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The Business of Knife Making A forum dedicated to all aspects of running, managing and legal operational issues relating to the custom knife making and custom knife selling industry.

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  #1  
Old 02-12-2004, 10:53 AM
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Les Robertson Les Robertson is offline
 
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From the "Have your cake and eat it to" Department

Instead of having this buried in the "how do makers feel about dealers undercutting your prices Part II". I thought I would start a new thread.

The subject came up about makers building in a "discount" for dealers into their retail price.

Ok, here is the "Your Cake and Eat it To".

The knife is the "Cake".

The collector getting the knife is the "Eat it".

However, we all know that this saying is usually "you can't have your cake and eat it to".

Such is the case with many custom knives.

In most cases you can get the knife directly from the maker. However, the delivery times may stretch into years.

So you get the knife for "retail" (cake) but have to wait an extended periord of time (can't eat it).

Next choice, buy the knife from a custom knife dealer. You get the knife immediately (cake). However, you may have to pay a premium (can't eat it).

Now if you could get the knife immediately and pay retail. Then you would get your "cake and eat it to".

The way for the collector to get their cake and eat it to. Is for makers to provide professional custom knife dealers. With a discount to purchase their knives. For many, they view this as part of their advertising budget. In fact for some, this is their entire advertising budget.

By makers working with dealers to ensure the knives are sold at retail. The collectors get the knife sooner if not immediately. There is no premium. Nor do the collectors find out later they could have gotten the knife at 40% less somewhere else (Keith I know this wouldn't happen to you, you always do your homework )

From the dealer perspective I would like to remind the collectors. The smaller the discount, the higher the premium and the smaller the inventory.


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  #2  
Old 02-13-2004, 04:00 PM
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Keith Montgomery Keith Montgomery is offline
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It is my belief that a maker should look at the discount given to dealers just like any other cost. I have seen the comment from some makers that they build in the discount to all the knives they make. So if they give a dealer a 25% discount, they add this amount to the price of each of their knives. That is in my opinion not the right way to do things. Yes, the cost of discounting a knife to a dealer must be recouped, but not by adding the 25% discount to every knife you sell. That is in effect shafting the collector that buys from the maker direct.

This is how I would do it. Maybe it would be right, maybe not, but here goes. As an example, let's say that a maker averages 100 knives a year and that 30% of those knives are sold by dealers. Let's also say that the average price of the knives sold is $500.00. That means that the maker sells 30 knives at $500.00 to dealers. The total price of these knives would be 15,000.00. The discount given to the dealer would amount to $3750.00. This amount should be considered as a cost of making all 100 knives and applied correspondingly. This would mean that you would add $37.50 to the cost of each knife. Even if you consider doubling that amount to be a fair markup to charge for your costs, that would only add $75.00 to the price of each knife. When building in the 25% discount into each knife that is sold that means that the maker is adding $125.00 to the price of every knife he/she sells. That means that the collector and dealer are paying more for the knives then they should. The knives should be sold to the collector for $450.00 and to the dealer for $450.00 less the 25%.

As stated, the above is just how I would do it.


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  #3  
Old 02-13-2004, 09:44 PM
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Les Robertson Les Robertson is offline
 
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Hi Keith,

The effect or lack their of, to each maker giving a discount varies. While it would be nice to have a formula that each knife maker could utilize. The fact of the matter, each is different.

There are too many variables. Example: If maker A can buy 100 pounds of steel, they will get a better price than maker B who can only buy 10 pounds of steel. The same would be true for belts, bits, handle material, etc.

Is the maker part time or full time?

What percentage of their profits does it cost a maker to attend shows. If I live within driving distance of the two New York Shows and I can go home at night, as well as not pay for a plane ticket. My profit margin will be higher than those who have to fly to those two shows, pay for a hotel, food and taxi's.

What percentage of my budget is spent on advertising?

What about cost of living? Rate of inflation? Does the makers spouse work? Does that maker have medical benefits through the spouse (or their full time job if employed)? If not, big bucks for medical insurance out of the makers pocket.

As you can imagine, the variables are endless.

This is why I tell makers to insure they get their money's worth from the dealer.

Keith, knife makers have to make a living wage. If they don't the knives they make will go away. If the dealers can't get a break on the price. They will either not work with that maker or charge a premium. Again, the extra gets passed onto the customer.

Collectors don't generally look behind the scenes. Most take the knife on it's merit. Either it is worth the money to them or it is not.

When I was a collector the same applied to me. I never gave it a thought as to what all was involved in the knife makers shop.

Your formula is an interesting one. I would be curious to hear from other makers as to what they think of it.


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Last edited by Les Robertson; 02-13-2004 at 09:47 PM.
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  #4  
Old 02-15-2004, 01:43 AM
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Keith Montgomery Keith Montgomery is offline
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I couldn't agree more that a knifemaker needs to make a living wage. Personally, I think that they should make a darn good wage, but I know how difficult that is for most.

All I am saying is that the discount that is given to dealers should be looked upon like any other cost that goes into the making of knives.

I do believe that a knifemaker should be prepared to give a discount to a dealer and it should be a discount that makes it worth the dealers while to take on this makers knives.


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  #5  
Old 03-21-2004, 02:20 AM
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Dave Larsen Dave Larsen is offline
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This is how I got started and about half my (meager) production goes to a single dealer. I charge him 75% of my "retail" price. He often marks them up beyond that, and seems to sell them with no problem. That tells me I'm not charging enough. But I know what's fair in my own heart so that's my price. The knives I do sell at retail are almost a bonus.

Dave
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  #6  
Old 03-21-2004, 01:54 PM
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Les Robertson Les Robertson is offline
 
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Hi Dave,

Glad to hear you have a good relationship with your dealer.

Pricing is a difficult thing. I have had other makers tell me before that is how they know when it's time to raise the price.

Part of the reason the dealer can get more than retail (which if he is your only dealer, you should be careful about this). Is due to your low production. The more knives you make, the more you fill the demand and the less likely someone is to pay over retail.

This then leads to a problem. Those who paid over retail have now paid to much for the knife. Even though no one forced them to do this, there will be those who will be irritated and not buy another knife frrom the dealer and possibly you.

In order to meet your dealers inflated price, you now have to raise your prices. Depending on the market you are in, this may make you less competitive.

Ultimately, you are the peron who controls your market position. So think about the pro's and con's off all actions before you implement them.


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Old 03-21-2004, 03:21 PM
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Dave Larsen Dave Larsen is offline
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That's very good advice, thanks Les.

Dave
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  #8  
Old 01-03-2005, 09:16 PM
Tarl_cabot Tarl_cabot is offline
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Just a quick IMHO....What the "dealer discount" really amounts to is the maker paying the dealer for opening up "the dealears market" to the knifemaker's work. In other words it is representation, the dealer should be offering "value added" for the discount the knife maker offers (the dealer's profit). It is a partnership, knifemakers should always weight the benifits (representation, promotion, sales, etc.) verses the "comission/discount" offered the dealer.

I look on any work with a dealer as a partnership, my best work his best effort to make sales...

Just my $0.02 on it...

Mike Roesch
Chattanooga, TN
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  #9  
Old 01-05-2005, 08:06 AM
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Les Robertson Les Robertson is offline
 
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Hi Tarl,

The relationship that exists between maker and dealer is up to those two people. Most makers are part time and their time to build knives is limited. Most dealers are part time. For the majority of those who aren't, they are limited to selling products only on the Internet.

The maker has to find out exactly what they are going to receive for selling knives at a discount. This can range from a new maker just being happy to sell 3 knives to a maker expecting a fairly complex marketing campaign.

From the dealers perspective there are things I expect from a maker. If a maker cannot or chooses not to live up to the terms of our agreement, then I have to look at dissolving the business relationship. My clients are looking for results not excuses.

To sum up, just make sure that both parties can deliver what they promise. A successful long term business relationship will benefit both parties.


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  #10  
Old 01-11-2005, 09:51 AM
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Hey Guys!
This is a good thread.
I have been doing my discount on a sliding scale, depending on if the dealer has a website, advertises in the mags, and does major shows (or shows that I can't attend)
also on the size of the order.
I have one dealer that I mainly work with, who has been awesome. He has really been promoting my knives and helping to get my name out a bit.
His support has been invaluble since I have gone full time, and has saved me alot of stress by knowing that I have knives sold at the begining of every month, pretty much the closest I've gotten to job security so far
I also think that getting along on a personal level is very important, I've met dealers that just rubbed me the wrong way. Some times if its a slow show I will walk by dealer tables to see how I am treated as a potential customer, I think because of my age/appearence I have a had a few dealers brush me off or be rude, and thats something I dont want in a person representing my work, and I'm sure it goes the other way around too.
Being a new maker (and poor ) I am definitely seeing the benifits of having good dealers in your corner. THANKS GUYS
Lucas


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