Crowdfunding Ammo: Will Price Win?


Here is the question: If you could save 15-20% on match-grade ammo, but you had to wait 4 months for it to be delivered – Is it worth it?

I wanted to let my readers know about a unique opportunity for low-cost match ammo, and what I think is a very interesting social experiment – and potentially a new buying model that could save us all money.

Frankly, I love disruptors! Most companies play it safe and simply make incremental improvements – but then there are a few disruptors willing to take risks, set a new course, and they push the industry forward. Several years ago, the market was trending towards match-grade factory ammo being priced at $40/box – and then Hornady disrupted the market with the release of the 6.5 Creedmoor along with match-grade factory ammo priced closer to $25/box (around $1.25/round). Thank you, Hornady! Masterpiece Arms has been a major disruptor when it comes to competition rifle chassis. Kestrel and Applied Ballistics were disruptors when they put a ballistic engine in a handheld weather meter. Horus did it with reticles. Both MagnetoSpeed and LabRadar did it with chronographs. GunBroker.com did it for gun sales. Disruptors don’t just look at what is out there and offer an incremental improvement – they try to pioneer a new path, and hope customers see the merit or value.

I think PRIME ammunition may be a disruptor. They were one of the first large-scale ammo companies to depart from the traditional distribution model and sell direct to the consumer. PRIME is non-traditional in a few ways, including the fact that over their first year in business they called over 8,500 of their customers after they placed an order to tell them thanks and have a quick conversation to understand who they were. Jim O’Shaughnessy, the founder/CEO of PRIME Ammo, personally made many of those calls. I can attest to that, because I was one of the surprised customers who answered his call. That had nothing to do with me being the author of PRB, because a friend of mine had already ordered some PRIME ammo, and he also got a call from Jim.

In a traditional ammo distribution model, companies like
Hornady or Federal sell their ammo to distributors, who then sell it to local retailers,
and they eventually sell it to the end user. Not only is there incremental
markup by the two middle men (which is reasonable for their contribution), but
that also means the manufacturers don’t know exactly who is buying their ammo, much less have a chance for those
customers to give feedback to the CEO directly. The direct to consumer model is
a disruptor in the ammo world, not only because it eliminates the middle men (along
with the incremental markup), but it also allows guys like Jim to know his
customer. I’m not saying companies with traditional distribution models are
clueless about their customer (they may do focus groups and get out in the
community), but guys like Jim who have a direct connection to all of their customers should be more
in-tune and able to respond to their needs – at least in theory.

Through the 20 million rounds of ammo that PRIME has sold, there is one thing they heard time and time again: We all want good ammo – actually great ammo, capable of using in a match – and we want it cheap!!! How cheap? Is free too much to ask? Better yet, would you pay me to shoot it?! 😉 In the precision rifle community, we’re willing to invest in our rifles and optics, but we see ammo as a consumable, so we hope to save money there.

The hopes of reducing ammo cost is what draws some guys into reloading, although in my experience it rarely ends up saving money if you are using quality components and tools. I’m not looking to spark another debate on this (like I did when I posted The Cost of Handloading vs. Match Ammo), because that typically just results in an argument over the proper way to account for someone’s time. But, earlier today I was reading through the latest issue of RECOIL Magazine (Issue 46), and it had an article on this exact topic! No lie! The article does lightly touch on the fact that reloading can require more time than you think, but they also had an interesting table showing the component costs for reloading 6.5 Creedmoor ammo:

RECOIL is saying that even if you exclude your time, the cost of one loaded round of 6.5 Creedmoor is about $1.27 purely based on the components involved. Their prices are based on quality components, but notice they aren’t using Lapua brass and A-Tip bullets, so they didn’t bloat the numbers to the max possible. Now, if you reuse the same cases multiple times, you can get that lower (and I do that math in my article). But think about it: Factory ammo has the cost of these same components and they can’t reuse the brass. They also have to include the labor to assemble the components and perform quality control (factory workers aren’t volunteers), PLUS they take on a ton of liability for selling live ammunition to thousands of customers. So is it even reasonable for us to ask for factory ammo made from quality components for less than what it would cost us if we performed the labor and took on the liability ourselves?

And here is another major cost/limitation ammo manufacturers face that I was unaware of until recently: Their cost of capital is very high, and access to capital is extremely limited. There are very few banks in the United States that will give a business loan to an ammunition company, at least at reasonable interest rates that are available to most businesses. In our litigious society, most banks simply prefer to distance themselves from ammo companies. At the same time, ammo manufacturers typically have a few months of lead time from when they need to buy components and when they receive the money from the distributor or consumer for the finished product. Most companies need loans in order to bridge that gap, and many struggle to find adequate capital or they’re forced to pay sky-high rent on the money they are loaned, which drives up prices.

Crowdfunding sites like Kickstarter and GoFundMe strictly prohibit “ammunition, firearms, or other weaponry or accessories.” Services like PayPal can be used to buy all kinds of things, including some products/services that most of us would see as immoral, but their terms of service don’t allow it to be used for ammo. Ammo and firearms companies are banned from using some credit card processing services. Bank of America shut down the payment service for McMillan stocks simply because they were related to the firearms industry (read the story). Amazon seems to sell everything under the sun, but they absolutely don’t sell ammo – and probably never will. Markets and services are simply hostile to ammo companies, which sure doesn’t help get costs down.

Lastly, we’re all well-aware of the high cost to ship ammo, which further inflates ammo cost.

Well, that recap was depressing! Seems like the deck is
stacked against ammo manufacturers. So what now?

Often times, when an industry is disrupted it takes most people by surprise. Established companies are terrified of it, and fear it could be lurking around every corner. But it is this kind of messed up system that makes an industry primed for disruption! Think about it:

  • Netflix did not kill Blockbuster, ridiculous
    late fees did.
  • Apple did not kill the music industry, being
    forced to buy full-length albums did.
  • Uber didn’t kill the taxi business, limited
    access and fare control did.

In each of those cases, the industry was built around something that was good for someone other than the end customer, and customers were forced to pay for it – “because that’s just the way it works.” Primed for disruption!

You can’t play by the rules, because someone else made them … in their favor.Tony Fadell (“Father of the iPod” + co-inventor of the iPhone + co-founder of the company that makes the Nest Learning Thermostats)

What PRIME Is Trying

Instead of whining about all that stuff or making excuses, the guys at PRIME are going to try something new – which honestly may or may not work. But, in response to hearing so many customers say how important low prices were, they came up with an interesting idea that could lower prices by 15-20%!

PRIME knows these things represent a significant part of their costs:

  • Cost/Access
    to Capital
    – This is renting money from a bank for the four month window
    from the time PRIME has to order and pay for the ammo until it is loaded and
    ready to distribute to the customer.
  • Inventory
    Cost
    – This is the cost of storing ammo in a warehouse, and continued cost
    of money for the funds already used to order that ammo.
  • Market Risk
    – This is the cost of guessing wrong at how much the market will buy of certain
    type of ammo, and potentially having to liquidate overstock at a loss.
  • Credit
    Card Fees
    – When you use a credit card to buy something, the merchant is
    charged up to 3.5% of the total by the credit card company. If you pay via
    check or cash, the merchant gets the full total.

PRIME is now offering an option for ammunition WITH THE COSTS ABOVE REMOVED FROM THE PRICE, if customers are willing buy a case or more of ammo upfront and then wait four months for it to be manufactured and delivered. If you eliminate those costs for PRIME, they’ll pass on the savings. In fact, they’re going beyond that and offering free shipping as an added benefit. Free as in free (i.e. no hazmat, no nothing). If you pay via check, you get the full discount, but you can also pay via credit card – you just pay the difference, which is around $7 per case.

How this works is similar to a “Group Buy,” like you may have seen on forums like Sniper’s Hide. If enough people get together who want to buy a specific product, you can typically get a discount from the manufacturer. The group is reducing the manufacturer’s market risk, so it’s fair for their price to go down proportionally.

For 18 days, PRIME has a group purchase open for 6.5 Creedmoor ammo. If it works, they may expand into other cartridges in the future. This experiment works similar to Kickstarter, in that if enough people commit to purchase, then the order automatically goes through. The threshold for the 6.5 Creedmoor is 500,000 rounds, so if that many rounds are ordered by Midnight PST on Monday, December 16, 2019, the order will be fulfilled. But, if, for example, 100,000 rounds are ordered, then the numbers don’t work out and all the orders will be canceled. But, the group buy has now been open for just a couple days, and it is already off to a strong start.

So what’s the price?

If you buy a case of
PRIME 6.5 Creedmoor ammo, the total delivered price is normally $1.35/round
.
That is for ammo that is made in the USA, and loaded with high quality
components like Peterson brass and the 130gr Sierra MatchKing bullet. Frank
Galli from Sniper’s Hide has fired a ton of this ammo, and says he typically
sees 9-10 fps standard deviations in
muzzle velocity
for the US-made 6.5 CM PRIME ammo. In case you don’t know,
single digit SD’s is what handloaders hope to achieve – so that is ridiculously
great for factory ammo. It is truly match-worthy ammo. So, you can order that
ammo for $1.35/round, they have it in stock, and it will ship out to you the
next day.

But, if you order at least a case of ammo and are willing to
wait 4 months for it to be delivered – they’ll sell that same US-made ammo for
$1.17/round, and if you pay by check it lowers to $1.14/round. Both of those
are the total delivered price, including shipping.

PRIME is also offering 6.5 Creedmoor ammo that they say is virtually identical ballistically, but made by RUAG in Sweden and loaded with a Norma 130gr Golden Target bullet in Norma brass. Frank Galli says the only difference between the US-made and Swiss-made is the SD, with the US-made landing around 9-10 fps and the Swiss-made typically landing around 12-18 fps. The Swiss ammo gets the price even lower, with the delivered price (including shipping) at $1.09/round, or $1.06/round if you pay by check.

Check Out PRIME Ammo’s Group Buy Options

I have personally fired thousands of rounds of Hornady’s 6mm
Creedmoor and 6.5 Creedmoor match-grade factory ammo. While I typically
handload my match ammo, I typically use match-grade factory ammo to practice. I
buy 400-600 rounds at a time, and I use AmmoSeek.com to find it at the lowest
prices. I think of AmmoSeek.com as the GunBroker of ammo. On GunBroker, you can
often find guns that are literally just a
few dollars
over the distributor’s cost. I’ve even heard some of the merchants on GunBroker make more profit off
the shipping charges than the firearm!
Many don’t have the overhead of a
brick-and-mortar store, and they make up for the small margins with volume and
low overhead. One industry-insider told me that the companies you see at the
top of the list on AmmoSeek.com with the lowest prices, may even be losing
money on the ammo, but are hoping customers add additional higher-margin items
to their order or like guys on GunBroker.com, they have the ammo price low but
are marking up the shipping. The truth is most customers fixate on the lowest
price/round, and may not think of it as the total delivered cost including
shipping – and smart companies know that.

On AmmoSeek.com, I typically see $1.20/round for that
Hornady match ammo in 6 or 6.5 Creedmoor, which is obviously a great price. You can occasionally catch it for as low as
$1.02-1.03/round – but remember that is BEFORE shipping, and some of those guys
may be really marking up shipping. In fact, I went and tried to check out at four
places that advertised $1.02-1.03, and with shipping the total ended up being
$1.23-1.28/round delivered.
Meanwhile, Able Ammo was advertising
$1.20/round with free shipping, so the lowest delivered price/round for Hornady
6.5 Creedmoor match ammo was $1.20/round (at the time this was written). I
searched prices for other match-grade factory ammo, like Federal Gold Medal
ammo with the Berger 130gr Hybrid or the Sierra 140gr MatchKing. The table below
shows a comparison of all of the different types of 6.5 Creedmoor ammo, along
with PRIME’s offerings.

6.5 Creedmoor ammo comparison

You can see both the top two options, which are the Swiss-made and US-made PRIME ammo as part of the group buy, are the lowest of all the factory match-grade ammo options, even at the best prices that I could find on AmmoSeek.com. If Frank Galli’s estimates for SD’s in the 9-10 fps range is accurate, then $1.14/round delivered seems like a ridiculous value for those guys who are going to use it to shoot competitively. In my opinion, if you can get SD’s down in that 9-12 fps range, it’s very unlikely that you’d drop points in a PRS-style match because of inconsistency in your muzzle velocity. In fact, did you know that based on my survey of 173 of the top-ranked precision rifle shooters in the country, 11 of them didn’t handload their own ammo, but instead used match-grade factory ammo. 3 people who finished the season in the top 30 in the PRS said they were using factory ammo! Obvious our factory ammo options these days are capable of competing at the highest levels.

Want
to learn more about how much SD matters? I wrote a whole post that takes an
objective and practical look at that. Read
that here.

Back To The Comparison With Reloading Your Own

And remember RECOIL magazine’s estimate for reloading components for a 6.5 Creedmoor was $1.27/round? That was actually based on Hornady brass, but the PRIME ammo includes either Norma or Peterson brass, which are both premium brass manufacturers that sell for more than Hornady. Graf & Sons sells all 3 brands, and here is their pricing for each:

Did you catch that? PRIME is selling match-grade LOADED ammo with Norma brass for $1.06, and the exact same EMPTY brass case sells for $1.29! That is not a misprint!

Another thing to keep in mind is after you shoot your factory ammo, you can sell your once-fired brass on GunBroker. Once-fired Hornady 6.5 Creedmoor brass typically sells on GunBroker for $0.15-0.30/piece, depending on timing and number of pieces in the package. There is a huge supply of Hornady 6.5 Creedmoor once-fired brass out there, and most people see Peterson and Norma brass as a premium, so I’d expect them to bring a little more than the Hornady.

  • Hornady Once-Fired Brass = $0.20-0.27/piece (going rate on GunBroker)
  • Peterson Once-Fired Brass = $0.30-0.35/piece (estimated)
  • Norma Once-Fired Brass = $0.30-0.35 /piece (estimated)

So while you might be able to shave a little off the reloading cost by using the brass multiple times, you could also sell your once-fired brass after you use the factory ammo and that would further offset the overall cost of the factory ammo. If you buy the Swiss-made PRIME ammo at the lowest group buy price with a check, you’d be in it at $1.06/piece delivered. If you sold the once-fired Norma brass after you use it for an estimated $0.31/piece, your total net cost is only $0.75/round!

10 years ago a box of match-grade factory ammo was approaching $40/box or $2/round. And honestly, it wasn’t near as consistent as the match-grade factory ammo that is available today. So when you think about $1.06/round delivered all-in cost for match-grade ammo – or as low as $0.75 net cost after you sell your once-fired brass – it makes you realize how far we’ve come over the past decade! Whether you reload or buy factory ammo, we can all agree it is the golden age of long range rifle shooting. There has never been another point in history where it was so exciting to be a precision rifleman!

Honestly, I see PRIME’s group buy ammo option as a very interesting social experiment. Shooters always say low price is the most important thing when it comes to ammo, so if that’s true … this thing should take off, right? But, are enough of us willing to pay for something we won’t see for four months? Many of us are used to that or more when it comes to suppressors, but ammo is different, right? Will a 15-20% discount be enough to motivate 500,000 rounds of sales?

If it works, I bet other ammo manufacturers eventually follow suit and this could introduce a whole new pricing paradigm when it comes to affordable ammo. It would almost be like buying “futures” for commodities. PRIME is starting with a group buy on 6.5 Creedmoor, but they plan to try other cartridges if it works. This new buying model could also be away to test demand for more niche ammo like the 6 GT, 224 Valkyrie, or do limited runs of niche loads, and provide good factory ammo for new cartridges or bullets without the manufacturer taking on a ton of risk.

I wouldn’t normally do a post about a “group buy,” but the idea of a new buying model that could reduce ammo prices 15-20% has just been bouncing around in my head for the last couple weeks and I have found the idea interesting. I just wanted to pass it along to you guys as some food for thought.

If it doesn’t work, there isn’t anything lost. PRIME will simply continue to sell ammo that will ship the next day at $1.35/round, and we’ll go to AmmoSeek.com for the lowest price on all the rest of it. I can’t wait to see how this giant experiment shakes out! I guess we’ll all know by December 16th!

© Copyright 2020 PrecisionRifleBlog.com, All Rights Reserved.



Source link