Mountain Cog

120 - How Much Do Bike Shops Actually Make? The Shocking Economics of Your LBS.

• Josh Anderson & Dane Higgins

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Ever wonder why bike shops seem to come and go? The answer's in the math, and it's not pretty. Josh dives deep into industry data from the National Bicycle Dealer Association, trade publications, and financial modeling sites to paint a realistic picture of bike shop profitability. Spoiler alert: the average bike shop owner in America takes home less than $50k a year and works 50-60 hours a week. With 1,000's of bike shops operating nationwide and razor-thin margins on everything from components to complete bikes, staying in business is more about passion than profit.

Dane shares war stories from decades in the industry, including his days as "Discount Dane" before he understood the real costs behind every sale. We walk through actual profit margins on bikes, parts, accessories, and service labor. We then factor in the vast categories of operating costs like shipping, payroll, advertising, rent, utilities, shop equipment, and more. By the end, you'll understand why shop owners drive $3,000 cars but ride $10,000 bikes (that they'll sell later), and why the "markup myth" has been misleading customers for years. This is required listening for anyone who's ever said "I know what you guys make on this stuff."

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Cold Open And Dad Joke

Host - Dane Higgins

So you're doing that. Okay, I just gotta tell you. While the the music's playing and we're entering, I'm like, I have something going on and I kind of want to just blurt it out. No, I can't do that because we're recording. And then you blow that thing. And I'm just like, you know what? I'm gonna tell everybody what it was. What was it? I had a cramp in my ass. My ass was kind of cramping. And I'm like, I gotta shift a little bit. My butt hurts, but then you pull out a train whistle.

Host - Josh Anderson

So in the uh in the spirit of our of our topic today, I've got a uh a dad joke. You ready? Yep, go for it. Okay. What do you call a financially successful bakery? Dunkin' donuts. Maybe. How about a real bread winner?

Host - Dane Higgins

Oh man. That's definitely dad jokey. It's dad jokey. Why don't you do the wah wa on your stuff?

Host - Josh Anderson

Can't ever do the wah wa on my stuff.

Host - Dane Higgins

Oh man. So just so everybody knows, he has control of the buttons.

Host - Josh Anderson

Well, I mean, it's a big board with a lot of buttons. I know. You could come and press it if you wanted to.

Host - Dane Higgins

As I'm looking over there, I'm realizing how I just need glasses because I can't even read those. Yep. Yeah. Yeah. See? Yeah. That's how it is.

Host - Josh Anderson

All right. It is uh Sunday night in between work travel trips and races, and oh my god, Dane and I are looking at our schedule for January and February. It's like a Greek tragedy. Yeah, I know. We are either on the road or busy or overwhelmed, and there's all kinds of stuff. But somehow, in the middle of all that, we're able to figure out how to pull together a couple hours. It's because you've fed me. I fed you. I ate too much, too. I know, I know. I'm a little fool. Oh my gosh. Anyways, good thing I played pickleball for like three hours today.

Host - Dane Higgins

What the you know? It's fun, man. You know why I don't like puck pickleball is because I he keep hearing in mountain bike news that they're getting rid of trail centers in Europe.

Host - Josh Anderson

And replacing them with pickleballs.

Host - Dane Higgins

And so like now I have this bad idea of pickleball as like it being anti-bike or something. I don't know why.

Host - Josh Anderson

So all right. So um so today's episode, let's get to it. Just Dane and I today. And uh, I've been wanting to do this for a while. So we're gonna give it a shot, see how it goes. Uh, we gotta kind of like walk the line kind of carefully, but um, I think in previous episodes, uh undoubtedly, we have established uh maybe a dozen times and talked uh a lot about the value proposition for customers of working, buying, patronizing a bike shop. Yeah. And and I don't want to go into all that stuff because we've kind of gone over that a ton. Uh, and if you're interested, go back and listen to some of our back episodes. Just about every other episode, we're talking about like how rad the bike shop is and why you should go there. I think, no, I I don't think, I know that there is a lot of kind of in the general public, some misconceptions about the financials of a bike shop in the United States. And maybe it's in the world, I don't know, but for today's uh, you know, for the for for today's um podcast, we're gonna focus on the United States. Um let me see the sources page on that on the back of that. I'm actually gonna I'm gonna read some of the sources here because before we get into this, I just want to um give you guys some some uh indication as to where some of the numbers um and information that we're gonna quote today come from. And then Dane can choose with the his personal experience for his bike shop. This is not specifically about his bike shop, it's really more a general uh understanding overview of the financials of all bike shops. Um and so the data here that we're gonna talk about comes primarily from four different sources. Uh, the National Bicycle Dealer Association, MBDA, does a number of industry surveys. It's one of the sources. Uh, there's a trade publication that's the bicycle retailer and industry news. Another source is we actually have multiple uh financial uh modeling sites that have looked at bike shop economics, and then there's several industry forums uh with input from shop owners and managers. If you have any questions about a number that we talk about today uh and you want to know what the specific source is, just shoot us an email and I'll send you the specific source. Um I don't know that this is like like any numbers or anything that we call it, I can't can't 100% verify that this is a hundred percent accurate, but I feel pretty confident that it's at least in the ballpark. I'll I'll tell you. Yeah, you can tell me from your experience, right? You've been you've been doing this for like 30 years.

Host - Dane Higgins

So yeah, and little disclaimer is I have a narrower, you know, it's I I don't know every single bike shop of every place.

Host - Josh Anderson

So So we'll start out with and I'll kind of just like tell you what you're gonna I'll do like the old thing you're supposed to do. Like, tell them what you're gonna tell them, tell them, then tell them what you told them. We'll use that is that a thing? I've never heard that before. We'll use that format today, but uh we're starting out here with the intro. Okay. Then I want to go into like what are the cost of a bike shop, like the the various costs that a bike shop has. Then I want to go into the margins and profits of specific types of parts, products, services, um bikes, like what what type of margins do does a bike shop like make on these different things. And then I want to pull it all together in an example that goes through like one month of a bike shop and show you like at the end of the month what um what that bike shop might make in profit after a kind of successful month for that shop. Okay. Um so a couple things to start kind of just ground you. First, there are about 7,000 bike shops operating in the United States. Does that feel about right to you?

Host - Dane Higgins

Yeah, I have no idea. It seems less, but I don't know. Uh how many cities are there? I don't know. 52 states.

Average Revenue And Owner Pay

Host - Josh Anderson

No, 51, 50. I don't even know how many states are in the United States. I guess I'm including Venezuela already as a state. Oh in Greenland.

Host - Dane Higgins

Yeah. Could have said Puerto Rico.

Host - Josh Anderson

Could have said Puerto Rico, Colombia, Mexico, Panama, whatever, uh, Canada.

Host - Dane Higgins

Yeah.

Host - Josh Anderson

We're not a political podcast, but 7,000 bike shops in the United States. The average bike shop generates about $985,000 of revenue. That's that's sales.

Host - Dane Higgins

That's gross.

Host - Josh Anderson

So that's gross. So that's money coming in. Not gross like icky. Not gross like icky. Like total revenue. Before anything's off. Yeah, before you talk about costs or taxes or any of that stuff, just they bring in $985,000 on average. Okay. This next number is going to uh shock you. I it didn't mean it didn't you. It it supports it. It doesn't you the average bike shop owner takes home approximately forty nine thousand eight hundred and seventy-seven dollars a year.

Host - Dane Higgins

Yeah, and I feel like that's not far off. And that's an average. So so I would just say uh, you know, great. Some could be more, some could be less. There's some guy making twenty thousand.

Host - Josh Anderson

Yep, and another guy making a hundred thousand. Yep, yeah. So but to put that in context, and I usually use two thousand hours a year as an average of the number of hours, although I can imagine that bike shop owners, if they're really vested in their business, they're working a lot more than $2,000. 2,000 hours a year. What's your $2,000? That's based on 40 hours a week? 40 hours a week, 52 weeks a year, that's 2,080 hours, and I just take off two weeks for vacation and kind of bring it down to just a gut check average of like 2,000 hours a year.

Host - Dane Higgins

Yeah. So that's like just the nine to five or kind of five days a week.

Host - Josh Anderson

I don't know a bike shop owner that works nine to five. I do. Probably not in a successful bike shop. But just to put that forty-nine thousand eight hundred and seventy-seven dollars a year in context, um, twenty-five dollars an hour at two thousand dollars, at two thousand hours a year is fifty thousand dollars. Yeah. So it's less than twenty-five dollars an hour. And when you factor in that they're probably working more like three thousand hours. Yeah, and it gets even lower. You're down significantly below that. This is depressing.

Host - Dane Higgins

Did you just realize we're not like not even a quarter into this page? It's like it's gonna make me go home and just go home. Cry in my pillow.

Host - Josh Anderson

Um independent bike shops uh from a from a margin perspective, net profit margin is between five and ten percent.

Host - Dane Higgins

Yeah, so a net, and I I have to keep doing that because I've always had a hard time, you know, when people say those things. Differentiating net and gross. Yeah, so net would be after everything's taken out. Everything's you know, at the end of the day, what's going into your bank account kind of feel.

Host - Josh Anderson

So fifty thousand dollars a year is what the average shop owner makes a year on his bike shop.

Host - Dane Higgins

And then independent would be like a LBS local bike shop, usually mom and pa. Now you put in large multi-store retailers. I feel like that's gonna be more corporate level.

Host - Josh Anderson

Yep. So yeah, multi-store retailers can do better, uh 10, you know, north of 10%. Yeah. Um, but that's due to economies of scale. Yep. So they're buying um they're buying product at higher quantities, and so they can get discount pricing sometimes. They may have more sophisticated um infrastructures for employee training and employee retention. They can share costs sometimes uh amongst for insurance and liability. And so economies of scale means just sometimes the the overall percentage can be less because you're using you're spreading those costs out across multiple different entities, and you can get volume discounts on stuff. All right, so um so that's a depressing yeah.

Host - Dane Higgins

I mean so and why are we doing this? We should probably talk about why we're doing this. Well, yeah. Uh you know, the other thing that it's one of the things is there's a lot of myths, a lot of misconceptions, and I think that's my motivation for being down for this is is kind of helping people kind of work through some stuff. So just a quick quick squirrel. Um, I had a a former employee of a bike shop come in as a customer and kind of you know assert that that, oh yeah, well, I know what you guys make on this stuff, and you know, I just want a deal and you know, and and I you know what occurred to me is that he doesn't actually know what we make. Even in the employees in a lot of bike shops don't really know because they're not necessarily writing the checks, they're not paying for all the stuff. So they may see cost and they may see a retail, but they don't really know they don't understand the full picture. Yeah, because uh in that viewpoint, you're not actually figuring out all of the other stuff that factor in that lower it to that low. And um, and so this those are some of the myths that get perpetuated because you even have bike shop employees that will go out and kind of push these myths forward and not really explain the whole story. And so I like this because it kind of helps people understand that this is a passion-based industry.

Host - Josh Anderson

It's a passion-based industry.

Why Share The Financials

Host - Dane Higgins

I mean, we joked a lot that there's no money in the bike industry at any level. If you want to make a million dollars, start with two. Start with two. Yeah, yeah. That's exactly and when you say that, everybody who's ever worked in a bike shop will have heard that.

Host - Josh Anderson

No, they're like, Yeah, we get it. Yep. Okay, so um that I think that's part of our motivation there is to kind of pull the curtain back a little bit and show you, like, like uh just at least give it, at least hope we're gonna try to give like some type of overview of like how the economics work in a bike shop. And as a c and again, we've already established a value proposition of why you should work with a bike shop. When you come in asking for a deal, or you're maybe a prospective employee and you want to get you know a certain amount of money, yeah, understand that the owner is not making much more than you're getting paid. Yeah, yeah, like just a little tiny bit, maybe more than you're getting paid.

Host - Dane Higgins

I I've worked for some owners where you know they they were well off.

Host - Josh Anderson

Probably from other sources of income.

Host - Dane Higgins

Exactly. They either had family money or you know, they retired from a very lucrative career and started a bike shop. And and so I've I've been in those situations. It's very rare that you see a wealthy bike shop owner. Like it's just yeah, it's not very common. It only has money from his shop, unless you just look at their bike and go, Oh, that guy's got money because he's got a $12,000 bike, but you don't realize he's got a $3,000 car.

Host - Josh Anderson

Yeah, $3,000 car, and he didn't pay $12,000 for that bike. Exactly. One of the best.

Host - Dane Higgins

And when he's done with it, he he sells it to make up the the money.

Host - Josh Anderson

So um wanted to pull the curtain back a little bit. Okay, so we got through the intro. We're gonna talk about costs, we're gonna talk about margins on different products, and we're gonna ru pull it all together in a monthly revenue example.

Host - Dane Higgins

Okay.

Host - Josh Anderson

All right, so let's go to cost and let's start with bikes. Okay. So on average, what do shops make? I'm just gonna I'm not gonna read my numbers here. I'm gonna tell me. Like on average, and maybe you can explain kind of like there's it depends what kind of margin you get on bikes. So, how does it work? And and obviously don't violate any NDAs or anything like you have with any shops or any uh OEMs.

Bike Margins And Shipping Costs

Host - Dane Higgins

So there's a couple things to to to touch on. So at different price points of bikes, you make different margins. Okay. At some point, the industry decided that as the bike gets more expensive, you should make less money. Percentage-wise. Percentage-wise, which which kind of blew me away. You know, as a fledgling guy in the in the in the industry, I was like, what? Wait, you know, if I sell a nicer bike, I actually make less margin than if I sell the crappy bike, you know. And it's kind of weird. And I even had some guy at a at a bike company once tell me, Well, you you don't need to, he kind of like was like, Well, if you're making 500 bucks on that bike and you're making five hundred bucks on that bike, you're still making the same amount for your effort, and that's all you deserve, kind of attitude. And it was like really frustrating because one of those bikes was you know like a thousand dollars and the other one was like five thousand.

Host - Josh Anderson

And his bring in the like cash flow and the cost of goods sold and stuff like that, it's a lot easier to bring in that thousand dollar bike than it is to bring in that five thousand dollar bike when you look at the whole like um business, you know, you know, balance sheet of a bike shop or any small business. Yeah.

Host - Dane Higgins

And his attitude was like, you're doing the same effort for each thing and you're making the same amount, stop pitching. And he's not totally wrong, honestly, you know, but at the same time, the margin thing is always shoved at us.

Host - Josh Anderson

Yeah. So um so margins can go. Less expensive bikes typically have higher margins. Yes. Yeah. And then that margin number percentage goes down as the bike gets more expensive.

Host - Dane Higgins

Yeah, and the margin can change depending on uh one, like factors like you said economy of scale. So when we buy a bike, we get the least margin. When you buy one bike. Exactly. When we buy five bikes, we probably still get the least, but we maybe save on shipping. Okay. And so so that's an incentive because one of the things, again, where a bike shop guy may not notice, you know, that the cost is the same between that one bike purchase and the five bike purchase, because shipping may not have been attributed to the actual cost. It goes on the books, but it doesn't actually go into the cost.

Host - Josh Anderson

So you pay for the shipping of the bikes, the OEMs don't pay that.

Host - Dane Higgins

Yeah, so at a certain point, the OEMs will sometimes pay, or they'll give you what's called a freight allowance, which means a percentage off. Yeah, they'll give you a percentage off.

Host - Josh Anderson

So what does it cost to ship one bike? So uh it it does. I know it depends, but give me like a range. Yeah.

Host - Dane Higgins

So usually oh man, that's that's tough.

Host - Josh Anderson

Is it like a hundred to three hundred bucks?

Host - Dane Higgins

Is that yeah, because like if you if you as an individual box up your bike and ship it somewhere, it's gonna cost me like a hundred and fifty to three hundred bucks. And they also try and smooth that cost down. So so they try and do what they can to make it cheaper. Yep. So on a less expensive bike that's a smaller box, we may see like fifty to seventy dollars in shipping to us that we have to pay. On an e-bike, it jumps up to $150 in most cases. It just it always is variable. Yep. And then sometimes you'll get an allowance, like I said, on a quantity or a dollar amount. Some companies will say, if you so like let's say a company sells, you know, $250 retail bikes, they may not tell you that you have to hit a quantity, or they they may say you've got to do 10 bikes uh in order to get free freight. Right. Because they've figured there's so many, they need a certain amount to cover shipping. Another company that may sell like retail a $5,000 bike may say, Oh, you need to spend five thousand or ten thousand dollars, you know. So they they change the rules. In other words, there's no set rule of what you it's gonna be hard to manage all those variables. It's it's a pain, and and it's a pain. And so uh, you know, sometimes also things will change, you know. Yep, like I said, sometimes it's a freight allowance, which means you'll get a uh an amount off, but not a lot. So some of our distributors will say, well, if you're getting this big product, we'll give you uh this up to this amount off. And so if you buy too many things that are too big, you know, uh, you may end up paying more shipping than you anticipated. You know, for instance, wheels or tires take up big spaces and bigger boxes. If you order a bunch of those and they're not full of small parts, now those parts take the the whole weight of the shipping on them. So uh uh to give you an example, if I order two tires that don't fold up into a small space, they take up a big box, and if shipping is like thirty bucks, and I order three tires that I sell for twenty bucks a piece, you know, and I've got maybe forty bucks into it, but now I've got twenty dollars of shipping, the the bike tire is gonna go up much more because of that shipping. Right. And so a lot of bike shops won't actually attach the shipping to the product, and they're not doing that because they don't want to make money, they're doing it because they're trying to realize the actual profit they're making on the product, and shipping can skew that quite a bit.

Host - Josh Anderson

And then shipping just becomes a separate a separate thing that you analyze separately. Yeah, exactly. And try to map try to minimize your your your shipping costs. Yeah, to frankly, I did not even realize that the OEMs did not cover the shipping. No, I thought that you just got things, all those boxes. Every every time I come to your shop, there's a thousand boxes. Yeah, you have paid for that stuff that for the freight of all those things.

Host - Dane Higgins

Now we have a buyer and he it's his job to try and minimize that shipping cost to us. And the the buyer's job is basically so for instance when we're getting our small parts, we may carry a Shimano derailler and a shram chain and a and you know, uh uh, I don't know, Maxis tire, you know. And sometimes we can get all of those directly from the companies, but they won't give us a break on shipping. So if we actually buy those from what's called a distributor, like QBP. We had QBP on the podcast. Remember, we had Brace on the Podcast. And so um, if you buy it from them, they may and you consolidate all of those purchases into one purchase from one distributor. If you hit a certain price point, you may save on the shipping. And so even though I may be able to get that part directly from the manufacturer cheaper. You know, let's say uh I'm buying a chain and I get it from Shimano for a dollar cheaper than I get it from quality, I would want to do that because it it lets me either lets me either make more money or it lets me keep a price lower. Yeah, exactly. And if the product then takes five dollars to ship it because I'm only need one chain from that one company, but I need 30 things that are all different brands. So sometimes distributors make more sense and we'll use distributors.

Host - Josh Anderson

Okay, so we we've dived pretty deep on one one element of cost for the shop, and that's shipping.

Host - Dane Higgins

Moral of that little squirrel uh dive is that uh exactly is is shipping uh other costs that are built in so your margin, because your original question is margins.

Host - Josh Anderson

Actually, I'm trying to get I'm I'm doing it backwards because I'm trying to get the cost of goods sold.

Host - Dane Higgins

Yeah.

Host - Josh Anderson

And in order to say what are your cost of goods, I have to understand how much you paid for that product. Yep.

Host - Dane Higgins

Yeah.

Host - Josh Anderson

And in order to understand how much you pay for that product, the easy way to do it is take your profit off the top, and then what's remaining is your cost of goods sold. Plus your other costs.

Host - Dane Higgins

That's what our accountant does. Right, exactly. Exactly. Like ultimately that's ultimately that what you do. Yeah.

Host - Josh Anderson

So okay, so let's get back to the bikes. Like we we established that cheaper bikes have higher profit. In most cases. Most expensive bikes have less profit. Give me some just general ranges.

Host - Dane Higgins

What are we talking about? Well, like you know, you can you can have a swing from like making 10% on a bike uh as a margin up to I almost never see anything above like 30 to 35 percent. Okay. So and and those are really, really extreme and hard to get to. If you had to guess, like what was the average bike for your shop? Or for any shop.

Host - Josh Anderson

I don't want to get into it.

Host - Dane Higgins

Well, and and I'm trying to speak more in terms of every shop because our shop is a little different.

Host - Josh Anderson

Because you you you tailor more to the high-end customers, right?

Host - Dane Higgins

Yeah. I would say it's pretty common to see bike companies in my shop, uh 27 to 30 is the most. And then if they dip below that, which a couple of them do, uh, into the 20, you know, um, those are less motivating bikes, you know. Um and then uh none of those You were less motivated to sell those bikes, you know. I'm I'm less motivated to invest in that company. Yeah. And and those um all the other factors come into play. So like one of the games that our reps will play with us is like, oh, well, if you pay early, you'll get one percent, you know. And so then what they'll do is try and sell you on you can get up to this margin. Uh I can you can you our bikes you can sell them up to 30% margin.

Distributors Vs Direct And Freight

Host - Josh Anderson

If if X, Y, and Z come true, whatever's everything's whatever criteria is.

Host - Dane Higgins

And you have to hit all that stuff, and that's sometimes kind of a fog.

Host - Josh Anderson

So if I had to pick a round number, would you be more comfortable with me using 25% or 27.5%?

Host - Dane Higgins

25 is like I feel like for the high-end bikes out there, okay. And then like 30-ish for the lower end. Okay. And then Walmart, like keep in mind that we're talking independent LBS, local bike shop. Um, and so we're not talking about places like REI and Walmart and Dick Sporting Goods. And those are talking about L bike shops nearly.

Host - Josh Anderson

Exactly. Okay. Okay, so so that's bikes. 25, 27.5%. That's the profit, which means that your cost of good.

Host - Dane Higgins

No, that's the margin. That's the margin.

Host - Josh Anderson

Sorry, sorry. Yeah, it means that.

Host - Dane Higgins

Let's make this really clear. That number that I'm giving you does not take into account shipping, overhead, costs, all the things. Yeah, we're gonna get into all that stuff.

Host - Josh Anderson

Okay, all right. Just just the bike. Okay, right? Cost of goods sold, yep, 75% of the bike price is cost of goods sold. Okay, we talked about shipping, that's another cost. Yeah. Okay, let's go to another product and then we'll get to into some of the intangibles. Um, what about parts and accessories?

Host - Dane Higgins

Uh, same, same. So back in the day, like because I'm old, uh, I would say parts and accessories were always what we called keystoned. Right. And, you know, I could be breaking, you know how when you're not supposed to be uh if you're a magician, you're not supposed to tell your secrets.

Host - Josh Anderson

Yeah, this whole episode is like that.

Host - Dane Higgins

Yeah, we so so take this with a grain of salt. Like we're not supposed to be saying some of these things because they don't explain the full picture. And that's why I get a little jerky uh when I'm when I'm saying these things. So back in the day we had a term called Keystone, which meant that whatever your cost was, you would double it. And so if it cost me $10, I would double it and put it out on the sales floor for $20. That did not take into account any of the things that we're talking about.

Host - Josh Anderson

That's a hundred percent profit right there.

Host - Dane Higgins

Yeah, yeah.

Host - Josh Anderson

But it's not like that today.

Host - Dane Higgins

Yeah. Well, well, it it it may be on some things and it may be on others, and it may not be, but never did it ever take into account your overhead, your shipping, other costs that are attributed to each product.

Host - Josh Anderson

Yeah, we're gonna add on that stuff at the end. I know, but I have to make clear.

Host - Dane Higgins

Because some of these myths that that we're addressing come from that statement alone and never being explained.

Host - Josh Anderson

So what I have here is that I have a range of margins.

Host - Dane Higgins

Yes.

Host - Josh Anderson

So I'm just gonna read off a couple different types of product. Tell me if that if you think that's roughly right.

Host - Dane Higgins

Okay.

Host - Josh Anderson

So like small items, and I'm talking about like cable ends, housing caps, just nuts and screws and bolts and shit like that. 60% margin.

Host - Dane Higgins

Yeah, I mean they're all over the place. But yes, yeah, I would say we're definitely making more. Have you ever bought a cable end? Not from you. Have you ever?

Host - Josh Anderson

Uh well, I got like a bike shop in my garage. So yeah, I've got I've I've bought boxes of them. You've bought the bottles and things like that. Okay, all right. Yeah, all right. Because I have like like a wannabe bike shop in my garage. Yeah.

Host - Dane Higgins

So it's just funny from Jaguar. It's just funny because that you said that, and I'm like, I can tell you how many times I've given those away.

Host - Josh Anderson

Just give them to people, right?

Host - Dane Higgins

Yeah, like you buy some cables or uh some housing, and we can't. You can get you a cable in, yeah.

Host - Josh Anderson

All right, so basic parts like tires, tubes, cables. I'm sorry, like tubes and cables. Yeah. Uh 50 to 60 percent margin.

Host - Dane Higgins

Yeah, they're higher margin for sure.

Host - Josh Anderson

Kind of get to all the other like general parts and accessories, not talking about premium components yet. Forty to fifty percent margin. Uh, that's pushing it. So it might be so you think it might be lower than that?

Host - Dane Higgins

Yeah, so like uh if if I had uh I'm trying to think of good examples, if I had a product in the shop that you've never heard of, it's not on YouTube with some influencer telling you about it, and it's you've never heard of it, and you come in and just buy it like a bottle cage that doesn't have anyone's name on it. Yes, as soon as you've seen it on YouTube, as soon as you've seen it, you know, all over everything. You're talking about a lower more in the 30s, it will it will cost us more and it we will make less money on it.

Host - Josh Anderson

Sham shim, sham shimano, premium components, it says, but I think just all sham shimano, like around 30%.

Parts, Accessories, And Keystone Myths

Host - Dane Higgins

If we're lucky. If you're lucky. Yeah. Again, the caveat is uh like pedals is a great example. So with Shimano, their pedals are amazing. Everybody loves their pedals, their clipless pedals. At one point, this is before COVID, we had a problem in the industry because Europe was buying so uh Shimano is a Japanese company. Yep. We've talked about that. And Shimano America, who is where we get our pedals from, is a customer of Shimano Japan. And in the past, Wiggle uh and and Chain Reaction was a customer of Shimano Japan in Europe and they were the distributor. They also, as a distributor, happened to be a retail outlet and an online sales. And what they were doing is they were dumping the product, they had no hard um obligation with DOEM for MSRP with worldwide sales. They um the pound at the time was stronger than the dollar. Right. And when they purchased from Japan, they got them at a lower price, and they could put them online and sell them and ship them to you for what we were paying Shimano America's cost. Which means which left you no margin. We had zero margin. In fact, for some of our customers, you were losing money. We would actually order them from Wiggle because Wiggle would give us free shipping and Shimano wouldn't. Now they've since then fixed this issue, but that came up because of uh you know, basically the margin goes away if there's competition. So like that's so when you say we make that, the biggest, most popular things have the smallest margins.

Host - Josh Anderson

So an interesting thing it says for a successful shop the if you look at the the different things it sells, the parts and accessories often contribute somewhere around forty percent of the margin dollars, even though it's a much smaller percent of the revenue of the shop.

Host - Dane Higgins

So does that feel right? No. Um, okay. So this is my tube analogy that I'll tell you that I kind of came up with when I was at a different shop. Right. Uh so like often it was pounded into our heads when we worked into a bike shop. Uh tubes, you make all your money, you make 70 or 80% on a tube. You're like you buy it for a dollar and you sell it for five, and it's just this huge amount of margin that you make. And like, you know, uh, you know, it was always kind of pounded. That's where you make your money, your rubber, you know, your consumables, you're gonna make it in the bike industry. Um, the problem is if you make, let's say uh the margin is 200%, and that means if it costs you a dollar, you're selling it for four. I think I did my math, okay. Well, somebody will check me, but but three, but keep going. Yeah, but whatever, yeah. Um you know, you're making all this margin. That margin number is enormous, you know. You still only made four dollars. Two dollars, but yeah, or whatever. Yeah. And so the the problem with that is that if the margin is huge, that's great. But if it doesn't actually if it's a small amount of dollars that come into the shop versus what it costs to actually turn the electric on, it doesn't matter. And so that's the the this is where some of these myths come from is these ideas of these margins being like, oh, you get you make so much money, you know, you're making so much money. But what happens in in in our shop, and I think in a lot of shops, is if I were to only sell tubes and only sell some cables and housing and a chain, I would do such low dollars that even at a hundred percent margin, I would still not be able to pay for the money.

Host - Josh Anderson

You wouldn't be able to cover all the c all the operating expenses that we're about to talk about. Just the rent.

Host - Dane Higgins

Yeah, like you wouldn't be able to pay for the rent. And so so the bikes have to come into it uh to help.

Host - Josh Anderson

Because they drive even though they're a smaller profit margin, yeah, they drive profit volume.

Host - Dane Higgins

And I have a I have generic examples for that when you're ready. Yep. So Okay.

Host - Josh Anderson

Um clothing and apparel forty to fifty percent.

Host - Dane Higgins

Yeah, so again, we're different, but yeah, that's about right.

Host - Josh Anderson

The big thing Because you're carrying higher ends clothing, yours is a little lower?

Host - Dane Higgins

We rarely carry clothing. Um it just doesn't sell? So clothing has this weird thing that again, the biggest thing that kills uh margin is the availability of the product at a discounted price. And so if you have a product that everybody wants and they can get it online, it will be on sale somewhere. It always is. And what we were finding is that we would have to buy, in order to have one t-shirt or let's say jersey, I would have to have a small, a medium, a large, and extra large. Then I would have to have a woman's small, medium, and maybe extra small, right? Yeah. So I'm carrying a quite a bit of capital tied up into something. The next year, that that jersey was the same exact material, same exact fit. Different print. Slightly colored, different. And then Perlazumi is my example that I use, would then send all of the old ones to their outlet and then advertise them all over the world for what I paid for them. And you still have them in the shop. And now I've got them in the shop and I make zero money on them. Because you gotta match that price. Yeah, or you won't sell it. It doesn't make any sense. And they take up a ton of room. And so the efficiency of the space. So if you Yeah, because you gotta you gotta like yeah.

Host - Josh Anderson

You gotta display them. You gotta display them.

Host - Dane Higgins

And you gotta have these racks, and you know, we're not a Ross, you know, we're not dressed for less. And so um so what we decided. Um, so what we decided a long time ago is is if we're gonna have a product, we need to have something that's really valuable and really timeless. It doesn't go out of style immediately. So we stick with black padded shorts, black baggies, good brands that have good reputations, but that aren't aren't it's not a fashion statement. And and that we let the fashion be handled by whoever's dumping on the internet, you know, and then we don't have to deal with that.

Host - Josh Anderson

So I'm gonna use these buttons more today.

Host - Dane Higgins

Now, what we do, what we do in the shop that's different, and and I want to keep doing this more and more, is we do unique product.

Clothing Pitfalls And Unique Merch

Host - Josh Anderson

And so what I want is I want when you come to Tucson, I want you to come into the shop and get a jersey that that says Tucson, you know, because when I go every every town I go to, yes, yeah, I go into the shop, and I'm I I try to go into one or two shops, yep, and the only thing I'm looking for is a hat or a shirt, something like that bike shop or like Tucson is red, or like when I was in in Bentonville, I went in and bought an Oz Trails hat. That was my souvenir for the trip. Exactly. Was from the bike shop.

Host - Dane Higgins

And so that's what we're focused on. Souvenirs. Yes. Not even souvenirs, but something unique. And so, like one of the things that we've started up with my daughter is what's we call our artist series. And so this is a series where we find an artist, get them to design a jersey, then we sell the jersey, we we do all the work of getting the jersey, getting it made, and then every portion of every jersey sold we give back to the artist. That's cool. And that to me is like a winning way for cyclists to get something cool, something unique, something that, you know, like I don't know, you it's weird going to a group ride and being in the same jersey unless you mean it. You know, like we we go and we're in our jersey our guru jerseys, and there'll be five of us and one person doesn't have it, and he he will come into the shop the next week to get one because he wants to be part of the guru team. But um, but ultimately, if you go to Walmart and buy like a George, you know, shirt, you know, and you show up at the mall and there's three guys with the same shirt, you kind of feel weird, you know. So, yeah, unique, fun. That's the to me the winning way to go. But in general, um, people still want a place to get their clothing. So, in a lot of bike shops, the margin on clothing can be good if you have the space.

Host - Josh Anderson

So, so we've talked about all the products, um, or for the most part, in big chunks. My analysis suggests that service is the most profitable area per square foot in a bike shop. What do you think about that?

Host - Dane Higgins

I think that's true. Yeah. Again, do you want me to throw my caveat out there? Yeah, throw your caveat out there for sure. It's kind of like the tubes. You have to be careful because again, uh one thing that does happen is sometimes service isn't correctly uh costed out.

Host - Josh Anderson

Yeah, because I would imagine you it's hard to like like I work on bikes and I'll do a job on a bike, and then a year later I'll do the same job, and there's something slightly different, and that job that took me 10 minutes a year ago might take me three fucking hours this time.

Host - Dane Higgins

Yeah.

Host - Josh Anderson

And I'm just talking about one bike, you know, one person.

Host - Dane Higgins

Yeah.

Host - Josh Anderson

So like you guys probably have standards that like, hey, bleed breaks takes roughly this long, but you're gonna run into occasionally situations where it takes four, five, six times as long as your standard.

Service Department Economics

Host - Dane Higgins

Yep, yeah. And that and that's definitely happened. So like right now, and you've experienced this, there is a new break on the market that's having issues that I think is Maven's. Yeah. Well, I love how you like to call them out. Um so so uh they they need a little bit more setup time to be done a hundred percent. Like two, three years. Well I'm just kidding. No, but it's true. So so they're good breaks. A lot of people are when they work, they're fine. A lot of people are have are are liking them and they're good breaks, but there are times when you need to do what they call uh massage piston massage, piston massage, and that takes more time, and so that is costlier to the bike shop because that one procedure. The other thing that you have is different mechanics move at different rates. Yeah, and so different rates of speed. Yeah, and so my big fear in our shop is if I have a mechanic that's too fast to where the bikes come back, that not only doubles the time that he has to work on it or somebody else has to make fix his mistake or her mistake. So that's quality control. Yeah, absolutely. Right. But I also hurt the reputation if that happens, you know.

Host - Josh Anderson

So you'll take a little longer to make sure a bike goes out and he has le that the customer is mostly satisfied, yeah, you know, nine times out of ten or ninety-nine times out of a hundred.

Host - Dane Higgins

Yeah, I try to never pressure any of the mechanics that they have to do a certain amount.

Host - Josh Anderson

There are some times. Okay, you're not pressuring them to move faster because you're prioritizing quality over speed.

Host - Dane Higgins

Yes, exactly.

Host - Josh Anderson

And and that probably eats into your margin. Big time.

Host - Dane Higgins

And so that it's it totally does. And and so one of the issues with that is they're also, even if everything's equal, you can have one mechanic who just moves at a different rate than the other, and they may do the exact same quality, but one will do it twice as fast. So one mechanic is doing two things versus the one mechanic that's doing one, and in a lot of cases, those mechanics are making similar money. So so on one guy, I'm getting twice as much revenue coming in than the other guy, and so or girl, or whoever.

Host - Josh Anderson

Let's go through some uh some average costs here. And just to make things simple, let's use a let's use a million dollars number. Is it easier for you to talk in months or talk in years from a cost perspective? Probably months.

Host - Dane Higgins

Yeah, I guess so. Yeah. Okay.

Host - Josh Anderson

So let's just let's just use a round number of $100,000 a month. Okay. Okay. Payroll is the biggest expense for bike shops. Aside from product, yes. Yeah. Yeah. Just expense. Aside from the cost of goods sold. Take the cost of goods out.

Host - Dane Higgins

Yeah.

Host - Josh Anderson

Talking about just expenses now, operating operating expenses.

Host - Dane Higgins

Yeah.

Host - Josh Anderson

Payroll. Biggest expense. Between 22 and 30% of the shop costs, which includes the owner's salary, mechanics, sales staff, admin, all that stuff. Owners make money? He said the average owner makes makes just under $50,000 a year. Okay. Um, absolutely, payroll. Payroll's payrolls number one. Yeah. At again, 22 to 30% of the so so I'd have to do the math. Yeah, so so if you have a hundred thousand dollars a month, what we're saying is it's twenty-two to thirty thousand dollars for payroll.

Host - Dane Higgins

No. Well, okay, what's your hundred thousand? That's the gross, right?

Host - Josh Anderson

Yeah, but I'm uh so just to put it in context, we we said the average shop makes just under a million a year.

Host - Dane Higgins

But not a month. So you switched from years to months. So I asked you what this is tough. This is tough to do on a podcast. Yeah. So so to be clear, you're you're presenting what my costs are. Not your costs. Or a shop's general bike shop. If a a shop costs, let's say it's pay their payroll, aside from the owner, is let's say it's ten thousand dollars a month. Okay. Um, that is probably an average cost for a lot of shops.

Host - Josh Anderson

So I would say So 25% of their revenue is what I'm what I what I'm seeing.

Host - Dane Higgins

Is that does that make sense? I I can't use those. You keep switching on me. The reason I say that is because um the margin of what you've sold in that month. Yep. So let's say, let's say we take the small end of your margins that you're trying to use. So let's say the shop makes a hundred thousand dollars that month, okay? And let's say they make twenty percent margin on the on the product that they've sold. Uh-huh. Okay. So that means at a hundred thousand that they've only made twenty thousand dollars that month. Hold on. I got a I I'm gonna I got another way to do what you're doing. I know, but do you understand that? So now we've gone to snow. So now payroll is fifty percent of what you've made that month.

Host - Josh Anderson

Okay.

Host - Dane Higgins

Does that make sense? It does payroll. I understand what you're saying. Okay. Let's um that's why you keep switching.

Host - Josh Anderson

Yeah, so let's let's stop switching the framework. Okay. Stick with one framework. I'm just gonna give you some we're gonna assume a hundred thousand dollar monthly revenue.

Host - Dane Higgins

Okay.

Host - Josh Anderson

Just get your head in that.

Host - Dane Higgins

Okay.

Host - Josh Anderson

And then I'm gonna break down all the costs on a hundred thousand dollars of revenue. All the gut costs and profit on a hundred thousand. Okay. Payroll at twenty-five percent.

Host - Dane Higgins

Okay.

Host - Josh Anderson

Rent and occupancy eight thousand dollars. Utilities, two thousand five hundred dollars, insurance, two thousand dollars. Marketing, they say on average, shops spend three percent of their revenue on marketing, okay, three thousand dollars. Other expenses like supplies, software, all that kind of stuff, fifteen thousand dollars. So the operating expenses for a bike shop that is sized around $100,000 of revenue a month is forty-two thousand dollars, not including the cost of goods sold. Okay. Yeah, you would be out of business pretty quick.

Host - Dane Higgins

Right.

Host - Josh Anderson

We're gonna get to that. Yeah. And that's the whole point of this.

Monthly Cost Model And Reality Check

Host - Dane Higgins

So, like on your numbers that you just put out there. These are those numbers. You would be out of business in well, as soon as your bank account was drained. Because it would be drained every single month.

Host - Josh Anderson

So this is the average bike shop in the country. That's insane. Right. So, yeah. Bikes are sixty percent of sales on average in a shop across across the country. I haven't done that, but yeah, okay. They've got uh they've got a margin in here of thirty six. They've got parts and accessories at 25% of sales, clothing at 10% of sales, service and labor at 5% of sales. So the gross profit of the shop is $40,850. So $40,850 of profit, $42,000 of operating expenses, your net profit is negative $2,000. Is negative $1,150.

Host - Dane Higgins

Okay. That's more like it. Yeah. So I'm not saying that's how it is, but your numbers, that that is this so here.

Host - Josh Anderson

So these aren't exact numbers. But the point is, is like that's the math that we're talking about.

Host - Dane Higgins

So when you average stuff out, that's probably I don't want to say that's true because a lot of bikes are still going, but there's a couple things in your numbers that were wrong. So one, you said like off expenses were like 15K. No, 1500. Oh, okay. 1500, meh, we'll see. Um so yes. The point of what you're saying is that there's not much money left over. Razor, thin, margins, super thin. But if you take all the expenses that you have. And if somebody came up to you knowing what you know now, and somebody came up, hey dude, give me a discount because I know you guys make 50%.

Host - Josh Anderson

So here's here's the deal. Like what has this done for me?

Host - Dane Higgins

Yeah. Like, I'm gonna ask you for deals less.

Host - Josh Anderson

Well, I yeah, and and so here's the and I'm your friend.

Host - Dane Higgins

Yeah, yeah. Right. You know, so my nickname used to be back in the day, Downhill Dane. Yeah. Or I'm sorry, um, sorry, Discount Dane. Discount Dane. Discount Dane Dane. So when I was just an employee, I didn't wasn't an owner, I did not have the insight of all of this stuff, I had the nickname Discount Dane, because when I was trying to sell a bike or a part or something, I knew that the customer just wanted something, some way to justify their purchase. In most cases, the fastest and easiest way to get that sale was to give them a deal. Right. And and and any of my friends, I would get them to come into the store. And I would give them a deal to get them to come in the store. And and that allowed me to to you know, support the shop. Believe it or not, I was good at what I did, and I rarely got flack, but I did get that nickname, which ended up being kind of a derogatory term down the road, um, because I did not understand what's involved in those thin margins. Yeah. Because I was that employee that was like, oh, well, this cost me, this cost the shop ten dollars, and we sell it for twenty, and so we're making plenty of money. I did not have all that.

Host - Josh Anderson

You didn't understand the payroll, the rent and occupancy, the utilities, the insurance, the marketing, the other expenses. Is there anything any costs that I'm missing in this you can think of that you can't bucket into one of those?

Host - Dane Higgins

So like you're you you put in uh electricity or something like that? Utilities. Yeah, so like utilities that's in the summer are AC bill. Yeah.

Host - Josh Anderson

Because we And I'm sure other shops it'd be either heating in the winter, right?

Host - Dane Higgins

Exactly, yeah. So that fluctuates like crazy. Office supplies, we don't have that many, but every once in a while uh they'll spike for something. You know, we have the cheapest internet we can find, just so we don't have to pay much. I know, that's why we don't do podcasts remotely in your shop. But you also have tools. Yeah. So tool. So here's a here's something that comes up in the shop. Lubricant. Mechanics. All the stuff for the mechanic shop. We had a couple mechanics who were like, oh, I need this special tool to work on this bike. Yeah. And I would get frustrated, and I know those guys think I'm the cheapest asshole on the on the planet because I would be like poo-pooing them wanting to buy the $70 bearing puller to take out a bearing race.

Host - Josh Anderson

Because you you have another tool that can accomplish a job just not as effectively or not as easily as the way more easy.

Host - Dane Higgins

It just takes a little gumption. So and this is a good example of a very good friend who is a mechanic and he's an awesome guy. Yeah. And but he's also a tool of file. Like me. Yeah. Like me. And I've got those tools. He's he's got a bearing race. So cartridge bearings have a race, and then then inner race, so outer race and inner race, and then bearings, and then effectively when you remove them, they're they're pressed into something. When you remove them, you tap them out. If that inner race pops out before the whole thing does, the outer race is stuck in whatever it is you need to get it out of. Yeah. And there is no edge to get a hold of it. It's really difficult to get it out. Yeah. Um, it's it's super thin and it's very difficult to get out. And so he's you know, presented with this problem. And he's like, We don't have any tools for this, you know, I can't do this. And so he goes to our manager and says, Hey, I found a tool that'll get this at $70. I think we should get it. And and this is a tool that's specific for that size bearing. So it's not a universal tool that we'll use on every time. Yep. It works on this one instance, you know. And I came over and looked at it, and I went into the drawer and I got an Allen wrench that is about the size of that outer race. We have these big, huge Allen wrenches that we use. And I stuck it in there, I twisted it sideways, and I pried that sucker out in like five seconds. In five seconds. And I go, here you go. If you need anything else, let me know. And I walked off. And I do that shit all the time, not because I'm magical, but because I have been in a hotel room and I've had an athlete who needs to race in that that next morning.

Host - Josh Anderson

Yeah, and you don't have the perfect tools, you gotta use what you got.

Host - Dane Higgins

I can't tell you how many times I have looked around a hotel room. I I have a quick story, just a quick story. Yeah, go. We're in Vegas and we're racing downhill bikes. Yeah, and the guys are like trying to switch a spring on a rear shock, and we're like, gotta race the next morning, and we've got to switch. And we had ordered a spring in, and on coil shocks, the springs are longer. Well, so we have to compress the spring to get it on.

Host - Josh Anderson

Is that the story?

Host - Dane Higgins

This is the story, but how I did it was fucking amazing. No, no, it's even better than that. So because zip ties is the big the thing that wasn't even zip ties. Yeah. Um, so what effectively happens is as the springs get stiffer, they can be for the same length stroke, but because the winding is actually thicker, they get longer. So if you order a spring online and you order it to the stroke length of your shock, you may end up getting one that's too long. It it does happen as you go up in weight, or it may be too short if you go really low, like if I'm getting one for the kids. Yeah. Um, so it's this weird phenomenon where you can't, it's it's it's not cut and dry. Okay. Yep. Um, so he's bought this spring, he's brought it to the race. We did practice day on on Saturday and we're racing on Sunday, and he's like, I need that stiffer spring, I was bottoming out. And I'm like, okay. We go to put it on, and there's a basically a spring collar that you have to kind of pull out to get this out of the way and then pull the spring off the shock. If the spring's too long, the spring collar won't release. Uh it kind of sits in a groove and it won't come out. And we're he's like, I don't know what to do. The spring is too long. So he's gotten the old one off, so we're good. He can race the old one, but he's like, I'm gonna bottom out, it's not good, you know. I may blow my shock. Um, and so what we you know, we try the zip ties.

Host - Josh Anderson

So I don't know if anyone's seen this, but you can take zip ties, multiple zip ties and just slowly crank it all the way around in a circle and eventually it'll compress.

Misconceptions And The Tube Analogy

Host - Dane Higgins

Yeah, you're basically binding the the spring springs together and kind of slowly doing it, and the thing looks like a pine cone when you're done with it because it's got all these zip ties hanging off. And it just wasn't doing it. And so what we figured out is we took uh a I think it was like a tray or something, and we put the spring on the floor and we lifted up the bed and put the bed on top of the tray on the spring. And four of us are sitting on the bed pushing the spring down as somebody tightens those zip ties to get it short enough to get it on the on the shock, and it worked. So I didn't have a vice, I didn't have a workshop, I didn't have time to do any of that stuff. The point is there's a solution. Yes, exactly. There's a solution. So anyway, uh costs of the shop are you know, like if you spend an extra $200 on a tool, it affects you that month. Like if you're already close to being in the negatives and you spend $200 on a tool or a hundred dollars on a closet light or you know, whatever you know you're you're spending extra on.

Host - Josh Anderson

So um let me let me tell you this. They're they're saying here, again, using that hundred thousand dollar revenue kind of bench b uh bench benchmark, yeah, that a more successful shop they got the same cost of goods to go sold, okay, but they actually have their operating costs maybe more streamlined. Okay. And they actually might be able to turn a little bit more profit at the end of the day, and they're more like five thousand dollars of profit for that month.

Host - Dane Higgins

Maybe, yeah, yeah. Yeah.

Host - Josh Anderson

So so even then, yeah. It's this is like like a lot of shops are just getting by, maybe even in the negative, depending on the month and how busy things are.

Host - Dane Higgins

Yeah.

Host - Josh Anderson

And a really successful shop might be making five, six thousand, might five or six percent profit on the month, but they're not huge numbers.

Host - Dane Higgins

Yeah, yeah.

Host - Josh Anderson

Okay, let me throw we're we're we got a little bit of time left here.

Host - Dane Higgins

Okay.

Host - Josh Anderson

Let me throw some common misconceptions by you and just see what you see if you've heard them or if you think about them.

Host - Dane Higgins

Okay.

Host - Josh Anderson

Uh, or what you think about them.

Host - Dane Higgins

Okay.

Host - Josh Anderson

Common misconception, bikes are marked up a hundred percent.

Host - Dane Higgins

No, god, yeah. No, bikes are some of the lowest. Can I do my little math thing real quick?

Host - Josh Anderson

Do whatever you want, bro.

Host - Dane Higgins

Okay, so this is this is the tubes versus bikes, uh, or two bikes versus each other, or something like that. Whatever, whatever you want to do it. But so what so what happened is I had uh I was a service manager for a bike shop, and I kept getting frustrated because our mechanics kept getting pulled off of their repair. So let's say you're got a mechanic and he's doing a tune-up, and the tune-up is a hundred dollars, okay? And he gets pulled off by somebody who comes in and wants a tube uh put in their their thing, uh in their um bike. And so what was happening is the mechanic would get pulled off that hundred dollar repair. Then so uh in in for in my mind, a tune-up should be about a an hour process. So depending on how what level of tune-up you're doing, it gets complicated.

Host - Josh Anderson

How often does it actually take an hour, Dane? It just depends.

Host - Dane Higgins

Because it takes me about four. Well, so and again, it depends on the mechanic and the bike, but let's just shapes. Let's just say it's an hour for that um tune-up. And then uh somebody comes in for a uh flat repair. So how fast can you do a flat repair? Me? Yeah. With a tube. With a tube, maybe five minutes. Okay. Do you want to check that in your mind real quick? Take the tire out, take the wheel off. Skewer out, wheel off. Ooh, you have a skewer? It's not two bolts?

Host - Josh Anderson

Not two bolts. Okay, okay. So it could be bolted, could be bolted.

Host - Dane Higgins

My point is, here's my point. Yeah. It's way longer than you think. And I timed it as a service manager. Okay, how long did it take? And so it usually 15 minutes from the the point of talking to the person, trying to figure out what tube they're gonna take, then actually getting it off the bike, in the bike, checking for thorns, because we have to do that in our area. Yep, yep. Cleaning out the gunky skin stands, if it's not a good thing.

Host - Josh Anderson

No, no, no, we're talking tubes. Tubes, okay.

Host - Dane Higgins

Tubes. This is back in the day. Uh making sure the rim strips okay, getting it back on the bike, making sure it's aired up properly and doesn't blow off.

Host - Josh Anderson

You gotta check the rim too to make sure you don't have anything, any burrs or anything on the rim.

Host - Dane Higgins

Exactly. Uh doing all that and getting it back is around 15 minutes per tire. Yeah. Well, at the back then, I think we charged five dollars labor, and the tubes were around five dollars. Okay. So we're making ten dollars on that fifteen minutes, and we're making a hundred dollars on an hour. How many tubes do you have to do to do the same amount of labor?

Host - Josh Anderson

Well, if you're making ten dollars, then you'd have to do ten in fifteen minutes, that's like two and a half hours.

Host - Dane Higgins

Yeah, exactly. And so uh my my every boss that I ever had before that point kept telling me how profitable tubes were.

Host - Josh Anderson

And when you brought the service element in it and the cost of this of the the expense of the payroll and the service Exactly.

Host - Dane Higgins

And I'm like, and so what we did is we hired a kid to only do tubes. That was his whole job.

Host - Josh Anderson

And he's uh and he's a much less expensive employee than the other guys.

Host - Dane Higgins

Less much less talented. He may actually cost the most, but he may not be able to do that hour tune-up. Yep. And so uh so what we did was we figured out that those weren't the profit center that everybody thought they were. You know, everybody was like, Oh, you make all your money on rubber. I'm like, no, you don't. I've done the numbers, you don't actually do that. Yeah, um, but if that's the only thing you have, the margin is good. And on paper, when you print out a sheet that tells you how much margin you're making, it's identifiable. You can look at the margin, and that can help you make make sense of what's going on. But in the shop, it didn't make any sense.

Host - Josh Anderson

So I think um I'm gonna make this point and see what you think. Okay. This is one of the common misconceptions is that bike shops are ripping you off. That that's the one that bugs the shit out of me. So we we talked about shop owners making less than $50,000 a year. Most of them, I would say 99.9% of them. If there's a shop owner on the planet that's not working 50, 60 hours a week, you're not really a fucking shop owner. No, I'm sorry. Yeah. And to be honest with you, you could apply that to any small business. Yeah. Yeah. Like if you're a small business owner, you're putting 50 to 60 hours a week in. That's your baby. Yeah. Yeah. Right? I mean, who who would who could own a shop?

Host - Dane Higgins

I'm I'm on a little tangent here, but who could own a shop, not put 50, 60 hours? What the hell? I mean, it's great if you can think that, but if you're I I I I think the shop owners are absentee, uh, the ones that aren't around and have somebody else do it.

Host - Josh Anderson

But they have a manager that they're paying to do it, and they have money probably from somewhere else.

Host - Dane Higgins

But again, they may not personally be making putting in the time. Yeah.

Host - Josh Anderson

You know, okay. Um I think that I think we'll we'll leave you with this point. Shops um are pulling five to seven cents out of every dollar they sell.

Host - Dane Higgins

Yeah, yeah. And yeah, so again, even the shop employees don't understand this. Five to seven cents. Yeah. And and it's really a tough industry. So here's the thing. We've identified this before as an issue. We've identified that shops are valuable and they need to be there. Yeah. We've identified that um you that people need shops, and a good shop uh is actually a fun place to go. You know? Yeah. Uh it's actually enjoyable to go talk and BS about bikes and find out about stuff. And the bike shop offers a lot. We've we've done all that. The big thing with the bike shop and the and the cost, we don't do it because it's a labor love. Well, and when none of us are making money. We want to. I mean, I would love it if I could actually afford a newer car, if I could get my backyard fixed, if I could do some of the things that my wife wants, you know, if we could, you know, not you know, cut corners on everything to make ends meet. I would love that. But we also love bikes, we love what we do, we love how people feel after they get a good ride. And yesterday I I wrenched on bikes at a race all day and supported people that were racing.

Host - Josh Anderson

How much did you get paid for that?

Host - Dane Higgins

Nothing. In fact, I had two people help me and I paid them just to come out and help. So you paid money, paid money to go to a race, and you made nothing. Yeah.

Host - Josh Anderson

To support the race.

Host - Dane Higgins

Yep, yeah. And uh and and but man, we were right next to the race course, and people would yell as they went by, my brakes feel so much better, or the shifting works great now, or you know what I mean, or the suspension feels better, you know, and and that's why we did it. You know, what that's that's made the difference, you know. That that seeing those people enjoying themselves and being able to do what they love and being the guy that they can count on to enable that, yeah, is awesome.

Support Your Shop And Final Takeaways

Host - Josh Anderson

So okay, so I think I think we've covered everything we want to cover. I think more than anything, I wanted to just kind of highlight without giving away everything, but just highlight for our listeners and any bike shop employees out there, like razor thin margins. We've already established a huge value proposition that bike shops bring. They're not making a ton of money. Use the service departments there. When you go in, buy something. Just buy something. Fucking hey, you're in there. You know, don't use them as a source to help you figure out your problem and then go spend your money somewhere else. They're there to help you, they're a resource, and they're no matter what shop it is in the country, guaranteed, none of them, they're not none of them are making a shit ton of money. So you got to help them out. We want them to be there. I I and I appreciate you being vulnerable and coming and talking about this because I know it's a hard topic. And actually, this one I'm gonna ask you to listen to before we actually publish it. Okay. To make sure you're okay with it. Yeah, yeah, yeah. Typically you don't, but this one I'm gonna have you go listen to it, tell me what you if you're okay with it. And if you can't publish it, we won't. But um, yeah, thank I just thank you for your vulnerability and sharing this with us and to the audience. I hope this kind of helped you understand, like when you walk in that shop, the value you know the value that they bring. We've talked about that. Understand what they're going through financially, and and and you can help them with your wallet.

Host - Dane Higgins

Yeah, and and for all those people that are like, how how come the bike shop owner has a $10,000 bike? One, it cost me that, and two, I'm gonna sell it. Yeah, and and so um that that's something that even today some of my family members were like didn't understand that that uh it's our business to own those bikes, but we always sell them and get our money out and put it right back in. We call it bike equity, and that's a real thing that we that's how we survive. That's also where our passion comes from because we love what we're doing to make so little money because we want to ride a cool bike.

Host - Josh Anderson

So I appreciate you, brother. I appreciate Guru in my town, and uh, I appreciate all you listeners. Hope you guys enjoyed this. It was definitely eye-opening for me. Oh, nice.

Head Shot

Dane "Suspension Guru" Higgins

Host
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Josh "Magellan" Anderson

Host