The Secret Sauce
**Apologies in advance, the majority of this is a 3 am brain dump so it’s a little disjointed**
So here’s the thing, I’ve heard some interesting ideas since our post about closing. I thought why not share the secret sauce? Open the curtain to see behind the scenes. If someone was considering buying the business I thought it might also be helpful to draw the road map for our “style”. None of this is ground breaking theory that will generate wild financial revenue. What it will do is give a good formula for a boutique self-financed grass roots business and maybe help avoid some mistakes along the way.
Retail boils down to a simple formula. Gross sales and the amount of profit you’re able to extract from them. The last time I read about gross margin in some industry publications, the average bike shop was taking in something like 8%. The most successful shops earned 20% gross margin. Here are some examples with what I would consider low volume boutique sales numbers:
Revenue (your total sales) $180,000 $180,000
Cost (overhead and cost of goods) $165,000 $145,000
Profit (what you take home) $15,000 $35,000
Those differences in gross margin have significant effect on take-home, don’t they? All the subcategories below make these numbers work or not work. Back in the day when it was just me with the bare necessities, I was cracking 35% gross margin but I also had much lower sales and less complexity to deal with. I don’t think it’s possible to crack $150k in sales working as a one-man bike shop. I could be wrong but at some point, the balance of all the categories below begins to crumble under the weight of complexity. If you want to pull more than $150k you’re going to need to have paid help. That paid help will then get fed into your “cost” category and you’ll need to boost sales significantly to pay off your labor costs. The tiger chases its tail.
My statement above is based on a shop in a medium sized city that is the traditional mix of sales and repairs/maintenance. You’ll note there’s been a shift in some shops to focus less on retail sales and more on maintenance and repairs. It’s an effort to right size that cost row because lower retail volume (internet competition) and reduced margins from manufacturers is a real crusher for the industry.
You look at these numbers and then you realize why people who care less about their product and more about the numbers franchise, open second locations etc. Volume equals a bigger take home.
The more you make a grab for increased sales the more you walk away from “boutique”. The small shop is a very fine balance of overhead while pushing for maximum sales. Each of the sub categories below contribute to how efficiently you can extract revenue from your gross sales.
Social media is the single greatest free marketing you can harness, period. Craigslist too. I can handle about two social media accounts without being overwhelmed. I picked Instagram for brand presence mostly and Facebook for paid advertising, local events, hosting events, local news, sharing articles etc.
Do yourself a favor and ask other shops which brands and vendors treat small shops well. Taking on too many brands or dealing with too many distributors can be a real drag. QBP is a god send and probably the ONLY reason bicycle retail is still limping along. They are for sure the ONLY reason a small shop can exist.
If you’re going to do something bad at least look good doing it, right? Let’s face it, low volume sales in a market with ever diminishing margins and weak perceived value is a recipe for failure. You may as well be a well dressed David fighting Goliath.
Life Blood (Maintenance and Repairs)
Maintenance and repairs are the lifeblood of the shop. Good consistent cash flow and minimal no pure profit if you’re doing the labor yourself.
Efficiency in brick and mortar, people coming to you
Pop ups and going to people’s houses etc is never going to work out unless you’re in NYC and commanding serious premiums for your travel/services. People need to come to you, period. Prep and clean up for events/pop-ups are also a major time suck. Your time can be better spent.
Constant balance of overhead and efficiency
Low overhead is key in being able to maintain a healthy profit and loss statement. The more volume you do, the more line items might creep into your statement. Weigh them very carefully. Labor and rent will be your two biggest items but the small stuff can add up quickly (Spotify, website fees, invoice fees, Point of Sale fees etc etc etc)
If you’re marketing and building brand do it so the end goal is to increase local sales. I think it’s ok to try and woo some out of state customers that “get” you and generate sales that way. However, managing people via phone and email and packing/shipping are an incredible time suck that will devour profit like wildfire. If we were paid in fifteen minute increments for our knowledge of tubeless tire and rim compatibility and what you need to mix and match road and mountain 11 speed drivetrains, bike shop owners would have summer homes. Rather everybody thinks this is part of the $60 sale with 30% margin.
Taxes, Insurance, Payroll
Taxes and insurance, besides their expense, are more back-end time. Payroll and disability and paid family leave and state regulations, holy shit sometimes it feels like the list just goes on forever. More back-end time sucks. You must power through this stuff and learn it quickly and figure out a way to process everything efficiently. If your payroll company fucks up your state employment tax submittal, for instance, you might find yourself spending 40hrs trying to fight a two thousand dollar fine with everyone pointing fingers in the opposite direction. (ask me how I know).
Boutique means lots of handholding
On any given week I am coordinating half a dozen customers via email on concurrent build projects, special orders or custom wheel builds. It’s more often that your customers either don’t know what they want, think they know what they want but are ill-informed or think they know what they want and not but aren’t grounded in reality. This isn’t a knock or a put down, it’s just the truth. If you find customers that trust your knowledge and expertise and pay you without a lot of handholding, TREAT THEM LIKE GOLD. Our best customers have purchased 2, 3, 4 bikes from us. They essentially restructure their stable of bikes around what we’ve designed as the right combination of bicycles for their riding habits. Sprinkle in some repairs, maintenance and accessories and these are the people that make the shop successful.
If this looks like it’s dragging out into a lot of moving parts….it is. Owning a bike shop isn’t about the stoke vibe and advocating for bicycles. It’s that and a lot of motivation to be good at business. It’s that and being up for the challenge of squeezing a profit from a difficult formula that is today’s retail landscape.
Maybe that’s a hard sell though, am I right? You’d have to be a little nutty to take all that on. So far the most interesting idea proposed is a COOP style transition so all of these moving parts aren’t weighed on a single person. More like six to twelve people all with various skills to lend to the project. Makes a lot of sense to me, and I’ve been ruminating on the logistics. They aren’t as complicated as I originally anticipated. The crux of the dilemma is finding a champion to coordinate that effort….it can’t be me.