Becoming an equipment dealer

[Daniel Postilnik]

It's my understanding that you have to buy a certain amount from a manufacturer in order to secure "dealer cost," and you have to keep buying that amount every year to maintain the dealership.
How much of the gear that you buy ends up getting sold and how much enters your rental inventory?
Is it more than just a way to subsidize significant expansions to your rental fleet?
How do you decide when/why it's the right time to go this route?

I've always been curious about this process and I know a lot of members on here have this kind of arrangement, from small companies to large. Any input appreciated.

 

[Milt Hathaway]

Re: Becoming an equipment dealer

You've got the dealer/manufacturer side figured out, except they'll also require you to have a legit business. A storefront is usually necessary, as is all the proper sales tax/business license/DBA paperwork.

As far as how the equipment is distributed once the manufacturer has shipped it, some of that depends upon the manufacturer's dealer agreement. Some will want to tightly control your market (no cross-sales to other dealers, etc.), while others won't care so long as you meet their annual minimums. Also, some manufacturers will only deal with you through regional manufacturer's rep firms. However, these firms will help you get those dealer agreements underway and will support the relationship you have with the companies they represent.

 

[Daniel Postilnik]

Re: Becoming an equipment dealer

Milt, this certainly explains what it's like being a dealer, but my questions pertain more to how one incorporates being a dealer into an existing event production infrastructure.

 

[Milt Hathaway]

Re: Becoming an equipment dealer

Milt, this certainly explains what it's like being a dealer, but my questions pertain more to how one incorporates being a dealer into an existing event production infrastructure.

Well, I think your clentele are the ones who will determine that. Do you do installs? Have a storefront with walk-in retail business? A manufacturer's primary concern is how their dealers will support the end users. From my experience they don't care whether that "end user" is the dealer's customers or the dealer themselves.

My customers (both retail and rental) determine my inventory choices (both retail and rental). There is no magic formula beyond having what the customer wants when they want it.

 

[Daniel Postilnik]

Re: Becoming an equipment dealer

My customers (both retail and rental) determine my inventory choices (both retail and rental). There is no magic formula beyond having what the customer wants when they want it.

Everything you say is totally sensible. However, it doesn't really treat my underlying assumption here--that it is standard practice for rental companies to develop a sales wing for the primary purpose of expanding their event production capabilities, not because they actually sell very much equipment, and that the dealership agreements they do secure have more to do with where they want to go with their production inventory, which, in a manner of speaking, is what the customer wants, but not in the same way as stocking a sales inventory. Also, it seems that for most dealers having an appropriately advertised "online store" is a suitable replacement for brick and mortar.

 

[Silas Pradetto]

Re: Becoming an equipment dealer

I become a dealer for any product line that I buy enough of to warrant going direct. Usually, this needs to be several thousand dollars a year or more. Other lines that I don't buy as much of, I buy from other dealers on SFN that give me good deals.

Most vendors give better discounts to bigger orders, so sometimes I'll wait until a few friends want gear from the same supplier I need things from, and then we'll place a big order at a good price.

I sell pretty much zero product to anyone other than local friends and people on SFN. No one calls me out of the blue asking for speakers, etc.

I've never been dropped as a dealer for not maintaining an annual minimum, but for just about all the lines I sell I dramatically exceed the quotas.

A major reason for becoming a dealer is the relationship with the manufacturer - service and support are key. If I buy product XYZ from Guitar Center or some random online store, and it breaks at a show, who do I call? Guitar Center? Let's assume it was a non-stock product. Am I really going to wait for them to order it, or take mine and have it switched or fixed? Absolutely not. If I'm a dealer, I'm one call away from the manufacturer or rep. In most cases I have a cell phone number for emergencies. I can have a new piece of gear in hours or a day if I need it. Also, getting parts is easy if I can just call the manufacturer. Places like Guitar Center are going to have a hard time ordering non-stock and non-SKU parts for gear.

Also, if I'm doing an install, I will only install gear that I'm a dealer for, so the customer gets full factory warranty as they bought the system from an authorized dealer.

 

[Tim McCulloch]

Re: Becoming an equipment dealer

Milt, this certainly explains what it's like being a dealer, but my questions pertain more to how one incorporates being a dealer into an existing event production infrastructure.

You don't. Retail is a completely separate thing and requires having someone on your staff who really likes to sell stuff. You will need a showroom to display and demonstrate equipment, you will need regular business hours, too. IOW, you need to be the kind of place you'd go shop.

 

[Daniel Postilnik]

Re: Becoming an equipment dealer

You don't. Retail is a completely separate thing and requires having someone on your staff who really likes to sell stuff. You will need a showroom to display and demonstrate equipment, you will need regular business hours, too. IOW, you need to be the kind of place you'd go shop.

I become a dealer for any product line that I buy enough of to warrant going direct.

I sell pretty much zero product to anyone other than local friends and people on SFN. No one calls me out of the blue asking for speakers, etc.

What about everything Silas just said?

 

[W. Mark Hellinger]

Re: Becoming an equipment dealer

However, it doesn't really treat my underlying assumption here--that it is standard practice for rental companies to develop a sales wing for the primary purpose of expanding their event production capabilities, not because they actually sell very much equipment, and that the dealership agreements they do secure have more to do with where they want to go with their production inventory, which, in a manner of speaking, is what the customer wants, but not in the same way as stocking a sales inventory. Also, it seems that for most dealers having an appropriately advertised "online store" is a suitable replacement for brick and mortar.

I'm of the impression that some (or many) manufactures offer "contractor dealerships". I'm of the understanding that "contractor dealerships" generally don't require a showroom or minimum levels of stocked inventory, but may include a healty opening order. Also, I believe that generally these "contractor dealerships" contain explicit wording precluding undermining of the local retail dealership's market.

 

[Tim McCulloch]

Re: Becoming an equipment dealer

Silas lives somewhere a manufacturer didn't already have a dealer, perhaps? It's also possible that things have changed since we had our bitter separation from one or more of the Harman companies. We still buy and use their products but not as a dealer.

Our experience was that keeping up with the minimum annual commitment purchase for 5 or 6 major lines of equipment, back in 2001 when the economy took a major shit after the World Trade Center attacks, wasn't possible and the products we were selling suddenly had zero demand (installed gear was already ordered, new construction stopped, and our internal purchases for production inventory stopped with the cancellation of our entire 4th quarter calendar). The Harman companies were not pleased and within 90 days demanded we fulfill our purchase commitment. We couldn't, and they cancelled our dealer agreements. That was after investing in showroom, display/demo inventory and salesman training.

Perhaps things are different now and manufacturers will sign up anyone with an open checkbook, but our experience led to the conclusion that it's easier and more productive to establish long term relationships with suppliers who will give us first-column dealer pricing when our orders help them get end-column pricing. We are dealers for the stuff that moves fast, often, and MAKES A PROFIT ON EVERY SALE, not just discounts the cost of production inventory.

YMMV.

 

[Silas Pradetto]

Re: Becoming an equipment dealer

Silas lives somewhere a manufacturer didn't already have a dealer, perhaps? It's also possible that things have changed since we had our bitter separation from one or more of the Harman companies. We still buy and use their products but not as a dealer.

Our experience was that keeping up with the minimum annual commitment purchase for 5 or 6 major lines of equipment, back in 2001 when the economy took a major shit after the World Trade Center attacks, wasn't possible and the products we were selling suddenly had zero demand (installed gear was already ordered, new construction stopped, and our internal purchases for production inventory stopped with the cancellation of our entire 4th quarter calendar). The Harman companies were not pleased and within 90 days demanded we fulfill our purchase commitment. We couldn't, and they cancelled our dealer agreements. That was after investing in showroom, display/demo inventory and salesman training.

Perhaps things are different now and manufacturers will sign up anyone with an open checkbook, but our experience led to the conclusion that it's easier and more productive to establish long term relationships with suppliers who will give us first-column dealer pricing when our orders help them get end-column pricing. We are dealers for the stuff that moves fast, often, and MAKES A PROFIT ON EVERY SALE, not just discounts the cost of production inventory.

YMMV.

Many good points here. I am a contractor dealer for a couple lines, but I don't remember which. Harman doesn't do 'contractor' or 'regular' dealers, as far as I know. Just recently (like the end of last year), all the Harman brands went from being individual dealerships to one larger 'Harman' dealership, with a combined central office, instead of many separate offices. This is really nice because now the free freight and discount programs can run across different lines; before, Crown would have different promotions than JBL, etc.

I do live and work in the middle of nowhere, so there really aren't any dealers or sound companies anywhere near me. There is no market anywhere near me either, so I'm not sure being the only guy around is actually any sort of advantage.

I don't have a showroom and I never did. I don't even have an online store; after much market analysis, there is no way to run an online store and be competitive with the 'big brands' because online markets are not price markets (MAP), they're essentially SEO markets. So I can't compete. I have no idea how NSL sells below MAP and doesn't get dropped by everyone.

I used to keep some stock when I had a warehouse, but I went through a downsizing phase last year and now run much leaner and make a LOT more money. I place large orders and might have stock for a month, but not much more than that at a time.

When I first started out, I was working out of a friend's basement. When the first rep came out and saw my operation, I think he was pretty skeptical; I was barely 18. But when I declared that I needed $6000 of speakers and had the money ready, that made things happen. Now, any rep I meet with knows within about two sentences that I mean business, and that they're only going to make commission by signing me up.

Like Tim said, it doesn't make sense to become a dealer for everything. I'd much rather give my small orders to another dealer that can give me really good pricing, like Mike Pyle, so he can place a big order and get even better pricing. And it seems like many on SFN do the same for me.

 

[John Roberts]

Re: Becoming an equipment dealer



We are watching a moving playing field.. back in the good old days dealers were actual stores with physical store fronts, and inventory in a warehouse, and a repair/service support staff, and.........

But the market has been changing for about as long as I can remember... Away from the old school established dealers to more modern sales channels.

Another point of confusion is that small companies are hungrier so will sell to anybody with a pulse and money (and the pulse is optional), while large established manufacturers will (usually) have more long term respect for their distribution channel (ignoring Langston's recent fun with yamaha).

I will keep this unusually short for me, since most of what I know first hand is more than a decade old and surely different by now...

Good luck...

JR

PS: there is a reason I sell direct... to avoid dealing with all the whores (sorry), i mean dealers who have little interest in managing the street price of my product, and routinely don't carry any inventory of my product, simply marking up a pass-through transaction a thin slice above their cost basis for the very quick turn on that piece. In fact if it is pre-sold they may have zero cash outlay in the transaction for pure profit and even less reason to protect their operating margin with my product's price. I realize I will eventually need to use distribution to reach the larger market, and give the dealers payment terms too, but not yet. I know too much about how they operate. Sorry if this sounds cold, been there done that.

 

[Brad Weber]

Re: Becoming an equipment dealer

Dealer agreements can differ from one manufacturer to another. Some may require minimum annual purchase commitments or even maintaining certain minimums of demo gear and/or inventory. Some may set up non-stocking dealers through distributors. Some may have geographic limitations or non-compete clauses. And some may sell to anyone with a heartbeat and a valid credit card, the heartbeat may even be optional.

There can also be other implications, for example does your state tax equipment sales but not service sales? Do you need to run parallel inventory and accounting to separate sales inventory and income from your rental inventory and income?

I once worked for a company that was involved in manufacturing, box sales, rental and contracting. Each group operated pretty much as an independent operation with shared administrative support and management and when I started there everything was under one roof. However, by the time I left that company the manufacturing aspect had split off into multiple independent companies, the rental division was completely independent in everything other than ownership and the box sales had morphed into inside and specialized vertical market sales. The needs and markets for each aspect were so different that there were limited advantages, and numerous disadvantages, to keeping them together.

Based on that experience, I believe that many production companies that sell equipment may do so for one or more of the following reasons:

1. It allows them to work with their clients in purchase versus rental decisions in a way that can be mutually beneficial (and that keeps the client from looking elsewhere).

2. It allows them to potentially take advantage of quantity or other special pricing for their rental inventory. You may not need 20 (or whatever number) amplifiers that would get you the quantity pricing but if you need 12 and can sell 8, then that can work to your advantage on the rental/production side.

3. It allows them to make or keep contacts through equipment sales that they can then try to leverage into additional production work (and vice versa).

4. They are somehow able to share some resources in a manner that benefits both the equipment sales and rental/production sides.

 

[Ivan Beaver]

Re: Becoming an equipment dealer

.

Our experience was that keeping up with the minimum annual commitment purchase for 5 or 6 major lines of equipment, back in 2001 when the economy took a major shit after the World Trade Center attacks, wasn't possible and the products we were selling suddenly had zero demand (installed gear was already ordered, new construction stopped, and our internal purchases for production inventory stopped with the cancellation of our entire 4th quarter calendar). The Harman companies were not pleased and within 90 days demanded we fulfill our purchase commitment. We couldn't, and they cancelled our dealer agreements. That was after investing in showroom, display/demo inventory and salesman training.

.

We were a (note the "were") a dealer for several of the Harmon family members. We were purchasing a number of products (not a whole lot-but "enough") from a particular manufacturer. Then one year we had an install job that used a large number of that companies products-and our yearly numbers went up quite a bit-several hundred percent.

The next year we were expected to do a certain percentage higher number than the previous year. Since the previous year was not part of our normal sales numbers-we were not able to top that years sales.

So we were dropped as a dealer. All because one year we had much better than average sales numbers. So we were punished for selling more product. Go figure.

Strange how things work out-or what some companies expect.

 

[RYAN LOUDMUSIC JENKINS]

Re: Becoming an equipment dealer

Another thing to consider is that there are regional rep companies that will sell to legitimate businesses that are unable to meet the minimum sales numbers. These companies will usually sell to legitimate companies at dealer cost but you will not be afforded special incentives suck as end lot pricing or quick pay discounts but they have their place in the industry and can really help a lot of the smaller companies with the purchasing power..

 

[Brian jojade]

Re: Becoming an equipment dealer

Another thing to consider is that there are regional rep companies that will sell to legitimate businesses that are unable to meet the minimum sales numbers. These companies will usually sell to legitimate companies at dealer cost but you will not be afforded special incentives suck as end lot pricing or quick pay discounts but they have their place in the industry and can really help a lot of the smaller companies with the purchasing power..

Getting dealer agreements for the first purchase is usually pretty easy for many manufacturers, but if you can't make the volume, they can cancel you for the next year. Now, you can think that you'll be able to sell a ton of gear at list price and make a killing, but in reality, anyone that buys a decent volume is already set up as their own dealer. So now you're stuck selling to those that need a lot of hand holding. They want you to have everything in stock so they can try it out, then they will shop online and pay $5 less for the same thing.

It's a very cutthroat business to break in to, and can be extremely stressful.

Now, working with the regional distributors is a way to get better pricing for yourself fairly easily as well as letting you sell when sales come along and still make a couple bucks. But the margins going that route would make it very difficult to fully run a standalone store.

As far as selling retail, that's a completely different game than providing sound. You simply can't do it just kind of and expect to make much at it. You might get a few sales here and there, but the overall effort do do that, collecting sales tax, etc, and your efforts might not even be minimum wage in the end.