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What's the profit margin on carbide tools?

Ukraine Train

Cast Iron
Joined
Feb 10, 2014
Location
Ohio
I think there will be a lot of variables like sales volume, rebates, etc., but what's a roundabout number for profit margin on higher end carbide inserts and end mills? Are the small, independent stores making 25% gross? Or is it more like 10%? With as high as the retail cost is I'd guess there's some healthy margin but I'm just curious.
 
I'm curious to know this as well. Inserts are outragous at 10-15 bucks each for a box of 10. Then the cutter holds five of them. I literally dread sitting down to order inserts.
 
There's probably differential pricing going on - meaning that Tier 1 automotive, and Boeing and its suppliers, get a different price than you or I do.
 
...... Inserts are outragous at 10-15 bucks each for a box of 10. .

Not sure I can setup the machines needed to make these for $100-$150 let alone run the parts and process an order.
If you buy 5000-10,000 inserts at a shot they do get cheaper, so yes the big places pay less.
A 250,000 pc blanket for a year gets you very good pricing and a lot of competitive bidding.
Bob
 
Not sure I can setup the machines needed to make these for $100-$150 let alone run the parts and process an order.
If you buy 5000-10,000 inserts at a shot they do get cheaper, so yes the big places pay less.
A 250,000 pc blanket for a year gets you very good pricing and a lot of competitive bidding.
Bob

Buying in bulk will always be cheaper. Often it isn't just set-up time (although that is an important factor) but also handling and delivery.
 
Dapra gives you a free cutter body for every 3 boxes of 10 inserts, so my assumption is the markup is extreme.

Not really. You're getting a quantity discount.

Ever see "Buy two get one free" and you end up with three? Try telling the shop you only want one at 1/3 of the price ;)

A realty salesman had just closed his first deal, only to discover that the piece of land he had sold was completely under water.

"That customer's going to come back here pretty mad," he said to his boss. "Should I give him his money back?"

"Money back?" roared the boss. "What kind of salesman are you? Get out there and sell him a houseboat."
 
We sell many different cutting tools to the end user, and the profit margins vary greatly depending on the product and the amount sold. What seems to be typical is that the manufacturers assign a massive list price with a large discount multiplier, resulting in a seemingly wonderful profit margin. In reality the profit margins are much lower than what they first seem.

The higher end inserts that we sell (not many) seem to result in a low gross margin, IIRC around 15-25%. Some are as low as 10%. Not enough to even want to sell them. But, that is because we rarely buy these direct from manufacturer and the wholesalers eat up some of the profit. End mills can be a bit more, but with all of the internet competition, those prices are constantly being driven down. I find selling to machine shops is where I have to keep my pencil the sharpest. I think that is due to various reasons, the volume at which most shops go through tooling being one. And, most of the machine shops we deal with are savvy customers. They are used to a steady stream of salesman coming through peddling their wares.

Hope this helps.
 
QT Tool monger: [They are used to a steady stream of salesman coming through peddling their wares.]

At the big shop we had salesmen knocking every day..Carboloy and Vallenite were the most frequent and VR Wesson and all the others came less often. Along came Iscar and the top buyers wanted us to drop everything and begin testing their stuff..

I think perhaps the free lunches and the like made more sales than the quality of insert performance..Perhaps that is 25 or 50% of the insert cost..My boss an Egyptian who was dead honest would not us take a coffee from a vendor if we did not buy the next coffee round. Carbloy was just down the street and was a world leader at one time.

It was said that a new boat dock was given to the tool crib boss by xxx carbide.

We figured the tool cost down to the cost per part..It might come down to .000857 dollars per part.
Figure a $9,00 drill runs 700 holes then gets sharpened 15 time to use an inch of length= $.000857 per hole.
$9.00/700/15= cost per hole. Yes then the number of holes per part.

http://www.cycarbide.com/?lang=2&TTo=en
not recomnending them but making carbide is old hat nowadays .. seems anybody can do it.

NTK offered me a three state area to sell their stuff but I turned them down...Could have been a big thing...
 
Interesting article. How much is the pixie dust worth in the price of an insert? I have seen prices from various suppliers for DCMT 32.51 CVD coated from $11.91 to $4.90.

Tom
 
I tend to think the markup is extreme. This was since I bought 500 lathe tool inserts of various shapes sourced from China, for about $1 USD per, and that work as well as anything I've used to date. I have to wonder "do they have to be that cheap?" but I tend to think that 'the secrets' have gotten out about how to make good inserts and coating them. That is not to say there wasn't millions spent on research, but like anything else, what is special eventually becomes commonplace.
 
China could kill the carbide market and put many of the salesmen out on the street...No reason they could make as good and perhaps better...Charge about half price and drive the market down...and with low cost shipping nobody could touch the price..
Part of the reason we would not deal with a communist country in years past..

And likely carbide is not labor intensive so wonder how they do beat the price..Yes making the press molds is labor intensive to a point. Carrying stacks a little the same. Packaging to shipping boxes perhaps.
 
I second what HU said, after getting tired of paying $10-15 per insert, I tried AliExpress and there $1 (delivered) insert packs, and they aren't poor quality. And it's a hell of a lot less stress flipping a ten insert facemill to new edges when it costs $5, instead of $70!!
 
Not sure I can setup the machines needed to make these for $100-$150 let alone run the parts and process an order.
If you buy 5000-10,000 inserts at a shot they do get cheaper, so yes the big places pay less.
A 250,000 pc blanket for a year gets you very good pricing and a lot of competitive bidding.
Bob

I would think when I order a box of inserts Sandivik already has them on the shelf and ships them right out. Making them to order clearly would not be cost effective for one box. Stocking large quantities of there popular inserts would keep there cost per insert to a minimal amount. I would like to know their cost per insert when they are stocking thousands at a time. Being a job shop. I know how the price works out only making one.
 
Dapra gives you a free cutter body for every 3 boxes of 10 inserts, so my assumption is the markup is extreme.

I think that only applies to the ball end or draft inserts (same tool body) of which the inserts used to be about $25/ea some years back. So you spend $750 on inserts and get a "free" HSS cutter body...
 
I think that only applies to the ball end or draft inserts (same tool body) of which the inserts used to be about $25/ea some years back. So you spend $750 on inserts and get a "free" HSS cutter body...

It could be a psychological game to fool us in to thinking the 'real value' is in the inserts, you know, these inserts are so precious that the cutter body is worth nothing by comparison.
 
One issue I struggle with is the proliferation of different inserts. I am a job shop, I don't use a lot of inserts. When it comes time to buy, I just throw up my hands and guess. I just bought a box of DCMT 32.51 CVD coated from Shars. Why? The price was right, availability was right and the selection process was simple. So far, they seem to work just fine. I started out with Carbide Depot, but was overwhelmed with the number of inserts to choose from. I might as well as thrown a dart.

I have to believe that sometime in a future there will be a shakeout like there has been in steels, hardware and such. It has to be horribly expensive for manufacturers and dealers to stock all the varieties.

Tom
 
One issue I struggle with is the proliferation of different inserts. I am a job shop, I don't use a lot of inserts. When it comes time to buy, I just throw up my hands and guess. I just bought a box of DCMT 32.51 CVD coated from Shars. Why? The price was right, availability was right and the selection process was simple. So far, they seem to work just fine. I started out with Carbide Depot, but was overwhelmed with the number of inserts to choose from. I might as well as thrown a dart.

I have to believe that sometime in a future there will be a shakeout like there has been in steels, hardware and such. It has to be horribly expensive for manufacturers and dealers to stock all the varieties.

Tom

I felt the same when I first started out. I tried to stick to "generic" geometries like CNMG or APKT. I ended up with some proprietary cutters, like the Sandvik coromill which uses an R390 insert and I really liked it. That one I used a lot and went to ebay to get inserts for about $11ea, which is half of what MSC charges.

But back to my original question; I asked about margins because I'm considering if it would make sense to start selling some of the same tools I use. The overhead is already covered so it would just be a matter of the initial outlay in a good amount of stock, and then of course marketing and selling.
 
I worked in a carbide shop that made just about everything out of it except endmills, they had the price per pc on the print. Who ever was buying it from that factory was getting it super cheap compaired to what it is sold for at the store.

I forget the prices but I know it was amazingly cheap. That shops was making 500 million a year last I worked their so obviously they were still doing ok even at the prices they would sell it for.
 
I felt the same when I first started out. I tried to stick to "generic" geometries like CNMG or APKT. I ended up with some proprietary cutters, like the Sandvik coromill which uses an R390 insert and I really liked it. That one I used a lot and went to ebay to get inserts for about $11ea, which is half of what MSC charges.

But back to my original question; I asked about margins because I'm considering if it would make sense to start selling some of the same tools I use. The overhead is already covered so it would just be a matter of the initial outlay in a good amount of stock, and then of course marketing and selling.

The trick is, "dealers"/distributors don't stock hardly anything. Any why would they? Carrying their own inventory would eat up tons of cash, for very little markup/margin to cover it. They let the manufacturers hold the inventory, and then drop-ship the items. It was a big selling point for me to brag about how close our warehouse was.

Don't forget, that manufacturer & distributor rep's full-time jobs is to be out selling. Are you going to run/work your shop full time, and then re-sell the same cutting tools that you're using in your shop, on the side? Good luck... Like I said - sales is a full time job...

There's no reason why you couldn't have a successful business re-selling tools, but I don't think it's something you could do "on the side." You'd have to be out knocking on doors during normal business hours.

Regarding margins - that's the 4-billion dollar question. (About the sum-total of the cutting tool market in the U.S.) If you were going to invest your cash into stocks, what's the minimum amount of return you'd be willing to accept? Remember, this R.O.I. percentage has to fuel your growth as well... The selling price of your product should be above that figure by several percentage points.

And the market has become hyper-competitive, especially after the 2008 mess.

Also, don't forget that you're most likely going to be dealing with shops paying net-30. Someone places a decent order, and then skips on the bill, it's your job to collect now. (No different than any other business either, but that goes on in the cutting tool world as well...)

Just food for thought...
 








 
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