The great big, all-inclusive Leisure Pro note

[Genesis]

Genesis,

I wasn't suggesting a 2 year depreciation for tax purposes. I'm talking pay back. The guidline that's been used by every large corporation I've worked for is a two year pay back if they spend a buck it has to make them a buck in 2 years. If the cost of a piece of equipment is amaterized into the cost of a product it's usually done on a two year basis.

When I claculated the cost I did it based on volume and I doubt I sold much more than 100 fills per year to paying customers.

the rest of the hours on the machine were student tanks for classes and gas for divemasters. My air testing alone was probably $300/year I had about $10,000 in the fill station including compressor.

2 year payback on heavy capital equipment? Nonsense. Not one real "large corporation" in the world runs on those numbers. I've worked for several and ran a smaller (but still significant size) one.

To avoid this problem most larger corporations either lease capital equipment or otherwise amortize the cost (e.g. via a loan, or they issue bonds, etc.)

Second, if you sold 100 fills/year to paying customers the little Alkin W31 in my GARAGE would have been more than enough compressor, along with a couple of bank tanks. Hell, I put more fills than that in a year on my own unit!

You can want all you want. See if a colledge will give you a degre that way. Last I knew they limit the number of credits that can transfer in and the number of classes that you can test out of. In other words you're going to spend some money there to get a degree from them.

Actually, many colleges will indeed give you significant credit for experience, provided its relavent.

Actually things like this ARE done from time to time if you're really that good. In the case of some classes it would take a significant amount of time and cost just to show proficiency so it might not save you that much because you would still have to get in the water and demo each skill. This is easier to do when the instructor is already very familiar with the student and has already seen them do everything. Therefore it's more common for the class to go faster if your that good. I wouldn't have any problem with charging by the hour and for expenses. The question is would the student go for it?

Some agencies do have provisions in the standards for giving students credit for experience.

I'd be happy to work under that arrangement; indeed, the "other thread" on "the revolution" is posulating EXACTLY such a model!

 

[Sooner1]

I probably shouldn't get into this but I couldn't resist. I am new to diving but have a few observations with my limited experience. My LDS charged $350 for SSI OW certification. I thought that was reasonable. I don't think that anyone in any business would be naive enough to believe that I would pay the $200 - $300 more for a reg, bc or computer than I could get it for over the internet. Genesis is right, I would definitely pay $50 - $75 to walk out the door with the gear and walk right back in if I needed too. But sorry when the price almost doubles I just can't justify it. My LDS also has a ton of overhead. It's a small shop that is jam packed with equipment and it's nice stuff. They've been in business 20+ years and the owner told me they've been through several ups and downs in the business. If I had to guess I'd say they have $1M plus of gear in that shop (at least at their prices). I don't see the need to have that kind of stock on hand. I would think most divers plan trips and plan for gear expenses. Maybe with less overhead they could reduce the mark up a little bit. I really like this LDS and I hope they stay in business but the internet has changed a lot of retail and the old LDS is going to have to adjust. I agree LP just moves boxes but that's what they are in business to do. It's a dog eat dog world out there and that's just the way it is. Maybe they should quit whining and get a good business plan. I understand why the LDS prices are what they are but they should understand the position their customers are in. I'm willing to spend a LITTLE more to get gear from my LDS. Are they willing to charge a LITTLE bit less?

 

[MikeFerrara]

2 year payback on heavy capital equipment? Nonsense. Not one real "large corporation" in the world runs on those numbers. I've worked for several and ran a smaller (but still significant size) one.

To avoid this problem most larger corporations either lease capital equipment or otherwise amortize the cost (e.g. via a loan, or they issue bonds, etc.)

Sorry you're wrong here. I've been buying capital equipment for large corporations since 1989. Specifically Illinois Tool Works, Eaton and Siemens and they all use that same rule of thumb. If I can't meet those numbers on a project chances are it'll be turned down.

Second, if you sold 100 fills/year to paying customers the little Alkin W31 in my GARAGE would have been more than enough compressor, along with a couple of bank tanks. Hell, I put more fills than that in a year on my own unit!

You're forgetting the gas that I had to pump for classes and divemasters. That easily amounts to more than ten times what I sold to walk ins. Besides the volume needed for a class you only have so many hours to get filled for the next night in the pool so you can't take 1/2 hour to do a fill.

Not all that $10,000 is the compressor either. There are bank tanks, manifold, nitrox mixing equipment (global off the shelf stuff), hyper-filter and HP hose to the banks and manifold at $4 per foot.

Actually, many colleges will indeed give you significant credit for experience, provided its relavent.

Sure but you will never get a degree for the cost of processing.

I'd be happy to work under that arrangement; indeed, the "other thread" on "the revolution" is posulating EXACTLY such a model!

 

[Genesis]

Sorry you're wrong here. I've been buying capital equipment for large corporations since 1989. Specifically Illinois Tool Works, Eaton and Siemens and they all use that same rule of thumb. If I can't meet those numbers on a project chances are it'll be turned down.

Horsefeathers. You build a new building for a company and tell me that they expect it to be paid for in 2 years?! Horsefeathers.

We're not talking about SMALL capital expenditures - you are. We're talking about THE large capital expenditure in a dive shop!

You're telling me that when GM went to robotics they amort'd it over 2 years? They most certainly did not.

You're forgetting the gas that I had to pump for classes and divemasters. That easily amounts to more than ten times what I sold to walk ins. Besides the volume needed for a class you only have so many hours to get filled for the next night in the pool so you can't take 1/2 hour to do a fill.

Bank tanks Mike. You know that. 1/2 hour to do a fill? What do you think the bank system is for. Second, you just changed the conditions of the test. Gas pumped for classes and DMs who are actually working is REVENUE GENERATING use Mike.

Not all that $10,000 is the compressor either. There are bank tanks, manifold, nitrox mixing equipment (global off the shelf stuff), hyper-filter and HP hose to the banks and manifold at $4 per foot.

Yep. I know.

Sure but you will never get a degree for the cost of processing.

Universities don't try to lie about what they're doing though. They make it quite clear that you're buying the degree. One of the many reasons I never finished mine.

 

[MikeFerrara]

Horsefeathers. You build a new building for a company and tell me that they expect it to be paid for in 2 years?! Horsefeathers.

We're not talking about SMALL capital expenditures - you are. We're talking about THE large capital expenditure in a dive shop!

You're telling me that when GM went to robotics they amort'd it over 2 years? They most certainly did not.

I don't do buildings. LOL
I don't know about GM but automation is one of the things that I do and some of it has been for the manufacture of products that GM purchased and yes. We look for a TWO year payback on that equipment. Finance of course looks at other things in addition but this is the acid test that we start with and it's been that way for many years. Without a 2 year pay back I know I'll have a hard time of it.

Bank tanks Mike. You know that. 1/2 hour to do a fill? What do you think the bank system is for. Second, you just changed the conditions of the test. Gas pumped for classes and DMs who are actually working is REVENUE GENERATING use Mike.

I told you I had bank tanks. even so they have to be filled sometime. I didn't change the conditions. I've stated over and over during the last two years the exact same thing. That fill station costs were just a cost of teaching because we didn't sell much gas.

You may say that filling a DM's tanks is revenue generating but I challenge you to show me the revenue. LOL It might be revenue generating but I lost money on OW classes because the revenue was less than the costs!

 

[SeaJay]

No it's very simple but the manufacturers don't want to tell any one how. Getting the service manual is way harder than rebuilding the reg.

Not any more. http://www.DeepSouthDivers.org/regs.html

...And that's my contribution to this discussion. :biggrin:

By the way - if you don't know what you're doing when you rebuild a reg - learn first. I'll be visiting Gen here in a little while so he can show me how to rebuild my Apeks...

And yes, I would trust that over the crappy service that I get at my LDSs when I go there.

By the way... You're right in that the manufacturers don't want to tell anyone how to service regs. They consider it an annual revenue stream that they're entitled to. They want to keep people from having the manuals because it messes with their "gravy train." I've already been threatened by some manufacturers.

The bottom line is that they're your regs - you are entitled to do anything you want with them - the same as your car. Can you imagine if Chevy or Ford went to such lengths to try to keep you from changing your own oil? Or if they charged half the price of the car to change the oil? That's what's going on here with the scuba industry... Why are people so numb to it? Why do they continue to allow this to happen?

I see an opportunity here for dive shops around the United States... Call Leisurepro and work out a distribution deal with them... Buy at 20% discount, then mark it up 50%... Effectively, the customer will now be paying 30% over Leisurepro price, still dramatically less than the dive shop up the street. You've got the customer's best interest in mind - you're saving them the money, profiting probably better than the "authorized" shop up the street, and aren't in a vice-grip headlock with the manufacturer. You can then offer your customer affordable, quality service and training at a fair price.

Effectlively, build a Leisurepro franchise... And offer the services of an LDS.

THAT would work - be profitable - solve the industry-wide sickness - and offer the best price and service for your customers. Add a healthy dose of real customer service, and you'd be unstoppable.

...Then offer classes that really do teach useful skills... You know, buoyancy and trim... How to spot marketing fluff... How to rebuild your own regs... Stuff like that.

 

[Genesis]

I told you I had bank tanks. even so they have to be filled sometime. I didn't change the conditions. I've stated over and over during the last two years the exact same thing. That fill station costs were just a cost of teaching because we didn't sell much gas.

You may say that filling a DM's tanks is revenue generating but I challenge you to show me the revenue. LOL It might be revenue generating but I lost money on OW classes because the revenue was less than the costs!

I find it amusing that on one hand you complain about cost-shifting (e.g. selling classes at a loss, and subsidizing them with hardware sales) but when it comes time to set prices for fills, you want do the same thing ($25 for an air fill when you admit up front that you fill 10 times as many tanks for your DMs and classes as for customers, yet you wish to charge the fill customer for your DM's fill!)

If you're going to argue against cross-subsidization don't try to justify doing it yourself!

 

[rjens]

But... the parallels to the industry I have been in for the past 17 years are striking, so here are my $.02

A dive shop is a retail business. Retail has always been about Location, Location, Location... because retail has always been about volume. And the reality is that the Internet is the high ground for location -- ie everyone can shop there. The die is cast, and the game is already over, the internet stores will win (kinda like the pacific theater after Midway) all that remains is the end game. Oh, there will be some brands that will hold out and will try to "save" their profitable retail channel. They will do it, not because they believe in it, but because the alternative is to lose control of their profit margins. Once power moves from 1000's of disconnected independent retailers, to a handfull of large distributors they will have to give up their margins. However, give in they will because volume is where the money is, and the volume will move to the Internet stores, don't be surprised to see an Internet store buy a mfg within the next 18 months. Expect it to start with non-life-support first (fins, masks, wetsuits). They will then leverage the mainline manufacturers by threatening to buy a full line producer -- maybe one of the consumer oriented lines like Mares or Oceanic -- to receive deep discount "class of trade" contract prices. The consumers pocketbook will benefit, as will a handfull of investors, the small shops had better be ready.

However, I am tired of hearing the arguement that when LP puts all the LDS out of business I won't be able to get fills. The reality is that the dive shops located where "most" people actually dive support their stores doing fills. I bet that the Monterey Bay Dive Center (where I frequently fill) does more like 100-150+ air fills a weekend. There will always be someone offering fills at the primary dive destinations, because they can make serious bucks charging $5-10 a fill to the throng of divers that head to these spots. In addition they frequently do a healthy rental business, as well as impulse sales in their front end. (oh yeah, I remember - location, location, location).
Speaking about location, there are at least 3 other dive shops in Monterey plus a truck with a compressor on the back that makes the rounds of the dive spots. Bottom line, where there is demand, there will be someone around to fill it. Yes it will be tougher to get fills in out-of-the-way locations, but realistically, the folks that dive these spots are more likely to be seriously into diving and likely members of local dive clubs -- hmmmm, maybe they can justify a fill station for their club.

Lastly instruction... The average instruction given in an OW class does exactly what it says it does, it prepares the diver to dive in conditions similar to conditions they experienced during their training. Personally, 18 months ago I paid $125 for my OW cert class at Maui Diving Scuba Center in Lahaina, which included all equipment rentals. Again this is about location, location, location. This shop has several full time instructors and keeps them busy with 2 classes a week, each with 8 students. That works out to $2000-$3000 a week in revenue from training. They sell almost no gear, and suppliment their revenue by running charters and by filling the tanks for many of the hotel "resort diving" programs in Lahaina. Again, here is an LDS that has figured out how to exist without selling overpriced equipment to unsuspecting customers. As to the quality of my training. I feel that I was taught by an excellent instructor who thoroughly covered bouyancy, beach entries, buddy skills, OOA scenarios, etc. At the end of my "3 day wonder" class, I felt that I (and my 5 kids ages 13-20) who also took the class) understood diving well enough to do shallow (above 60fsw) dives in low surge, high visability conditions at known locations with easy entry/exits. Exactly what I had been certified for.

I compare diving to driving, in both cases poor skills can get you killed. When learning to drive you only spend about 6 hours with a paid instructor. After that you are turned loose with a proficient driver (usually a parent) that supervises your driving. Saying that OW classes should cost $1500 is like saying that driving lessons should cost $1500, and require 60+ hours of driving with a professional instructor. I don't think a student with no unsupervised dives could comprehend the level of information included in 60+ hours of instruction. Better to give them their OW card and encourage them to dive within their skill range, with a buddy with more experience and skills. They will learn by example (hopefully a good one) and by trial and error. Then as their skills progress, if they want to dive more challenging dives, they should go back for more instruction.

Anyway, this is a long rant but I do have a point.
* Dive instruction is a profession,
* Filling tanks is a service offered for a fee,
* Dive gear is an commodity item available from multiple dealers,
* Dive shops are a business that offer one or more of the above services depending on the demographics of their market, and should be run as such.

Businesses that get angry at customers that don't want to support their personal perception of their value proposition are missing the #4 rule of Retail business (#1-3 being Location), namely that the customer is always right.

Those that ignore that they may be in a demograophic market that will not support their store, then get mad when customers complain that their prices are higher then the compitition and try to explain to the customer why they should buy from them anyway because if not the store will close and the customer won't be able to buy from their overpriced establishment once they are gone... shortly will be gone.

So what will happen to the small market LDS that exists to teach folks to scuba dive before they go on vacation. Some will survive, some won't. People are in this business because they love it, so money has never been the real draw. But this industry, like so many before it, will change, and it will be painful to those that hate change. And those that thrive on change, and are ready for it, will prosper.

So get over it, and lets go blow bubbles.....

RJ

 

[DeepScuba]

Well MikeF, "up here" in Taxada, our rule of thumb was always around 7 years, so I'll buy Genesis's 5 year story.

2 years is gravy, a no brainer, but up here in reality-ville, we'd take 7 years as reasonable.

Also, if you gave LP all the equip sales, you could dump the high profile/high cost shop you had and cut your expenses to NILL.

That's the only way i can stay in business without fighting tooth and nail for every scrap.

I'd pack it all in, in a second if life was kicking me that hard!

The Mfg's are selling the LDS out by dealing with LP. Plain and simple.

I feel for them, but no-one should be EXPECTED to bleed their own blood for someone else.

If you can't win, quit playing the game, or find a better strategy. If an LDS is a slave for the Mfg's, it's their own fault/problem. Find a better strategy.

 

[Genesis]

There was gear that I paid for in less than 2 years. It was gear that at my former company we had to (for competitive reasons) turn over every 18 months - literally - for new equipment!

Talk about brutal. The IRS would not allow us to expense it (generally most items with under a 2 year lifetime can be, but this gear wasn't "worn out" - just obsolete) and despite several attempts at private-letter rulings we were held to the depreciation schedules - which for "durables" are a minimum of 5 years.

That plays hell with your balance sheet and taxes, to put it mildly.

We did get private-letter exemptions for SOME things - for example, winchester disk drives in our storage arrays. A big part of WHY we got those rulings was that we were able to document that not one drive in 20 would make it to five years before it puked.

Unfortunately, our CPUs were built TOO well. I still have one (a 200Mhz Pentium Pro) here at the house that is STILL working - I think it was built in '96 or something like that, and a whole STACK of Pentium 90s and 166 boards that still power up just fine. Of course they were obsolete almost before the ink was dry on the check I wrote for them. We did the best we could, and a lot of them ended up on customer service agent desks.

Nothing that lasts 10+ years (as a compressor does) has to be paid for in 2 for it to work economically, and most things with that kind of service lifespan are financed in one form or another in larger firms; they're either leased with a fixed buyout at the end, financed outright, or (for larger companies and BIG capital gear) a bond issue is floated for it. Oh sure, for "durable goods" that have 5 year service lives, yes, that might make sense. But that's not reality for heavy equipment that remains servicable without major modification or upgrade for 10+ years.