How Are Products Priced, Anyway?

September 29, 2009 By: zmatthews

You ever wonder how much money a manufacturer makes on a $100 product? How much of that goes to the fly shop? Outdoor gear is expensive, after all, so it’s a fair question.

Generally speaking, retail markup in the outdoor product industry is between 40% and 60%. That means a product you see on the shelf in a fly shop for sale for $100 probably cost the shop between $40 and $60 to buy themselves. Meanwhile, the manufacturer has to make money, too, and that means that whatever price the fly shop paid has been marked up significantly over the manufacturer’s cost to make the product. How significantly? Well…

Manufacturing costs vary widely (in fact one might say they range from “a little bit to quite a bit”) but a healthy figure that would keep most manufacturers in business is between 40% and 60% profit on any given product (in other words, the same markup as the fly shop’s). If you do the math backwards, that means a $100 product that has been marked up (by 40%) twice would cost the original manufacturer around $36 to “make.”

Breaking down what goes into that manufacturer’s cost is way harder, however. Manufacturers not only have to buy the raw materials for their products, then pay people to assemble them, but they must also design the products in the first place, market them, and ship them around the country (or world).

I’ve read some breathless estimates on fishing forums that the raw materials and labor in a $500 fly rod might cost as little as $25 or less. Larceny! Highway robbery! Grand theft fly rod!

It’s important not to get too worked up about a raw materials figure, though. Every fly rod has development costs. Every fly rod has shipping and marketing costs. And while it might be nice to always pay wholesale by ordering directly from your favorite retailer, it’s also nice to have a fly shop to go to for advice, instruction, and last minute tippet sales.

Based on the minimal number of fly shops who actually turn a profit in this country, and the dwindling number of manufacturers, it’s pretty safe to say that no one’s getting rich in fly fishing (especially right now). So when you see a $500 fly rod and feel that frisson of sticker shock run up your spine, keep in mind just how many people are surviving on that little shaft of graphite, and just how many competing pressures are at work in setting that price.
Do fly fishing gear prices make sense to you? Let us know in the comments section!