Can It Pay?

I love messing around with bikes and while sitting bored on delayed trains (i.e. where I type up this blog!) I’ve often wondered if it would be possible for an enthusiast, like me, to make a living out of the cycling industry. My gut feel is that even if it is possible, which is by no means certain, it won’t be an easy ride. The likes of Wiggle (profits increased from £2m to £11m, apparently) and their ilk succeed because they’re run like proper businesses, not because they’re the “logical extension” of someone’s hobby or garage workshop. After all, Roger Musson, the guy who wrote the Wheelpro guide (and whom I note has also posted a very prophetic note under yesterday’s entry: I’d already written most of this one, honest!), gave it all up because of the encroachment into his market of the mail order shops with their discount wheel builds. He wouldn’t, or more likely couldn’t, compete with them. So is it possible to make a living out of building wheels?

One of the biggest problems is that cyclists seem to be a parsimonious lot at best. I’m probably near to that extreme myself, because I’ll always hunt down the lowest price for whatever it is I want and sometimes even then try to argue for a better deal. The proof that I’m far from alone is there for all to see in the success of Wiggle, Chain Reaction et al, and the huge market for so-called “grey” goods that is Ebay.

Another problem, at the industry level this time and I don’t think for a minute that cycling is alone on this one, is the sheer number of middle-men who sit between the manufacturer and the consumer, all taking their cut yet contributing little of value. In my ideal world I’d deal direct with the manufacturers and cut out the importers, distributors, retailers and their cohorts. Even the various members of the UK’s in-vogue Far East-fuelled cottage industry of frame “builders” have one more link in the chain than is strictly required – why don’t we, the consumers, buy direct from the factory in Taiwan? After all, that’s all they’re doing!

Let’s do some maths. My new XT/F519/DT Comp wheelset would have cost £120 from Chain Reaction, which is the cheapest for which you can buy it new from a shop. Incredibly this is £25, or 17%, less than Chain Reaction will ask were you to buy the parts individually, which gives a pretty strong clue as to the likelihood of anyone being able to make a living through building wheels. This is a paradox: building wheels is essentially about adding value, i.e. taking a bunch of items that are useless individually and turning them into something useful, yet Chain Reaction have implicitly put a negative value of £25 on the wheels that they build, which, if you’ll forgive the sarcasm, is about the only thing they did get right about my Hope/XC717 wheels! I don’t understand their pricing structure at all because intuitively it would make more sense to charge the £120 for the individual components as well, with a tempting option to have them built into wheels free of charge. The benefits of this would be two-fold: more people would buy the individual components in order to build the wheels themselves, which would increase revenue; the shop would not have to build so many wheels themselves, which would cut costs; everyone’s a winner!

On a commercial basis I doubt that more than two hours in total is spent on each pair of wheels from picking the components off the shelves, through the building process to packing the whole lot up and shipping it out. Assuming an 8 hour working day, 5 days a week for 46 weeks of the year (after holidays), that equates to a maximum potential revenue of £110,400 for one full-time wheel builder for an entire year!

Sounds impressive, but we’ve not factored in any costs yet. For starters, the VAT man will want 17.5% of that. It’s reasonable to assume that an XT/Mavic/DT build is fair approximation of the average custom built wheelset, and I estimate that about 50% what’s left will be swallowed up by the wholesale price of the components. This will be the single largest cost, and it’s out of this huge dollop of cash that the importers & distributors gouge their share. I wonder how much of this actually makes its way back to the manufacturer? I suspect that the middle-men make the best living out of anyone in the supply chain and yet they create nothing!

We also need to deduct postage. A properly packed pair of wheels would cost a member of the public at least £10 to post, but let’s assume that a business could negotiate a 50% discount on this – so there goes £4,600. Credit card, banking and invoicing costs could wipe away 5% of the total revenue. Then there’s the cost of premises, both for working in and for storing stock – let’s factor in £500 per month for that, so another £6,000 is chipped away.

So what are we left with out of the initial £110,400? It’s been eroded to just under £29,500, which is not such an impressive figure. This assumes that you can build a pair of wheels to a saleable standard in two hours flat (no amateur will get to within double this) and spend every working hour doing so. But in fact you’ll have to spend a significant amount of time keeping accounts, paying and preparing invoices, sourcing and ordering stock, packing up and posting the wheels, dealing with customers, getting advertising space (assuming that you don’t have mates in the cycling press who’ll do regular “reviews” for free)… in fact a whole lot of stuff that prevents you from doing the one thing that brings in the revenue! I’ve not factored in any costs, in terms of time or money, for sundries such as computers, a website, stationery, telephones… The list is endless, but the available cash has gone, and then some.

Quite apart from the mounting costs that have remorselessly worn away at that initially impressive number, there’s the very real chance that you’ll be bored witless from the hours of drudgery, day after day, performing the same monotonous physical task. Your fingers will hurt, your back will ache and you’ll begin to resemble and probably also talk like Gollum from “Lord of the Rings”. You’ll never look at a wheel, or even a bike, in the same way again! Worse than this, you’ll have the loathsome task of dealing with the general cycling public who, when the mood takes them, can be a nit-picking, chippy bunch of load-mouthed perfectionists.

And finally, there is of course the ultimate risk in that you’re a one-trick pony who is therefore extraordinarily vulnerable to changes to the industry in general, but most of all to a bigger, more efficient competitor who may suddenly decide to compete on price and price alone.

I started this post not knowing precisely where it would end up, but the writing’s been on the wall for the last few paragraphs, and Mr Musson himself has chipped in underneath yesterday’s entry with the coup-de-grace. Ironically, Chain Reaction have got it about right in knocking 17% off the total retail price of the components when you get them build you a pair of wheels, because that’s not far off what you can expect to lose if you try to compete with them on a commercial basis. And you are going to lose; you’ll make no money whatsoever, in fact you’ll probably end up bankrupt. It’s a mug’s game, and the real wonder of it is that anyone at all bothers going it alone in the bike business, that is unless they’re attempting to profit from other buggers’ efforts!