual and the curious, leaving you with those with a real commitment to the process and the patience to wait for their spot to come up. It can be more efficient and more profitable to have a big waiting list.

[ron l edmiston]

just my thoughts..
---- all the above.., if not you possibly relegate yourself to a commodity status working on low margins & creating your own "law of high volume demand relative to the actual supply..,"like we lube company's..
first and foremost.., prepare yourself -- then keep your quality high.., your margins high relative to quality.., demand high relative to perceived & actual quality and supply at a level relative to all the above..

damn.., i love a quality handcrafted value added bike..

ronnie

[Will Neide]

To be clear, the 20% number thrown out in a post above was not a margin number. A subsequent post suggested it be treated as such, but I agree with Drew -- there's simply no way to survive. Perversely, what helps is to have a 3-5 year waiting list because it gets rid of the casual and the curious, leaving you with those with a real commitment to the process and the patience to wait for their spot to come up. It can be more efficient and more profitable to have a big waiting list.

I was using the 20% as a success rate in sales after a discussions/engagement with customers, not margin.

Margins would be a completely different discussion.

[crumpton]

i had conservatively estimated $40M for myself so at $116M... i'm still keeping it. seems the more you get the more you want.

OK, Nick. Game on. Here's a little food for thought -- nothing connected about these points, but ones to ponder:

1. NBDA for 2013 says the industry sold 11.3 million adult bikes for about $5.8 billion revenue, plus another $1.6 billion in used bikes. Two percent of that is still $116 million. Nick, I think you can spare Sachs a few cross bike sales every now and then.

2. In terms of economic efficiencies, Trek bicycle revenues are approx $925 million. With 2,200 employees, that works out to about $420,000 revenues per employee (that includes for every janitors, paper pusher, and parking lot guard). Purely for grins, for a custom builder at $5K per frame, that revenue is 84 frames per year. or 1-2/3 per week with no vacay. If you sell a complete bike at, say, $9K per frame, that's 46 frames a year, or one a week plus vacuum. And better net margins. Those aren't necessarily relevant numbers, especially comparing to Trek who has part of their volume manufactured under contract in Asia so the labor doesn't even get counted in the employment numbers, but just think about it in terms of your own ability to generate revenue when you are one person doing everything in 400 sq ft. When you're competing with that monster up in Wisconsin. So pay attention to Mr. Garro above.

3. If component groups tell a story, Shimano is reportedly selling a bit over $2 billion in product, of which they say about 75% are cycling and of that, about 80% are high end components (I wish I knew precisely what "high end" amounted to). We're talking dollars, not numbers of groups, but it looks like there are a fair number of higher end bikes rolling out the doors out there -- even if that's only 105, Ultegra, and Dura Ace plus MTB, downhill, and other "high end" specialty groups. That works out very crudely to around 1.5 to 2 million high end groups per year. Or a lot of high end bikes.

4. All this volume notwithstanding, the market doesn't have much growth and I would guess that numbers of frames are going down as prices per frames are going up. So all the major players are eating their competitors' children to stay on top in the game, and it's not an easy place for newcomers.

These numbers are enough to make your toes go numb, but get to know these kinds of numbers so you know what you're up against. Then commit yourself 100% with no personal life or escape or pleasure or anything but making and selling frames, and in five years your business might have gotten to a point where it's stable, growing, and you have a healthy backlog. Look, a lot of builders have over a year's backlog. It sounds great, though it can wither really quickly if you don't tend it. But that's where you should be aiming. And then every month and every year from then on, you have to keep others from taking it away from you. Remember, you're starting out trying to take it away from someone else; someone else will ultimately try to take it away from you. If that someone else is Specialized, dig a six-foot deep hole behind your shop before you start building.

[Jeff Buchanan]

I don't know how relevant my experience is but I'll add my brief stint with contract building. After building close to 15 framesets for friends and local bike shop guys, I purchased liability insurance and wanted to generate revenue for the next years premium. I was approached by the owner of the local shop about building 5 stock frame sets in 3 sizes. He wanted to meet a retail price point below Waterford and I.F. (which he sells). I built the frames out of Columbus Chromor, had them powder coated (singe color-black) and left the decal/branding for the bike shop. I didn't want my name associated with a frameset of their idea. Basically it was a "Gravel Grinder", accomodated 32's with fenders, and was a plain looking medium point lugged frame.

Richard tried to talk me out of doing the build. I knew it was a horrible (i.e unprofitable) way to generate money. I agreed to do the build for the following reasons:

1. Gain more experience without needing to subsidize the material cost.
2. Make $2000.00 for the next years premium.
3. Build a relationship with the bike shop in order to get referrals.

I averaged 11.42/hour for the entire project. I accomplished all 3 objectives. I'm glad I did it once. Would I do it again?

HELL NO!

[crumpton]

Jeff, did I calculate 35hr per frame +PC?

[Jeff Buchanan]

Nick,

Yes. But they were simple builds with little finish work. I used the cast seatstay caps from Nova and socket-style dropouts. Unfortunately I couldn't do sub-assemblies as I have a homemade frame fixture that is pretty basic (but accurate), not built for speed. All in all it was good experience. I could have made more money as a Walmart greeter but that would be worse than busting my ass for 11.42/hour.

I factored all supplies, 10 ounces of silver, 1 bottle ea. of oxy./acet. and all shipping costs. I actually had extra silver and gas left over. I counted that as a tip.

I know I was a fool. It won't happen again.

Jeff

[Andrew R Stewart]

Jeff- You made out IMO. Gaining good experience (and the proof is that you have a strong idea to whether you'd ever do it again). Didn't loose $. And likely strengthen your relationship with the LBS. To have a win/win/win is very good results. I do like your decision to not have your name decaled on the frames. Andy.

[Rody]

I've watched this thread progress and unfortunately have not had time to comment. It has been a bit discouraging to see those with no actual contract/batch building experience dilute the question Hinmaton was asking...is it a viable business plan to build factory spec frames in batches and how can one best market/partner with shops to create a streamlined product line without the intensive time involved in one-off building.

Hinmaton, from the little I've seen of your facility, the capabilities inherent, and your eye for design, I think you can make a solid go at factory spec built frames with an expected rate of return.

I learned in what I would consider a small batch production facility that also did custom work in limited numbers. The basic structure I will share is what provided a successful business that supported 4-5 families for many years. The key, like any successful business, is having a well thought out plan with known COGS, production capability, and defined marketing plan.

In short, here are the key elements:

Your production frames need to have defined geometries and sizing that land solidly into the physiologic standards accepted by the industry but have your personal vision/interpretation of performance characteristics. Your perspective on how a bike should "feel" and handle should transfer through the experience to the rider. We found a 4 product size range to meet 95% of our needs...beyond that, it became time intensive helping define the fit for the customer.

The frame design and the tubing/components used need to be readily available or stocked in ample supply to maintain a consistent work pace. Using component design, such as dropouts, gussets, etc..., that allow for use across the entire size range is imperative as it eases fabrication and increases efficiency in both manufacturing and cost. These items should also speak to your identity, creating an aesthetic that differentiates you from other brands on the floor.

The majority of your capital investment will be in creating dedicated fixtures for each model to expedite the fabrication process. Time spent fiddlefucking around with machine set up is money lost. Invest in being prepared for efficient/repeatable work flow.

Standard finishes that are distinctive and easily created need to be determined. If you will not be doing your own finish work, you MUST identify multiple vendors who can work with your timelines to create repeatable finishes so that there is no differentiation in final product. Define expectations and keep custom finishes for custom bikes...you need known qualities and costs for this endeavour.

Set a finished price for each frame that positions your product competitively AND meets your business plan profit goals. These can afford to be cheaper than custom one off work as you are batch building, but that does not mean you are self depreciating the value or quality. Set a defined profit that allows prosperity. If you are looking to undercut existing product lines, you are doing this for the wrong reasons. Predictable margins and productivity are your goals, this should be a daily bread product.

Network with shops that wish to represent or carry your brand and have dealer agreements ready to be signed that clearly communicate minimum orders, cost, terms, and parameters of product representation through the build. Folks have stated various opinions on if you should provide a discount/wholesale pricing model. We operated on a 20% margin, offering shops the frame at our set price based on the previously mentioned business plan targets. If a frame was sold direct, it was at that same retail number, preserving equity in the retail market. This gave the shop an easy bump for stocking a frame, but allowed them the opportunity for greater profit if they built a complete bike.

It has been mentioned that you should only sell complete bikes as it maximizes your profit potential. For a small manufacturer, it is not as easy as it sounds. It does take an inordinate amount of time to spec and order OEM complete builds, assemble, and then pack for delivery. We found that although we could make more money on the build, it did not offset the time required for so few hands...the time was better spent making OUR product. I would suggest creating component spec standards for each model that maintains consistency for your bikes. Upgrades are encouraged, but diluting your vision can not be accepted. Allow the shop to build the bikes, the margin on the components and labor is another share of the pie that benefits them and puts some skin into the relationship. Their advantage is that customers cans see/feel/compare the bike at hand and have it NOW vs. ordering directly from you and waiting for shipping. Prices should be equitable, so that does not factor into the decision making process for the customer.

If you can sell a complete bike direct, do it. However, as a small manufacturer, understand that you can quickly turn inventory over in frame only sales. Your business is maximized by inventory rotation and recouping investment dollars so that you have greater liquid assets on hand. Many customers enjoy the process of completing the build own their own, don't negate your product from consideration by only selling complete in this small production plan.

Ensure warranty standards are clearly defined and begin at the point of sale. Handle them swiftly and accommodate a line item into your COGS for future warranty work. Not every product will require it, but every product sold should share the potential cost.

Support the customer's desire to rep your brand with accessory soft goods...have tees, stickers, hats etc available for stocking shops and direct ordering. You are creating a brand and want to encourage loyalty. Happy customers will be your best salesmen.

Remember, this is a totally different plan than being a "custom" builder and should be approached differently. Although the two can operate synchronously, they are exclusive in operation.

Perhaps Gary will chime in with the strategic differences for mid-sized manufacturing (hint hint), would love to hear his approach as well.

cheers,

rody

[Rody]

Just to clarify, when I state we operated on a 20% margin, it should look like this using arbitrary numbers..

Cost of Goods Sold, inclusive of material, labor, insurance, warranty allotment, marketing, communication/service, utilities, etc for a frame - $600

This is the total investment to get the product out the other end ready for sale, covering all expenses.

Fixed price of finished product - $1000.00

This is the fixed price of the product that becomes income for the shop.

Retail Price of product (20% up) - 1200.00

This is the minimum retail price partner shops will agree to sell at. Some sold higher leveraging on immediate availability to the customer, some sold at the minimum maximizing the profit of the component sales end.

Simply an scaled down example, the numbers obviously need to be modified based on personal business planning. Also note, my experience with this model is now over 20 years old...worked then, may not meet the current climate.

r

[11.4]

Just to clarify, when I state we operated on a 20% margin, it should look like this using arbitrary numbers..

Cost of Goods Sold, inclusive of material, labor, insurance, warranty allotment, marketing, communication/service, utilities, etc for a frame - $600

This is the total investment to get the product out the other end ready for sale, covering all expenses.

Fixed price of finished product - $1000.00

This is the fixed price of the product that becomes income for the shop.

Retail Price of product (20% up) - 1200.00

This is the minimum retail price partner shops will agree to sell at. Some sold higher leveraging on immediate availability to the customer, some sold at the minimum maximizing the profit of the component sales end.

Simply an scaled down example, the numbers obviously need to be modified based on personal business planning. Also note, my experience with this model is now over 20 years old...worked then, may not meet the current climate.

r

My bad for introducing numbers to this discussion.

buying cantaloupes.jpg

[Rody]

Why? Because it gives an actual frame of reference?

In my example above, the COGS is very close to actual for a steel frame if you process the entire product in house.

Selling at the stated numbers gives you around 60% margin at the fixed product price and 100% at the retail if sold direct...very sustainable numbers for a small production house.

Honestly, for the quality of the OP's work, these are low.

What I find misleading is the concept that a builder is going to have a backlog for 9K frames and that we are fighting for the same clients.

I can say without hesitation that I am the product my clients are paying for and seldom is the person who is attracted to my work the same who may be considering a Crumpton, Sachs, or Coconino...we all have very different styles, products, and bring diverse skill sets to the table.

In my opinion, the small batch production shop has a greater challenge in attracting customers...they have to define their brand and create desire in a sea of well made Asian frames with much lower manufacturing costs. That is a tough row to hoe.

r

[e-RICHIE]

In my opinion, the small batch production shop has a greater challenge in attracting customers...they have to define their brand and create desire in a sea of well made Asian frames with much lower manufacturing costs. That is a tough row to hoe.

What people have to understand and process is that the small (and large) production shop is what spawned the independent framebuilder model we now think of as normal. Most of us who are from several different eras in this business are one-man shops and/or low output makers because, despite using the European model as a leaping off point, the trade couldn't support the low remuneration (here) that was standard fare abroad. In short, all shops there were making lots of frames using lots of hands. These were family businesses, many were second and third generation. Labor was cheap. And these entities all also thrived in eras that preceded art files being sent to large Asian factories to have goods made. The one-man, one-frame concept is the flaw in this discussion. Few, and that's precious few, pull it off. Too many people cling to it out of some romantic notion of the ideal, or how things should be. Batch making and production is where it's at. I'm not pushing that here on this thread because, as yet, my questions regarding experience to date have gone unanswered or ignored. And whatever happens or whoever is involved, they are in the arena with Trek and the others rather than the rank and file independent framebuilder.

[11.4]

Why? Because it gives an actual frame of reference?

In my example above, the COGS is very close to actual for a steel frame if you process the entire product in house.

Selling at the stated numbers gives you around 60% margin at the fixed product price and 100% at the retail if sold direct...very sustainable numbers for a small production house.

Honestly, for the quality of the OP's work, these are low.

What I find misleading is the concept that a builder is going to have a backlog for 9K frames and that we are fighting for the same clients.

I can say without hesitation that I am the product my clients are paying for and seldom is the person who is attracted to my work the same who may be considering a Crumpton, Sachs, or Coconino...we all have very different styles, products, and bring diverse skill sets to the table.

In my opinion, the small batch production shop has a greater challenge in attracting customers...they have to define their brand and create desire in a sea of well made Asian frames with much lower manufacturing costs. That is a tough row to hoe.

r

My comment was meant tongue-in-cheek.

You have a nice backlog and a clearly defined clientele. Nothing here has been meant to say you would have to compete directly with Nick or Richard. In fact, the point all along has been to offer exemplary work that is differentiated from your competition. One more Richard Sachs we don't need, lol. When we tried to add some quantitative measures, some posts were simply theorizing over numbers without asking whether one actually had a successful product. This is a business fraught with fantasy, and the hard reality is difficult for some people to grasp. Rody, you've succeeded in your own niche just as Richard and Nick did in theirs. There are numerous successes like you on this forum, but collectively you are all a minority among those who want to be thought of as frame builders.