[thinkingcnc]

I have learnt that the commission for sales agents is up to 50% of the sale price for CNC machines. Is this really justified? Why don't we buy direct to get Ex works prices and then employ maintenance technicians ourselves to cut out the middleman?

[Geof]

Put yourself in the position of the 'middleman' the sales agent or dealer; would you work for nothing?

I agree 50% sounds like a lot but I notice you say 'up to'; what is the 50% on, the full machine that may be worth a large sum of money, or is this what is applied to lower cost items and options? Fifty percent of 800 pounds is a lot less than 50% of 80,000 pounds and often dealer mark-ups are scaled to compensate. I have no idea if machine tool companies do this but I do know that in some cases the discount that the manufacturer gives the dealer is only 15% on the machine price.

Also how is the 50% calculated? I mention above that the discount is 15% which means that the return to the dealer is 21% on what the manufacturer charges them. Fifty percent as a discount is high but 50% as a return on a sale is not extreme; this requires a discount of 33.3% which is fairly typical for what manufactrers offer their dealers on lower cost items.

Regarding buying ex-factory I think you will find a lot of manufacturers will never go for this. The very reason they offer discounts to their dealers is so the dealers take all the hassle of dealing with customers. Also do you really think you would be better off with independent maintenance technicians who will probably have little clout with the factory and never hold the hope that they can make 50% in the future selling you a new machine if they treat you well.

[thinkingcnc]

Thankyou geof. So in the case of a machine being sold by an agent to his customer for £150,000+taxes, the agent could be making £50,000 gross profit. I suppose the customer will never know how much of his money goes to the agent especially when the agent isn't obliged to tell.

I know the agent has to do a lot of work in selling the machine, e.g., shows, trips, advertising etc.. but a 50% markup on such a high price still seems excessive.

I was under the impression that the agent got a small percentage and made the majority of his money from after sales care, as in the car industry. I had no idea that the commission percentage was so high.

[Geof]

Thankyou geof. So in the case of a machine being sold by an agent to his customer for £150,000+taxes, the agent could be making £50,000 gross profit.....

Not necessarily.

You said "up to 50%" and I made the point is the 50% applied to the full machine value or is that what applies to the lower cost items, options, parts etc?

I do know that some dealers get a 15% discount which I pointed out is equivalent to 21% gross profit which is not extreme; there are a lot of other expenses in addition to the three you mentioned, behind the scenes office staff, rent/mortgage on premises, insurance, purchase of maintenance equipment/tools/vehicles.

I know "The Middleman" is often accused of ripping off too much between the manufacturer and customer but as a manufacturer I know they save me a great deal of hassle and expense. Actually without them the manufacturer would probably have to incur a whole slew of expenses related to managing sales and would then have to bump up the machine price.

[NC Cams]

THe buyer doesn't want to pay the middleman's markup but the buyer may nave NO problems seeing a 50% gross profif on something thaty make. Classic short hands/deep pockets sort of deal.

The machine dealer has to spot some machines on his floor for "display". Some are spotted by the factory, some are "floor planned" /bank financed ala a "lease to buy" sort of deal. THus you can come in, see it run, you know, tire kick. SOmebody pays for that and it is the buyer.

GOOD dealers provide service. THey stock the spares, and these too are financed SOME HOW.

Essentially, when the taker takes/makes hos mark up at selling time, that is only part of the sale. SOMe warratny is not well reimburese by the factory. Somebody has to pay, some time. Some warrenties come out of the purchase price of the machine. Somebody has to pay.

I"ve learned not to be too pickly and critical of what anyone makes and where they make it in a transacition. Worrying about who makes what and when is simply not productive. LIve is simply too short.

[thinkingcnc]

Geof: Yes, I agree. The middleman does provide an important role. The only problem now is, I don't know how much the agent is getting so my mind is open to conspiracy theories of high percentages.

Hi and thanks NC Cams. Yes, I shouldn't concern myself about commissions. What I should do is research all manufacturers and all their models and compare like for like quotes. This is O.K. in theory but a problem occurs when I like a machine but am forced to buy it through a company that I do not feel comfortable with. I have begun to consider the possibility of dealing direct and it's implications. I will investigate further when the manufacturer re-opens in the new year.

You mention warrantees. After reading 'terms and conditions' I was very surprised to find they are not worth as much as I was lead to believe. Could anyone point me to a discussion on warrantees?

[Dakota Kid]

Hello,

I thought your thread was interesting so I thought I would pipe in. I was a design engineer for about 15 years and and have been in sales for about 6. In most cases, manufacturer's try to obtain a 35 - 40 gross margin on there products (gross being the key). In sales of products, the company or reseller tries to get a 30 to 50 % gross margin. This does not mean the company or rep is getting rich. Everyone is taking a chunk including the goverment (which in turn pays for roads, police, etc.).

Of the 50 % gross profit, 5 - 10 % will go to the sales rep (which in turn he gets to pay tax on). The company that employs the sales rep will make if they are lucky, 2 - 5 % of his total gross sales if the sales rep has a very good year. If a sales rep sells say 20 machines a year with an average of 2000 hours in a year, that means his commission is paying him for 100 hours of work. For the most part, the rest goes to sales overhead costs like Travel, meals while traveling, trade show costs (not cheap). It also has to pay for people who are not selling or are directly billable like accountants, payroll clerks, secretary's, etc. If the sales rep has a bad year, the company looses money on him. Many reps including myself take 2 to 3 years before they become profitable for a company.

Bottom line is that when I was an engineer I was like the rest and tried to work everyone to the last nickel. I have realized in my semi old (and wiser) age, that if a company is not able to make a profit and many don't, they will not be there to provide good service in the future.

[Geof]

........ if a company is not able to make a profit and many don't, they will not be there to provide good service in the future.

I think part of the problems is semantics. We refer to 40% or 50% Gross Profit which in a way is nonsense because it is not profit but that is the more or less conventional term. I prefer the term gross margin because that better describes the difference between what you pay for something and what you get when you sell it. Out of gross margin comes all the expenses several of us have listed and that leaves net margin; which is more or less synonymous with net profit before taxes. Real profit is what is left over after taxes and that is often only a very small portion of the 'gross profit'.

[thinkingcnc]

Hello Dakota Kid. You have confirmed what I suspected.

Geof: 'Gross profit and net profit' vs 'Gross margin and net margin'. I think this is probably a cultural difference between us Brits and you Americans. I don't know anyone in the UK who talks about 'margins'. Although, I do understand and agree with you.

[Geof]

.Geof:.. 'Gross profit and net profit' vs 'Gross margin and net margin'. I think this is probably a cultural difference between us Brits and you Americans....

Hey, you; lookee in upper right corner of posts, second line down.

[Adobe Machine]

Most likley I should not get involved in this discussion because of strong,strong feelings about "Profit","Markup","margin", ect..I just gotta tell you it is tough, tough out "there" for the Machine Shop/Manufacture to make a "Profit".(thats to make enough $$ to open your shop next week)

There is some notion that if a shop looks like it is doing "well" (ie, the owner bought a new pickup last year), that every one has a claim on that money, to include marginal employees,state agencies,the Federal Goverment, ex wives of employees,I could go on, but won't.

Unless there is an unusual situation,most "Small Business Owners" take home , in their pocket less than 5 %to 8 % of total business GROSS...In fact, if they correctley factor in their time/expertise it may come to -. I do admit there are exceptions ( highly trained, educated, or family financed business) that may exceed the above numbers.But those business that operate in the USA are finding that just to keep up with city,state,federal regulations/taxes/employee regulations can become overwhelming!

I never tried to evaulate a suppliers profit, if they gave us good service, did not lie about their product (warrenty)then it was easy to do business with them.I could either afford their product/service or not. That was my decision.

And since I've retired it has gotten worse..I still talk with owners in our business, the horror stories continue..its real tough to make a deceant living as machine shop ownerManufacture. And there are those that are out there that question $/hr plus costs to operate? Let them put thousands of their dollars in equipment,sweat 15-20 hr days, deal with customers that are absolute crooks, deal with employees that lie,cheat and steal from you..hey its fun

Enough said

Adobe (old as dirt,wife says I smell like dirt too)

[thinkingcnc]

Hi Adobe: I agree with you. I don't mind paying commission and I appreciate all the hardwork that the middleman has to do but what I do mind is when they try and hide what commission they will receive on a sale. It's my money and I want to know where it is going.

Knowing what commission a salesman is earning on any product is a good indicator to the customer to whether the salesman is selling you the product because it is good or because they earn the most commission on it.

In the UK when someone sells you insurance or a pension the client has a right to know what commission they are earning. I have found this extremely useful on several occassions.

[Geof]

... what I do mind is when they try and hide what commission they will receive on a sale. It's my money and I want to know where it is going.....

No it isn't, it is my money as soon as you have paid it over to conclude the purchase. Frankly it is no business of yours how the purchase price is divvied up; you have the choice of not buying.

[thinkingcnc]

Geof: Yes, when I have handed over the money the deal is made and it is too late to ask questions but before this time the saleman is desperate for a sale and has to give me an answer even if it is a lie. Knowing how the saleman makes his money is important to me because if he doesn't make it on the sale of the machine then he must make it on the sale of spares. It also gives an indication of the relationship between the manufacturer and the salesman. It will tell me if the salesman is employed directly by the manufacturer or is self employed. Also, once I have purchased this machine I will effectively be tied into a relationship with the salesman, or his company, for the life of the machine as he will hold the franchise so I really need to know everything.

I agree that earnings are private and you can't go round willy nilly asking people what they earn but when a salesmen is making a large amount of commission on a deal he is making with you then I think there is an argument for him to disclose this information as in the way financial advisors have to.

[PEU]

Geof: Yes, when I have handed over the money the deal is made and it is too late to ask questions but before this time the saleman is desperate for a sale and has to give me an answer even if it is a lie. Knowing how the saleman makes his money is important to me because if he doesn't make it on the sale of the machine then he must make it on the sale of spares. It also gives an indication of the relationship between the manufacturer and the salesman. It will tell me if the salesman is employed directly by the manufacturer or is self employed. Also, once I have purchased this machine I will effectively be tied into a relationship with the salesman, or his company, for the life of the machine as he will hold the franchise so I really need to know everything.

I agree that earnings are private and you can't go round willy nilly asking people what they earn but when a salesmen is making a large amount of commission on a deal he is making with you then I think there is an argument for him to disclose this information as in the way financial advisors have to.

Its none of your business to know the profit centers of the salesman or his company, they are not your financial advisors, they are talking to you because you contacted them to purchase an item.

You like the price/company/salesman/the front door flowers/whatever you purchase, if you dont, then you don't purchase...

You still want margin/profit related answers, well, you were right, you will probably hear a lie...

I don't see your method the best way to establish a vendor/customer relation...
You want a good price? walk around, get quotes for the same machine from different vendors and tell them you will do this, so they know if they don't give you their best price, maybe their competitor will...

My 2 cents


Pablo

[thinkingcnc]

You want a good price? walk around, get quotes for the same machine from different vendors and tell them you will do this, so they know if they don't give you their best price, maybe their competitor will...

Hi peu. I wasn't aware you could get the same machine from different vendors. As far as I'm aware in the UK there is only one vendor for each manufacturer in a given area. This is the problem I'm facing. If I like the machine but don't like the vendor for my area then I can't have the machine.

[Geof]

I think some manufacturers sell their machines through competing vendors many do not so you are stuck and have to deal with their exclusive vendor.

Even in this case I think you are not realistic in thinking the salesman, or whoever, should disclose any financial information to you other than the purchase price for the machine. If you don't like the business practices of a certain manufacturer/vendor don't do business with them; if you are really set on getting a particular make and model of machine then pay the price.

[thinkingcnc]

Yes, I did have my heart set on a particular machine but since coming on this forum I have found another manufacturer that looks promising. I will not be asking what commission they earn because with this vendor, I can see how they earn their money and how they operate.

When a company is basically made up of a group of representatives operating from their home addresses it is far more difficult to work out how the company works.