Retailers Margins

[wasy]

Does anyone have any idea what kind of margins retailers typically make on cigars when the sell them for MSRP? I'm curious how certain vendors can run specials on cigars and offer upwards of 30% off MSRP on a consistent basis.

I've got no axe to grind here nor am I in any way involved in the cigar business it just amazes me how they do it.

 

[Cigahs]

It's not uncommon for MSRP to be double wholesale price. But it's not necessarily the norm, either.

 

[Tapewormboy]

I asked a similar question once on another cigar forum and it wasn't received so warmly.

As Cigahs stated, the general rule is that the MSRP price is 2x the price that the vendor paid.

 

[ilcchef2]

Keystone

 

[Jack Straw]

Keystone

Plus your state's tobacco tax.

 

[cookie_1978]

I agree with everyone - Keystone plus sales tax.

 

[wasy]

I agree with everyone - Keystone plus sales tax.

Way over my head! Keystone?

 

[grateful1]

Dangit Wasy... now I strained my neck!

Oh - to answer your question..yes.

 

[StinkiMonki]

I agree with everyone - Keystone plus sales tax.

Way over my head! Keystone?

Keystone is 2x the whosale price. Pretty standard on most items in a shop. You get above keystone and build some more profit margin on things like higher end humidors, nice cutters and lighters. Cigar shops "usually" take the whosale value, add their state tax, then double the total to arrive at the retail price. This isn't for every cigar, but is the most common. It gets a bit different with cigars in demand, just like gasoline.

Stink

 

[Smoking Mex]

Does anyone have any idea what kind of margins retailers typically make on cigars when the sell them for MSRP? I'm curious how certain vendors can run specials on cigars and offer upwards of 30% off MSRP on a consistent basis.

I've got no axe to grind here nor am I in any way involved in the cigar business it just amazes me how they do it.

Again wasy your sig tag makes everything else irrelavant. :blush: Why don't I ever get to see any broads like that in real life? :love: ??? Getting back to your question it seems to be in line even out here in California, even though many reatilers still cry the blues over the state tax.

 

[Newfie]

Again wasy your sig tag makes everything else irrelavant. :blush: ....snip

I second the motion!!! :love:

snip....Getting back to your question ....snip

Ummmmm, there was a question?? :blush:

 

[Cigahs]

I agree with everyone - Keystone plus sales tax.

Way over my head! Keystone?

Keystone is 2x the whosale price. Pretty standard on most items in a shop. You get above keystone and build some more profit margin on things like higher end humidors, nice cutters and lighters. Cigar shops "usually" take the whosale value, add their state tax, then double the total to arrive at the retail price. This isn't for every cigar, but is the most common. It gets a bit different with cigars in demand, just like gasoline.

Stink

This annoys me to no end. I've seen shops do this and have not been shy in telling them that this practice not only inflates the price of their cigars but takes them out of contention to compete against people that don't charge the tax at all when shipped into the state.

The proper way to calculate the price of a cigar is to take the wholesale price, keystone it (x2, assuming it's a keystone SRP) and THEN add the tax they paid the state. Doubling the $$ after taxes are paid, IMHO, is profiting off the tax. But maybe that's just me.

 

[Gator]

I'd say they price it to the degree they need to make enough margins to make their investment a sound one, and i'd guess every market is different, and every store in that market is different. If you have to inventory product for 30-90 days, or more, a 50% margin (double the cost) is ver reasonable. Small retail businesses are brutal these days, i know from owning a couple (not tobacco stores), it's a struggle to scratch out a living.

 

[Cigahs]

I'd say they price it to the degree they need to make enough margins to make their investment a sound one, and i'd guess every market is different, and every store in that market is different. If you have to inventory product for 30-90 days, or more, a 50% margin (double the cost) is ver reasonable. Small retail businesses are brutal these days, i know from owning a couple (not tobacco stores), it's a struggle to scratch out a living.

Perhaps so.. But the tax you pay on top of your 'investment' is not an investment. It's tax. Why profit off of it and scare away your customers?

 

[StinkiMonki]

Cighas, you make a very acurate argument for not adding the taxes into the retail price. Let's see the difference, at least for California.

Wholesale cost of box of cigars (20 ct): $89.00
California tax rate: 45.13% of wholesale value

Scenario 1: Adding Tax into Price

89.00 x .4513 = 40.16
40.16 + 89.00 = 129.16
129.16 x 2(keystone) = 258.32
258.32 / 20 (box count) = 12.91

$12.91 is the price, probably marked up to 12.95 or down to 11.95 when put on the shelf.

Scenario 2: Determine Retail Price then add tax

89.00 x 2 = 178.00
178 / 20 = 8.90
89 x .4513 = 40.16
40.16 / 20 = 2.00
8.90 + 2.00 = 10.90

$10.90 is the price, but again probably mark this one up to 10.95 when put on the shelf.

So at least on this box, the customer is saving about $1 per stick. That certainly adds up. It would certainly add up on some of the more expensive cigars.

I'd be curious to know what some of the other vendors here are doing, especially in states with a high tax rate.

Stinki

 

[Cigahs]

Cighas, you make a very acurate argument for not adding the taxes into the retail price. Let's see the difference, at least for California.

Wholesale cost of box of cigars (20 ct): $89.00
California tax rate: 45.13% of wholesale value

Scenario 1: Adding Tax into Price

89.00 x .4513 = 40.16
40.16 + 89.00 = 129.16
129.16 x 2(keystone) = 258.32
258.32 / 20 (box count) = 12.91

$12.91 is the price, probably marked up to 12.95 or down to 11.95 when put on the shelf.

Scenario 2: Determine Retail Price then add tax

89.00 x 2 = 178.00
178 / 20 = 8.90
89 x .4513 = 40.16
40.16 / 20 = 2.00
8.90 + 2.00 = 10.90

$10.90 is the price, but again probably mark this one up to 10.95 when put on the shelf.

So at least on this box, the customer is saving about $1 per stick. That certainly adds up. It would certainly add up on some of the more expensive cigars.

I'd be curious to know what some of the other vendors here are doing, especially in states with a high tax rate.

Stinki

Working a 5 state territory, with 2 of them being 'high tax' states (NY,NJ), I've seen the former scenario far too often. Based on your numbers, the calculation actually inflates the 'Suggested' retail price by $2. The funny part is that the people doing this are the squeakiest wheels when it comes to competing with discounters (online & off).

My point is simple. The state excise tax is a wash. To tack it on to your cost of goods and multiplying it by whatever variable is gouging and those that engage in the practice should not be surprised when their customers complain about their prices.

Humberto

 

[NorCalCigarLover]

Interesting discussion here ...... thanks for the information guys. Now, who has a box of WOAM's they can sell me at wholesale

 

[Tenpin]

Cighas, you make a very acurate argument for not adding the taxes into the retail price. Let's see the difference, at least for California.

Wholesale cost of box of cigars (20 ct): $89.00
California tax rate: 45.13% of wholesale value

Scenario 1: Adding Tax into Price

89.00 x .4513 = 40.16
40.16 + 89.00 = 129.16
129.16 x 2(keystone) = 258.32
258.32 / 20 (box count) = 12.91

$12.91 is the price, probably marked up to 12.95 or down to 11.95 when put on the shelf.

Scenario 2: Determine Retail Price then add tax

89.00 x 2 = 178.00
178 / 20 = 8.90
89 x .4513 = 40.16
40.16 / 20 = 2.00
8.90 + 2.00 = 10.90

$10.90 is the price, but again probably mark this one up to 10.95 when put on the shelf.

So at least on this box, the customer is saving about $1 per stick. That certainly adds up. It would certainly add up on some of the more expensive cigars.

I'd be curious to know what some of the other vendors here are doing, especially in states with a high tax rate.

Stinki

Working a 5 state territory, with 2 of them being 'high tax' states (NY,NJ), I've seen the former scenario far too often. Based on your numbers, the calculation actually inflates the 'Suggested' retail price by $2. The funny part is that the people doing this are the squeakiest wheels when it comes to competing with discounters (online & off).

My point is simple. The state excise tax is a wash. To tack it on to your cost of goods and multiplying it by whatever variable is gouging and those that engage in the practice should not be surprised when their customers complain about their prices.

Humberto

First, let me state that my pricing is MSRP plus state tobacco taxes. As said earlier, MSRP is generally (but not always) keystone.

In defense of those retailers who make a margin on the taxes (and I don't), you do have to realize that the state tax is considered a "Cost of Goods", as it it levied and paid on inventory when it arrives, not when it is sold. If the tax were to be paid on sale, then I would agree that this is gouging, but for a retailer trying to make margin on his costs, this would make sense.

Of course, with the internet retailers avoiding the state taxes, I can't justify charging my customers double the state tax.

Jim

 

[StinkiMonki]

Cighas, you make a very acurate argument for not adding the taxes into the retail price. Let's see the difference, at least for California.

Wholesale cost of box of cigars (20 ct): $89.00
California tax rate: 45.13% of wholesale value

Scenario 1: Adding Tax into Price

89.00 x .4513 = 40.16
40.16 + 89.00 = 129.16
129.16 x 2(keystone) = 258.32
258.32 / 20 (box count) = 12.91

$12.91 is the price, probably marked up to 12.95 or down to 11.95 when put on the shelf.

Scenario 2: Determine Retail Price then add tax

89.00 x 2 = 178.00
178 / 20 = 8.90
89 x .4513 = 40.16
40.16 / 20 = 2.00
8.90 + 2.00 = 10.90

$10.90 is the price, but again probably mark this one up to 10.95 when put on the shelf.

So at least on this box, the customer is saving about $1 per stick. That certainly adds up. It would certainly add up on some of the more expensive cigars.

I'd be curious to know what some of the other vendors here are doing, especially in states with a high tax rate.

Stinki

Working a 5 state territory, with 2 of them being 'high tax' states (NY,NJ), I've seen the former scenario far too often. Based on your numbers, the calculation actually inflates the 'Suggested' retail price by $2. The funny part is that the people doing this are the squeakiest wheels when it comes to competing with discounters (online & off).

My point is simple. The state excise tax is a wash. To tack it on to your cost of goods and multiplying it by whatever variable is gouging and those that engage in the practice should not be surprised when their customers complain about their prices.

Humberto

First, let me state that my pricing is MSRP plus state tobacco taxes. As said earlier, MSRP is generally (but not always) keystone.

In defense of those retailers who make a margin on the taxes (and I don't), you do have to realize that the state tax is considered a "Cost of Goods", as it it levied and paid on inventory when it arrives, not when it is sold. If the tax were to be paid on sale, then I would agree that this is gouging, but for a retailer trying to make margin on his costs, this would make sense.

Of course, with the internet retailers avoiding the state taxes, I can't justify charging my customers double the state tax.

Jim

I'm enjoying this discussion. Sometimes businesses just do something the learned from previous experiences and just accept them as the way business is done. While it's not rare for a customer to say something about a price, it is rare to have someone point out how the setting of the price is bunk and why.

In California we pay the state tax on the sale of the items. However, some companies we order from pay the tax when they sell it to us, thus passing it down in the invoice price with a statement that taxes are paid already. But, if I order from certain out-of-state companies they don't include the tax. It is on those cigars that I pay the state tax when I sell them.

Besides meeting some new friendly smokers, I'm also now getting some great ideas to incorporate into the busines. I appreciate that fellas.

Stinki


edited for spelling

 

[Gator]

I'd say they price it to the degree they need to make enough margins to make their investment a sound one, and i'd guess every market is different, and every store in that market is different. If you have to inventory product for 30-90 days, or more, a 50% margin (double the cost) is ver reasonable. Small retail businesses are brutal these days, i know from owning a couple (not tobacco stores), it's a struggle to scratch out a living.

Perhaps so.. But the tax you pay on top of your 'investment' is not an investment. It's tax. Why profit off of it and scare away your customers?

How they reach their pricing is not my concern, and if stores are too high, i go elsewhere, i guess it's called Capitalism.