Major Industry Change re: Online Scuba Sales....

[ReefHound]

That's an interesting article, thanks for the link.

What I find missing from the analysis is: ...

Agreed, there are costs not included but the example I pointed to was not a commercial enterprise. They used residential property and probably didn't bother with supplementary insurance.

There are lots of ways to calculate costs. An accountant could make virtually anything from answering the phones to wiping off the counters look like an enormous expense, but the real supplementary cost is far less. In practice those costs do not represent much of an addition to standard overhead. I mean that you can allocate a certain number of minutes labor to a fill but few employees are brought in just to fill tanks, they have to be there anyway, compressor or no compressor. Shut down the air for a few days and you'll likely still have the same payroll to meet.

Similarly, while floor space is an accounting cost it's only a true cost if you could have otherwise used it productively. Your building is what your building is and removing the compressor wouldn't save you anything on rent. If I were to allocate the floor space my scuba gear takes up in my house, it would cost me a lot of money to be a diver next year even if I don't go diving.

We must also accept that just because you amortize the compressor over 5 years it doesn't go *poof* and disappear after 5 years.

Anyway, I'm not trying to say anything definitive that an air fill costs $1 or $10 (although I think $20 is a stretch) but that there are lots of ways to look at costs.

 

[ReefHound]

Around these parts, 7 cents will get you a little less than 0.5 KWh. I don't think you can fill a tank with that.

Terry

Hey, I don't know, maybe those guys are just lying but they said their compressor draws 2.2 kwh and they get a fill in less than 30 minutes. So maybe your electricity costs twice as much and it would cost you 14 cents to fill a tank. That's such an insignificant part of the total fill cost as to not even be worth discussing.

 

[cool_hardware52]

Agreed, there are costs not included but the example I pointed to was not a commercial enterprise. They used residential property and probably didn't bother with supplementary insurance.

I recognise it was not a commercial enterprise, it was the alternative the local commercial fill stations.

If you want to define the "cost per fill" for a homeowner fine. If you want to discuss what's fair for a commercial enterprise you need to account for all the costs.

There are lots of ways to calculate costs. An accountant could make virtually anything from answering the phones to wiping off the counters look like an enormous expense, but the real supplementary cost is far less. In practice those costs do not represent much of an addition to standard overhead. I mean that you can allocate a certain number of minutes labor to a fill but few employees are brought in just to fill tanks, they have to be there anyway, compressor or no compressor. Shut down the air for a few days and you'll likely still have the same payroll to meet.

It's faulty logic to assume that the incremental expense of "whatever" can be buried in the existing costs of operation.

Similarly, while floor space is an accounting cost it's only a true cost if you could have otherwise used it productively.

Agreed, if you have a retail operation and don't know what your sales per sq ft are, you are on a path to trouble.

Your building is what your building is and removing the compressor wouldn't save you anything on rent.

No it won't, but that 100-300 sq ft could be used to stock and display other goods.

If I were to allocate the floor space my scuba gear takes up in my house, it would cost me a lot of money to be a diver next year even if I don't go diving.

Again, confusing the homeowner and the commercial operator.

We must also accept that just because you amortize the compressor over 5 years it doesn't go *poof* and disappear after 5 years.

A five year old, tired compressor has some scrape value, but not much really. It's potentially a rebuildable core. Is the builder or integrator still in business? Is the model obsolute? Can you get parts?

Anyway, I'm not trying to say anything definitive that an air fill costs $1 or $10 (although I think $20 is a stretch) but that there are lots of ways to look at costs.

I'd guess that the typical LDS really does not know what a fill costs, and prices them based on the competition. It's a loss leader to get diver's in the store.



Tobin

 

[ReefHound]

I recognise it was not a commercial enterprise, it was the alternative the local commercial fill stations.

If you want to define the "cost per fill" for a homeowner fine. If you want to discuss what's fair for a commercial enterprise you need to account for all the costs.

I wasn't defining anything, I only posted that link because someone was curious about how much electricity was needed to fill a tank and those guys seemed to break that part down. Also because when a LDS or scuba park raises fill costs one of the reasons common cited is "rising cost of electricity". As was shown, electricity is a miniscule fraction of the cost, almost insignificant.

It's faulty logic to assume that the incremental expense of "whatever" can be buried in the existing costs of operation.

I didn't assume such but the fact remains that fixed overhead costs often include such itemized expenses. If we're going to include it all to the bitter end, then if you include a person's labor time for fills by god they better do nothing but fills. If they answer the phone, talk to someone about gear, or sweep the floor I want that time backed out of the cost.

Another fact is that when a business adds a product or service, the decision is usually based on the *incremental* expenses incurred versus the *incremental* revenue generated, not on the cost/expense ratio of that product or service alone. Often such decision is based almost completely on the fact that a business already has the facilities or equipment or staffing to handle something else.

No it won't, but that 100-300 sq ft could be used to stock and display other goods.

Maybe, maybe not. Depends on if the space is suitable for public access (versus a greasy backroom) or if you want your increase your inventory investment.

A five year old, tired compressor has some scrape value, but not much really.

Tell you what, when your compressor hits it's 5th anniversary, sell it to me for $20.

Any LDS owner out there with a new compressor want to sign a contract with me right now to sell it to me in 5 years for $100?

I'd guess that the typical LDS really does not know what a fill costs, and prices them based on the competition. It's a loss leader to get diver's in the store.

I thought classes were the loss leaders? And I've been told they make nothing on trips. And service barely covers the labor. And they don't sell enough volume in equipment to get the great wholesale pricing. Where do they make money?




Tobin[/QUOTE]

 

[redacted]

for a shop that needs to do a higher volume than a garage setup

Compressor and cascade ~15 K (low end for a shop)
Monthly energy bill ~$100
Filter cost per year ~ $500
Air quality lab a year ~$300

amortize the compressor over 5 years and you are looking at 5K a year to have that. I'm not including labor, unexpected(or any maintenance), rent of the space the unit take or any of a dozen other "incidentals.

That is 1000 fills a year at $5 to break even (actually still lose some money if all expenses are taken into account)

$10 a fill for air is a price that starts to make sense. $5 is just losing money so you don't lose costumers that have been spoiled by cheap air.

awap, sorry friend, you are well off on this.

In very few locations will the volume of air be enough to make a $5 fill a profitable experience for the LDS.

I still don't think so.

DS I deal with has 2 compressors. He pick them up from shops that went out of business. So $15K is probably not a bad figure for a smart shop. Amortizing it over 5 years may be OK for tax purposes but the life of a good compressor, with proper maintenance, is probably much better than that. Overall, your $5K annual cost for a smaller LDS fill operation does not seem unreasonable. But who is only doing 1000 fills per year. Even for a smaller shop, something on the order of 2000 to 3000 fills per year seems more reasonable. (Hell, just my buddy & I account for about 100 fills per year.) Now my fills estimate includes the fills on tanks provided for training and training support, rental tank fills, and fills of privately owned tanks. So it still looks to me like you would have a hard time working up a cost per fill much more than $2 to $3.


I just don't think you can get over $5 cost per fill unless you are only counting fills of private tanks and ignoring training and training support fills and maybe even rental tank fills. Or you are looking at a really inefficient operation, the kind that we might all be better off without. And if $10 per fill cost is right, the DEA should be raiding that shop.

 

[cerich]

That's an interesting article, thanks for the link.

What I find missing from the analysis is:

The cost of insurance (maybe different in Australia, but in the land of litigation it's a significant expense)

The Cost of the Square Footage to house the beast, and the spares, and the fill panel, tank storage etc. Might be able to do it in 100 sq ft.

The cost of Labor to operate the fill Station.

The cost of labor to process the sales transaction, i.e. take the money.

These costs are of course highly variable depending on the operation, but they are not zero.

What does that do to your $4 / fill?


Tobin

Hi Tobin,

Does it matter?, that "study" was done with a Junior, 24 mins to fill an 80 from empty, can't fill a cascade and never could be used in conjunction with nitrox....It also had been done before there was a major repair bill that with that unit will easily exceed the purchase price(after all if is air cooled, no oil pump etc)

Some people are so convinced that fills are a rip off that they will never look at the real hard numbers.

On my poost I got the "3 fills a day comment" well the truth is that there are many shops that don't do a 1000 fills a year including student fills that are not direct revenue...

Best,

Chris

 

[cerich]

I thought classes were the loss leaders? And I've been told they make nothing on trips. And service barely covers the labor. And they don't sell enough volume in equipment to get the great wholesale pricing. Where do they make money?

[/QUOTE]

That is the whole point, many LDS do not make any money, the business model is broken.

 

[ReefHound]

On my poost I got the "3 fills a day comment" well the truth is that there are many shops that don't do a 1000 fills a year including student fills that are not direct revenue...

I knew that some would nitpick the example (never intended as a "study" but to answer a question about electricity usage). Feel free to provide a link to a better "study".

The problem with your example is you used a setup designed for higher commercial volume and then costed it against a lower usage volume. That group of 4 guys have already gotten 1500 fills from their much smaller setup.

If a LDS is doing less than 1000 fills per year, why don't they just get their fills elsewhere? In fact, if shops lose money on fills why are they filling their own tanks for classes? Just send them out to another LDS (or firestation or welding supply) to be filled. If shops lose money on fills why do they offer fill cards that brings it down to $3 or so? Is it the "sell at a loss, make it up in volume" philosophy?

Student fills may not be "direct revenue" but if you didn't maintain the fill station they would be a "direct expense", wouldn't they? If you're gonna cost every nickel and dime you also have to include the revenue saved as well as the revenue generated. You know how it goes... a penny saved is a penny earned.

 

[ReefHound]

can't fill a cascade and never could be used in conjunction with nitrox....

If we add nitrox we've changed the game. I don't know any LDS charging $5 for a nitrox fill, I see typically $10 to $15.

 

[cerich]

I knew that some would nitpick the example (never intended as a "study" but to answer a question about electricity usage). Feel free to provide a link to a better "study".

I don't need to, I've had to feed a compressor before in light commercial use...

The problem with your example is you used a setup designed for higher commercial volume and then costed it against a lower usage volume. That group of 4 guys have already gotten 1500 fills from their much smaller setup.

It isn't a problem, it just addresses your assertion that air is cheap to produce for a shop, it is far from it.

If a LDS is doing less than 1000 fills per year, why don't they just get their fills elsewhere? In fact, if shops lose money on fills why are they filling their own tanks for classes? Just send them out to another LDS (or firestation or welding supply) to be filled. If shops lose money on fills why do they offer fill cards that brings it down to $3 or so? Is it the "sell at a loss, make it up in volume" philosophy?

Because other shops would charge their competetion for a fill which would mean a higher loss to the shop, you also have to condsider that logistics of it.Fill cards are cashflow, plus most divers never use all of the fill card.

Student fills may not be "direct revenue" but if you didn't maintain the fill station they would be a "direct expense", wouldn't they? If you're gonna cost every nickel and dime you also have to include the revenue saved as well as the revenue generated. You know how it goes... a penny saved is a penny earned.

My comments in red, honestly and zero offense meant at all but please consider that most shops do NOT make money at fills, yet they are there to make a profit and charging $10 would allow that without it even approaching price gouging.