You walk out of your local course pro shop with a receipt in your hand for $533.93 and a shiny new toy. You bought a driver, paid the tax and are making a beeline to the range with pocket full of hope and a bucket full of balls.
When it comes to understanding why your driver cost exactly what it did, chances are you’re one of three types of consumers.
Type 1 – You’re the Alicia Silverstone of consumers. You’re clueless and you’re good with that.
Type 2 – You’re a novice. You understand basic concepts of cost and profit, but you’re more interested in how the club performs.
Type 3 – Mr. Dangerous. You’ve worked in some sort of retail operation before so you’re pretty sure you’ve got this one nailed. Do you really?
Fortunately, we have the answers.
INFOGRAPHIC: THE TRUE COST OF YOUR DRIVER
*These are ballpark numbers. Things like adjustability (hyper-adjustability), carbon fiber or anything that adds to the complexity of the design can (and often does) raise the manufacturer’s per-head costs by an additional 30%-35%. Premium headcovers can also increase OEM production costs.
Depending on purchasing power and OEM incentives, dealer costs on the $500 driver are generally between $325 and $360. Some manufacturers offer volume discounts that boost retail margins, but to qualify, as the phrase volume discount implies, the retailer has to take on additional inventory.
Smaller companies like Tour Edge, Wilson, and Srixon generally offer retailers higher margins, while larger companies often keep a higher percentage for themselves. For a select few products, retail margins actually dip below 20%.
OEM’s want to get 45-60 points on each driver to help cover their operational costs. In this scenario that works out to something in the $175-$240 (sometimes a bit more) range per driver.
WHAT YOU SHOULD BE THINKING ABOUT NOW:
There’s always going to be a cost for raw materials and production and If/when costs go up because materials become more exotic (carbon crowns, movable weights, etc.) or costs of production increase (more intricate designs and more expensive tooling), expect the retail cost to go up by at least the same amount, because neither the manufacturer nor the retailer is going shoulder that cost and let it eat into their profits. Additionally, costs will vary from OEM to OEM depending on their size, bargaining power and the sophistication of the technology incorporated in that particular product.
Retail outlets, be it big-box (PGA Superstore) or your local green-grass account, rely on profit to fuel their operation. A starting point above 30% ($150 on a $500 driver) is achievable with some manufacturers, but this relationship can become quite a bit more complex.
Despite how it looks at a cursory glance, OEMs aren’t exactly getting rich under this model either. How many golf companies have been able to remain profitable over the last 5-7 years? Not as many as you think.
So where does that $240 go?
Think: Brick and mortar buildings, support staff (legal, customer service, sales, market analysts, R&D, management), marketing (commercials, print ads, contests) and tour staff/support (Free equipment…lots of free equipment).
$500 is a significant amount of money, but when you consider how many people are trying to eat off this single cow, no one is over-indulging. In fact, a more reasonable question is whether or not this current model is sustainable.
As always, please post your thoughts, comments and questions.
The numbers used in this article were obtained from a number of sources on both the manufacturer and retailer sides of the industry and represent general averages. Production, wholesale, and retail costs can differ significantly from manufacturer to manufacturer and product to product.