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Cost of production vs retail

nebunebu

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Hi all, hopefully this is the right place to post this question.

I was wondering - Amirm have a really good knowledge of electronics. I've read lot's of reviews (but just a fraction of what you guys have read) and sometimes he goes into details of what components are good and what component is poor quality.
By just looking at electronics and map out the parts - is it possible to get a certain sense of what a unit would cost to produce (in material cost)?
I'm guessing there is a lot of things to consider when doing actual cost - like engineering, shipping, marketing, infrastructure and so on.

I do have an hypothesis that during mid industry - electronic age most of the business set goal to produce high volumes at low cost so that it would be affordable for consumers. And typically back in the days a high-end gear price would be around 2000-5000$ dollars.
In todays market the goal is the same to produce high volumes at low cost but sell at highest price as possible towards consumers.
Looking at units now the high-end starts at 10 000 - 15 000$ it seems?

And then you have some deviation companies like toppings who produce high quality for low cost to simple peasants like me.

I know this isn't very scientific and probably not right for this forum.

And if I'm poking into a wasp nest that one shouldn't - please let me know.
 

Matias

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Read this as it should clarify how the market works.

 

sigbergaudio

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5-10x. But as you said the cost of the components tell you next to nothing about the real cost involved of getting something to market.
 
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nebunebu

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Read this as it should clarify how the market works.

Perfect - thank you!
 

DonH56

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By just looking at electronics and map out the parts - is it possible to get a certain sense of what a unit would cost to produce (in material cost)?
Yes, in materials, but...

I'm guessing there is a lot of things to consider when doing actual cost - like engineering, shipping, marketing, infrastructure and so on.
This is the crux. The actual cost to produce a product is usually dominated by other things than the cost of materials. In high volume you can amortize development, material, and production tooling over all the units sold, but in small volume the development cost (non-recurring engineering, NRE) is usually most of the cost, and that very much depends upon the design and development effort. My career started with custom analog/mixed-signal IC design, where development of bleeding-edge products can take several years for a team of designers and support staff (with a few $M's in SW/HW costs), then cost upwards of $1M for initial wafer processing (material, and may take several spins, not including test fixtures, boards, and such), a few months of testing (millions again in test equipment), and the resulting volume may be in the hundreds or thousands of units. The same effort may be required for a high-end audio chip that is sold in quantities of millions so the final product can be much cheaper.

And yah then add overhead of the facility (lights, HVAC, etc.), packaging, marketing and sales, support, etc. etc. etc.

There is an old story about a $9000 wrench sold as part of a radar contract. I happen to know a bit about that one... It was a fancy beryllium wrench and all that jazz, but the story that was not told is that it was a line-item contract for production and replacement parts. All the pieces of the radar were assigned a single line and the total cost divided by the number of lines for a per-line cost. So, the $100 wrench (yes, it was an expensive wrench) was $9000, but so was the $500,000 radar processor...

FWIWFM - Don
 
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12Many

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does anyone know typical dealer markup? I was told once 50% but not sure if that is still true.
 

DonH56

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does anyone know typical dealer markup? I was told once 50% but not sure if that is still true.
Not really, not now, but when I was "in the biz" a millennia ago it was 40% for most consumer products. Almost all the stereos, TVs, and such in stores I worked (as a tech, not a sales guy) were marked at 40% over cost. Higher for luxury goods, lower for smaller high-volume items. But it can be all over the map... And probably other places varied a bit due to overhead and such. That is the markup from wholesale to retail, not the total markup from producer to consumer.

One thing adding to cost on the retail side is stock/shelf life, or whatever they call it these days -- how long something sits on the shelf before it is sold. For audio, again in my very old experience, many of the higher-priced, higher-markup items were in the store for much longer so we paid the cost of having stock (overhead, floor space, money cost for items we bought and paid for before sales, etc.) and the time and effort to sell the products built into the markup.

IME/IMO - Don
 

DVDdoug

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One thing adding to cost on the retail side is stock/shelf life, or whatever they call it these days -- how long something sits on the shelf before it is sold.
Inventory Turnover. The example I remember is groceries compared to jewelry. If a grocer buys $100,000 worth of inventory it will be sold in a couple of days. It will take the jeweler several months or maybe longer to sell his inventory. So the jeweler needs a higher mark-up to make the same profit.

In the "audiophile" market the quantities are very-small and higher price makes the product more desirable. ;)

I used to build some of my own electronics (and sometimes I still do). But, costs of manufactured electronics has come down and with "high density" ICs its harder to build at home. I can buy a 200W amplifier cheaper than I can build it...

But the main thing I noticed is that the basic electronic components are fairly cheap and the main parts costs are related to the case, connectors, switches & pots and that kind of thing. A volume manufacturer can buy the components a little cheaper* but they can make the case/cabinet, front panel and other custom or cosmetic parts a LOT cheaper than I can at home (and usually the finished product looks better). PC boards are also a lot cheaper in volume.




* I just looked-up a random op-amp from Mouser (a major electronic components distributer). One piece is $1.38, 10 are $1.25 each, 25 are $1.19 each, and a reel of 3000 are also $1.19 each, so about 15% cheaper in quantity.
 

Mnyb

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Some things can get even lower in cost in quantity like passive components and wiring .

When I worked at a power company we boutgh some type of cables in spools of 1000 meters 2 or 3 at the time , then we had 90% discount .

But pricing is and art form in low volume products with a finicky set of customers buying the flavor of the month thing ? and veblen goods , where pricing is part of the products the luxury item cant be too cheap then peasants might afford it you don't want it anymore :) but you still have overhead costs and dealers to keep happy etc etc and stay long time viable in the market ?
 
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nebunebu

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Some things can get even lower in cost in quantity like passive components and wiring .

When I worked at a power company we boutgh some type of cables in spools of 1000 meters 2 or 3 at the time , then we had 90% discount .

But pricing is and art form in low volume products with a finicky set of customers buying the flavor of the month thing ? and veblen goods , where pricing is part of the products the luxury item cant be too cheap then peasants might afford it you don't want it anymore :) but you still have overhead costs and dealers to keep happy etc etc and stay long time viable in the market ?

Imagine finding out that you bought a cable for x amount and if you have bought 100 times more you would pay the same price!

In a way i'm guessing we are playing our self when it comes to cost and luxury :/

Had a thought on my way home today. In reality - for amplifiers, we are paying big bucks to get a signal amplified - and it turns us on..
 
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