The profit margin on sofas is large and can be as high as 50 percent. If you are thinking of making sofas to add an income stream to your work, build a new business, or are just pricing out new furniture, the markup can be high.
I used to wonder why couches and sofas for the living room and den were so expensive, and it is all about the craftsmanship that goes into making a quality couch that will last for years, if not decades. So I did some research. Here is what I learned on the profit margin on sofas, and why it is so high.
Recognize a Good Sofa
Knowing what makes a good sofa is half the battle of either making one or buying one. A good sofa is one that will last for a long time. So you want to look for legs for example, that are not glued onto the sofa, but rather screwed in.
Natural materials such as wood for the frame and the legs are markers of good sofas that quality furniture purchasers are looking for. The comfort and style of the sofa after that are not as important as the frame, and what will make a good sofa last.
Those sofas are going to have the highest markup because they have labor costs and materials costs that will outweigh the costs of a sofa with glued on feet or legs. They will also last you much longer. When you add additional natural materials, such as leather, or for some even, down filling or silk upholstery, you are going to add to the cost.
The markup on a sofa that is constructed with fabric imported from China, for example, will be higher than one built from fabric purchased at a local fabric store. When it comes to sofas, I have found that this is one product where a higher price typically points to a higher quality product.
Sofa and Furniture Markups
There is a lot that goes into a good sofa or fine piece of furniture. Every end of the supply chain wants to turn a profit. The person building one in their home wants the buyer to pay for the time spent even researching the fabric used for upholstery, as well as every shipping cost and phone call placed to make the furniture.
A factory that is building the same couch is going to do the same, and maybe even markup the couch more.
Where you get your sofa will make a difference here. If you purchase it from someone building it in their garage, you may not have the markup you would from a retailer that is paying for every logistics markup as well. Or, you might, if that person spent all day every day for three months building it.
The Retail Owners Institute estimates that furniture stores can put as much as a 43.8 percent to 45 percent markup on furniture. These markups consider the costs that go into increased labor costs, rent costs, and the costs to ensure a return on the work. Most retailers and manufacturers are looking for a Gross Margin on Inventory also known as the GMROI.
The GMROI can be learned by taking the cost of the goods from the total sales and then dividing that number by the quantity of inventory. This will yield the analytics for a profit margin that retailers and furniture manufacturers work with to come up with a price point. It is not far from the mark of the person building one at home for you.
Retail and Wholesale Prices of Sofas Today
The retail price of sofas today can be in the thousands. You can purchase a sofa for a few hundred dollars new, but you will also get what you are paying for. That price point is an indicator of quality, and it is something I only need to learn from once. A sofa is just never the same after a glued foot falls off.
The retail price of every sofa today takes into consideration every penny spent on manufacturing, delivering, and selling the product. Associates selling you a sofa are making a commission as well, and that cost is built into the furniture.
The average markup for a sofa can be as low as 40 percent but also as high as 400 percent for this reason. When I am sofa shopping, the materials of the furniture are going to be the single most important feature to me when buying sofas.
That material is something I can bring home and own. The commission, shipping costs, and all other costs I pay for with the sofa are not. Sellers making commission can make as much as 7 percent to 20 percent. If the sofa has good quality craftsmanship and materials, I don’t mind paying for it.
You can see a simple sofa built well and to last for as low as $600, or as high as $6,000. It pays you to do your research when you are buying or selling sofas.
Costs to Manufacture and Sell Sofas
Labor costs such as woodworking and materials procured are the number one factors that go into the cost of manufacturing a good sofa. Then you need to factor in sewing, upholstery, and materials such as webbing over springs in the sofa seating itself. I like the sofas that offer springs, but webbing can be just as comfortable with the right accessories on your sofa.
Webbing is the most affordable, and also the least noisy. Additionally, spring sofas have different styles on their own, with each method having its own costs.
Fabric is going to be your next concern when buying sofas. An all-natural leather sofa is going to cost the retailer more, the manufacturer more, and you more. After this, you will have to pay more for the marketing of the sofa, the administration costs of the sofa, and every other penny spent on getting you the sofa. Or, every other penny you spend on selling a sofa.
Invest in a Good Sofa
A good sofa is hard to come by, and worth its weight in gold when you find or sell the right one. Take your time investing in the purchase, and you might just have a sofa for life. When you are looking at the costs, examine the materials and the labor that went into the sofa, and then you can determine if the 45 to 200 percent markup is fair. For you, if you love the sofa enough, it might just be.