Buying cheap electric bikes - is the price everything?

With the prices of electric bikes having tumbled in the wake of the Covid-19 induced sales boom and global overstock at an unprecedented high, the "buyers market" right now is arguably the best time to buy a bike, but, is the price the only thing you should be considering?

Jump to answers of popular questions around buying cheap electric bikes:

- Is the price everything when buying heavily discounted electric bikes?
- What goes into the cheapest price you can find?
- Who pays the price for cheap electric bike sales?
- Where is all the profit from cheap electric bikes going?
- Why does it pay to look past the initial purchase price of an electric bike?
- Things you should be considering when buying a cheap electric bike?
- Is it good value to buy the cheapest priced option on electric bikes?

Following on from our recent discussion on "Why are electric bikes so expensive", we'll break down where your money goes not just at point of sale, but later down the line to determine whether that "great deal" is likely to stay that way.

Is the price everything when buying heavily discounted electric bikes? 

With discounts abound and consumers always looking for the best possible deal, it pays to shop around right now. Across the UK there are some incredible deals on new electric bikes but when it comes to investing in a new electric bike, what happens after the sale is often overlooked in favour of the lowest possible price.

To highlight why this isn't the best way to buy a bike, we'll break down where your money goes after that bargain of the year purchase, and what to expect in the following weeks, months and years. 

What goes into the cheapest price you can find?

All bikes, like any consumer product, have an RRP. This is a carefully considered amount which not only covers the immediate cost to the manufacturer, but also the ongoing costs further down the line. Here's how its broken down;

The component manufacturers

Your new electric bike is the sum total of parts and contribution by dozens of individual entities. Motors from Bosch, suspension from Fox, gears from Shimano, wheels from RaceFace, chain rings from FSA, tyres from Schwalbe - these are just some of the major components.

Everything on your bike, down to the individual nuts and bolts, has a RRP payable by the bike manufacturer to obtain them for your new bike.

The bike manufacturer

The company who makes your bike also has its own costs to cover. This includes the raw materials and labour for manufacturing the frame along with the final assembly of the bike before it leaves their factory.

The manufacturer will also be tacking on a little bit of profit to cover future product development, marketing, staff and building costs, local taxes and very importantly for the consumer - future warranty and support obligations.

The distributor (read, "middleman")

Some manufacturers (especially the biggest/global ones) don't sell directly to their retailers. They use a distributor who not only handles the shipment of bikes to the retailer but often includes some responsibility for invoicing, warranty and first line support to the dealer network.

Cube for example, don't sell to dealers in the UK. We buy from a distributor who has responsibility for looking after the UK and the Netherlands. They too, need to make some money.

The retailer (us!)

The retailer, (when sold at full RRP) generally makes the largest portion of margin (profit). This is for two reasons - firstly, manufacturers make money on volume, so their piece of the pie is less per bike but bigger overall. Secondly, its your retailer who normally bears a highest "cost of sale" on a "per bike" basis.

A good manufacturer only has to show us their offering for the next model year and we order thousands of bikes each year. Job done. Retailers have to do far more work just to sell a single bike. This has a higher time, marketing and overheads cost.

Your retailer not only has to build and inspect your new bike before you get out on it but if it does its job properly, it also has to be able to look after that bike with warranty, aftercare, goodwill and support for its expected 8-10 year minimum lifespan.

All of this comes out of our profit on bike sales, as well as ever increasing business costs of wages, buildings ownership/leasing, insurances, subsidised shipping costs (it costs £90, not the £4.99 we charge, to ship a bike), commissions to cycle schemes, finance and all of the other unseen costs of simply being a retailer. 

Who pays the price for cheap electric bike sales?

Your retailer, generally. Although some manufacturers have been supporting retailers with extra margin on new bikes to help them clear old stock.

Think about it this way - would you accept less money to go to work, because your employer has a bit less work on that month? Of course not!  

When businesses reduce the price on something there is always a reason. No business likes to reduce their income. Contrary to belief, we don't run on caffeine, past sell-by energy gels and dreams alone! In the bike industry right now, prices are being reduced to solve two business stressors - space and cashflow. Sometimes both. 

When a business has committed to "X" number of bikes from a brand but already has a full warehouse and is struggling to accept in what they asked for, the fastest/easiest way to empty the warehouse to accept in new stock is to reduce prices.

Some businesses are also suffering at the other end. Cashflow. When all of your money is sitting in your warehouse in bikes which aren't selling, your cash in the bank to pay for more (or your bills) reduces. How do you get that back up? A sale! 

Where is all the profit from cheap electric bikes going? 

I could write a book about this, but I think an image will probably sum it up in a better, more easily visualised way. 

Here's an exact, "to scale" breakdown of where your money goes if you buy a bike at a full RRP of £3,999, if you buy it with a discount and finally if you buy it with a discount and use a cycle to work scheme voucher or finance; 

As you can see, its always the retailer who eventually takes the hit. 

When the price of a bike is discounted, the VAT obligation remains at 20% of the sale price. The cost price of the bike also doesn't change which means that reductions can only come from one place - your retailer. 

Further, when using a cycle to work scheme, these companies also have to make some money from somewhere and that somewhere is the retailer. We have to pay them a commission for their "work". This is normally around 10% of the sale price (not the RRP, but the price the bike was sold at), which means that at the moment, cycle schemes are making more money than the bike shop, with none of the liability or long term service commitment costs! Hardly fair, but that's a rife topic inside the industry right now... 

This is also why many retailers are currently charging extra "fees" when using a cycle scheme voucher. Some are sailing so close to the wind with their profit/sales pricing that they would make a loss if they sold you a bike via a cycle scheme and instead are charging (often hidden until long into the process) fees on top of the bike price. Often this means that the end price means you'll end up paying more than a retailer who originally looked like they were charging more.

A bike advertised at £3,999 on our website will cost you just that, regardless of how you pay. A competitor might have it up at £3,699 but add a 15% scheme surcharge, meaning you'll actually pay £4,253... That's £554 more than you originally bought into!

Many retailers also offer "0% finance", yet no finance is truly free. Someone has to pay for the privilege of lending money and again that someone is your retailer, with fees similar to the cycle to work scheme. 

Why does it pay to look past the initial purchase price of an electric bike?

See that tiny slither of blue in the last bar of the chart above? That's all your retailer has in their pocket to support you with after buying a heavily discounted bike. 

Ask yourself - with so little in the pot, what kind of aftersales support and care can you expect to receive and how motived are they going to be to give you it if your retailer, after costs, made literally £50 or less off a £4,000 sale? 

We've learned from the last 18 months that dealers who have found themselves in a position where it's become absolutely necessary (as opposed to just hopping on the band wagon) to sell bikes at or below the "cost + VAT" price, IE, they're making negligible profits, or (worse still) a loss, don't last long. Selling a bike for close to or exactly what you paid for it leaves absolutely nothing in the pot to pay the overheads of actually running the business.

Last year we saw the UK's biggest parts, accessories and apparel retailer Wiggle/CRC lose their $150m parent provided overdraft and slide down the pan, so there's no reason why a small independent bike shop couldn't suffer the same fate.

If you sell stock at your cost price (or less), how do you pay your staff? How do you pay the mortgage/lease and business rates on your shop? What about shipping, tooling, or the customer service team who should be on hand to support those customers with their new bike for the average 8-10 year product lifecycle?

The answer is of course - you cant. FRP Advisors, liquidation firm to Wiggle/CRC  have a local rate number though... 

As one of the biggest ebike specialists in Europe, each week, we get dozens of phone calls from people coming to us because they're "out of options". They've purchased a bike but have later found that the supplying dealer is either disinterested in providing support unless they're very local and can bring the bike to them, or worse, they're not even there to pick the phone up anymore. Sadly, the latter part has become more and more common over the last 12 months. 

Things you should be considering when buying a cheap electric bike?

Price 

Do consider the price. When the deal is done, its the amount you're attributing to what should be a great way to get fitter and enjoy the outdoors. There's no sense paying full RRP if the shop just one town away has it up at 30% off and your closest dealer is unable to compete but do at least give them the chance. Supporting your local store is the best way to make sure they're still there when you discover your brake pads are shot or you need your 9th spare innertube of the year on a Saturday afternoon and you want to ride on Sunday morning! No online retailer can save you there!

Reputation

Check out some of the companies most recent reviews. Staff in most retail environments changes regularly so you can probably ignore anything more than 2 years old but the last 6-18 months is generally pretty telling of the retailers current ability to support their customers needs and investment in them. Our reviews can be found here.

Support

Make sure you question them on their support offering. Is it sufficiently staffed, accessible and well qualified? For comparison, we're open 6 days a week from 9am until 5.30pm and during those hours we're available on the phone, email, WhatsApp and video call and our customer support staff are all highly trained bike technicians who now spend their time in the office, supporting everything from changing an innertube to complex, "at distance" ebike drive system diagnostics.

We even have a dedicated Service and Support portal. Our workshops are also staffed by some of the highest qualified and most experienced technicians in the industry, with decades of experience in electric and non-electric bikes.

Distance

Perhaps one of the most overlooked aspects of aftersales support, the distance to the supplying dealer should be a primary consideration. The dealer who first supplied your bike holds the onus for support and warranty. Is buying a bike 300 miles away worth the extra £100 off when it needs a warranty repair? 

If you're buying a heavily discounted bike, make sure that if you're buying it online/a dealer a long way away that any discount if sufficient to offset the distance and be prepared to hear "just take it to a local dealer" or "here is the manufacturers telephone number" when calling for help. Also be aware that generally, bike shops don't like having to take on the work that others don't want or aren't qualified to do after pocketing the profit from the bike!

So, is it good value to buy the cheapest priced option on electric bikes?

The general consensus, often sadly found out far too late is no, spending time researching and deciding on the right bike for you and then focussing solely on finding it at the cheapest price without paying attention to the business' ability to look after what can be a complex product beyond wheeling the bike out of the door is possibly the worst way to place your investment. 

If you're interested in understanding how E-Bikeshop can support your next electric bike investment, please give us a call on 01252 279279, fire us a Whatsapp message (same number) or Book an Appointment to come and see us today.

You'll get to see the facility, the team at work and get a better understanding of what it takes not only to sell electric bikes in a first class environment, but also how we plan to still be looking after you in 2034!

Need more help with your electric bike purchase or learning how they work and which style of eBike may be best for you? Check out our Electric Bike Buyers Guide here.