Wholesale (or is it Whoresale?) Pricing
Wholesale (or is it Whoresale?) Pricing
Not long ago I was browsing an on-line reptile classified web site and I came across the ad of a well-known reptile wholesaler. The ad was of the “want to buy” nature and he was offering to buy the entire breeding production that you have for sale. After saying that he wants your production he typed in bold characters, “WE ARE ONLY PAYING WHOLESALE PRICES.” Sadly, wholesale pricing in the reptile industry is often considered to be in the 50% off retail range (or more). As I finished reading the ad a few choice words came to mind regarding how I felt about its audacity. The brazen call for you to sell your production to someone else so they can make a profit equal to the person who did all the work (you) always gets me a little annoyed …almost as annoyed as I get at the idea that people regularly agree to the sale.
I have written more than once on the price of reptiles, ball pythons in particular. Please take a moment to read the forum post I made about snake prices (on faunaclassifieds.com) back in April 2009 (http://www.faunaclassifieds.com/forums/showthread.php?t=130559). After that, please read this post I made on my own site at around the same time (also regarding snake pricing) (http://ballpythonbreeder.com/2009/04/why-were-idiots-for-using-kingsnakecom-to-price-animals/). Discussions surrounding how much animals should sell for are circular at best as the value of a snake is arbitrary. What is right and what is wrong is ultimately irrelevant because no single individual can control what others do with their pricing.
Having said that we all need to understand that in the reptile business there are two basic mechanisms that determine the price of an animal: value and margin.
Value pricing is the type of pricing you set on an animal because you have an investment in its production. This usually means you produced the animal through breeding. When your product comes from your own breeding efforts you assign a value based on a variety of factors including (but not limited to), the amount invested in the parents, housing & caging, food, time spent, etc. Put simply, all of those factors create value. The production of the animal represents a lot of time, effort and money. Accordingly, you want to see a return on that investment and you price your animals in a way that allows you to accomplish that objective.
Compared to value pricing, margin pricing is simple. With margin pricing the sale price is not dependant upon any factor other than how much was paid for the animal. If a wholesaler/flipper can buy an animal for $50 they sell it for $100 even if the current value price is $150. If someone offers $75 they are likely to take it. In the best case their profit is 100% on the original investment. Even if they sell it for $75 after a $50 investment they still realize a 50% return. Either way, the return on their investment is impressive. This return is compounded by the fact that their production cost is $0. Take a moment to notice how the margin seller did not consider value when pricing the animal. Well, that’s not entirely true. The margin seller does consider the value price in the following ways:
- His acquisition price must be significantly lower than the current value price.
- The acquisition price must be sufficiently low to allow a margin price that is still significantly less than the current value price. This is necessary because the animals must be sold quickly, with as little maintenance as possible.
- The acquisition price must allow for a quick-sell margin price that still yields a 50-100% profit. The current culture of the reptile business does not support a flipper making only a 15-20% return. In fact, they scoff at the prospect of such returns.
Take a moment to picture two vendors at a reptile trade show. Both are selling similar animals. Seller #1 is you. The animals you are selling were produced by you through your own breeding efforts. You have a facility where you produced these animals and you have years invested in raising the parents, pairing them for breeding, incubating the eggs followed by a few months getting the babies established and ready for sale. You are proud of your animals and you are ready to earn a financial reward for your efforts. At the table next to you is Seller #2, a wholesaler/flipper. He did not produce any of the animals on his table. His arrived via FedEx the night before. He opened the bags last night to make sure the animals were alive but that’s it. He did not set them up in cages, did not feed them and did not give them water. The only investment he has in the animals is an invoice.
The show begins. People visit your table and comment on how beautiful your animals are but they do not buy. At the table next to you things are busy. Cash is trading hands. You visit Seller #2’s table and realize that he is selling the same animals as you but at a greatly reduced price. You don’t stand a chance at moving any of your production as long as his animals are priced that way. By the time the day is done you have not even made enough money to cover your tables fees and other costs associated with going to the show. You are frustrated. At the end of the show Seller #2, the flipper, comes by and offers you $3,000 cash for 10 animals that you value at $7,500. You now have two choices: go home having lost money or go home with $3,000. Seller #2 walks away with 10 new animals and you feel slightly sick to your stomach. But you did just make $3,000 and you still have a lot more animals back at the shop that you can sell for your value prices. By the time you get home you have successfully rationalized the transaction and are feeling good about the wad of cash in your pocket.
Here is what happens to you in the aftermath of the trade show:
- On the Tuesday after the show you post your remaining animals on an Internet classified site. You price them based on value.
- You decide to search the site to see who else is selling animals like yours and are horrified to see that Seller #2 has listed the actual animals you sold to him at the show and he is selling them for less than your value price. The snake you just listed at a value price of $500 he is selling for a margin price of $400. He is able to do this because he paid you less than $250 for it at the trade show (as part of your $3,000 deal). He will sell before you and make a $150 profit.
- Knowing you don’t really stand a chance at getting $500 when animals just as good as yours (actually ARE yours) are being sold for $400 you reduce your price to $400 to match Seller #2. And the market value of the animals is now officially $100 less than it was last week.
- Frustrated you rail against Seller #2 every chance you get. You label him the destroyer of the trade. People like him are the reason that animal prices fall so fast.
A month later you attend another reptile trade show. Your animal, once value priced at $500, is now on your table for $400. You had to lower the price to stand a chance against Seller #2. Feeling like you are now competitive you expect to have a great show. Things do not go according to plan. Seller #2’s table is a mad-house yet again. When you visit his table you see that your $400 animals are now $325 on his table. Once again, you don’t stand a chance. At the end of yet another miserable show you don’t wait for Seller #2 to visit you. You go see him and you bring a tall stack of animals with you knowing all too well that you are about to sell them for less than half of their value.
And so the cycle continues. You, the breeder, continue to lower the value you place on your animals in order to try and stay competitive with Seller #2. He always seems to have lower prices than anybody else. As time passes the value of your animals decreases while the costs associated with their maintenance continues to rise. Because Seller #2 prices his animals based on margin rather than value you cannot win. Seller #2, the so-called destroyer, continues to ruin the market.
But here is a little revelation for you: Seller #2 isn’t the destroyer. You are.
Seller #2 can’t sell animals at margin prices if he can’t buy them for less than 50% of their value. And it was you, faced with the prospect of a money-losing trade show (or your mortgage being late, or your car breaking down, or your divorce, or whatever…), that decided to make something rather than nothing. Your decision to place such a deep discount on value has created the market for the margin seller. The margin seller, of flipper as he is so often labeled, is not ruining the trade. He is a businessman, an innovator within the trade. He has identified a market opportunity and is exploiting it. Despite being frustrated by him, I will never fault him for that. The person(s) accountable are the one’s that continue to sell their animals to him. If breeders would wise up (which I have no hopes of them ever doing), the flippers would dry up and go away. You wise up, they dry up. The expression “no margin, no mission” applies to all business ventures; yours and the flippers. When you sell to a flipper/wholesaler it is you who is slowly drying up. It will one day be you, because of frustration and a lack of profitability, that goes away. And when you do the wholesaler will move on and find another breeder to consume. If the breeders would stand fast, resist the temptation to sell to the flippers, it would be the other way around. But I see no signs of that ever happening. As a diverse community we lack the business acumen to do so.
Flippers exist because breeders allow them to. Flippers also exist because people almost always purchase reptiles on one factor: price. Don’t bother disagreeing with me. I have been in this business for too long and can say with confidence that in excess of 85% of all transactions are price-driven. People go on forums and talk about how quality is important and how they are willing to pay more for an exceptional animal but most of them are not going to stick to those guns when the wallet-pulling moment is at hand. I’ve seen it too many times. I am not kidding when I tell you that I have seen people buy animals that were sick, emaciated and near-death simply because they were $50 cheaper than a beautiful, healthy and vibrant animal at the next table over. In fact, I was at a trade show yesterday where a sickly ball python morph was being sold for a ridiculously low price. This prompted the question, “Why is it so cheap?” The honest answer from the seller: “I just picked it up in trade. It has a respiratory infection. I’m selling it as-is.” What kind of a moron would buy an obviously sick snake in order to save a few bucks? Well …that snake sold within five minutes of being put out for sale (and there were multiple people who were interested in buying it).