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OK, it would appear that most mainstream speaker dealers mark up their speaker cost by 100% for suggested price to consumers. Question: What percent of dealer cost would you guess the manufacturer cost is,on average? Do you think that the manufacturer does the same to the dealer? What about distributors?
NOW, if an independent manufacturer decides to sell direct over the web to the public, and eliminates dealers, distributors, and most advertising costs, what do ya think he should charge for his products? Should he give the entire benefit to the consumer? Or should he split the difference?
I believe these questions will be more important to both consumers AND manufacturers in the coming years. Thoughts?.....
> > > and eliminates dealers, distributors, and most advertising costs, what do ya think he should charge for his products? Should he give the entire benefit to the consumer? Or should he split the difference? < < < <Once a manufacturer decides to sell direct, he/she incurs some additional costs. The biggest one is the time/expense of dealing directly with the individual consumer. Advertising or marketing costs continue, they may just be directed differently. On the other hand, some of the costs of working with dealers can be reduced: trade shows can be eliminated, travel and dealer promotion can be eliminated, don't have the cost of dealers who are slow pays or no pays.
It seems that the costs comes out about even, which is why you will typically see a direct marketed product selling for around 1/2 the price of a dealer marketed product.
Mike Dzurko for ACI
Well, this certainly demonstrates the value of this forum! Where else would you get real answers from real people in the business to your question?BillC's first response was a little tart, but his evident irritation over what he apparently perceived as a naive question is not entirely unjustified. All too often people make an argument that goes something like: "Wow, I just discovered that Sam's Stereo buys the SuperDuper Excelsior amplifier for $1000, and he sells it for $2000. What a ripoff!!" Or "Gee, I took apart the SuperDuper Excelsior amplifier and priced out all the parts, added a few hours labor @$15/her and, guess what, the total is only $250. Sam's Stereo sells it for $2000. What a ripoff!!" As BillC and other point out, there are a million other costs that must be accounted for; and cost accounting is the subject of endless debate among those in the know on that subject(kind of like toobz vs. chips in audio).
BillC's bigger point, though, is that no one does cost-based pricing. The only exceptions to this are price-regulated public utilities, like the power company, the gas company, the local phone company, etc. Those people get to recover their "costs" plus an allowable rate of return on the company's invested capital. This gives them very little incentive to reduce costs and a very great incentive to over-invest.
So, the answer to a question like what should Mike Dzurko (of ACI) charge for his Sapphire III speakers (that he sells over the internet) with reference to cost and "fair" profit, is, pardon my saying so, kind of silly. The answer to that question is found by asking (1) what are the selling prices of a B&W N805, an SF Concerto, a Totem 1, a Joseph Audio RM7, (2) how does the sound of the Sapphire III compare to those speakers and (3)how much are people willing to pay to be able to walk into a store, make side-by-side comparisons of those speakers and walk out with the one they decided to buy?
Only St. Thomas Aquinas believed in the idea of the "just price." He lived a very long time ago.
Well put. There is probably an unstated assumption that inmates here are college-educated or equivalent, and have a basic understanding of economics. When someone more naive or less informed posts, there's another unstated assumption that it is a troll, but (as is presumably true here) that may not always be true. I think that explains Bill C's original attitude.
I wouldn't assume (in the US at least) that a college education implies some understanding of economics. There are at least 435 men and women in my town, all of whom, at one time or another publicly demonstrate a complete lack of understanding of economics (viz. the recent flap on petroleum prices). I think just about all of them have college degrees.
;-[}I thought BillC's subsequent posts in this thread made clear that he wasn't intending to be a meanie, which was very nice and courteous. So, I was thinking more along the lines of an explanation, not piling on any criticism of him.
Per MM's post,I too sell speakers, and quite nice ones at that. (maybe I'm just a lttle biased) I will go internet soon.
If you sell internet, you compete with your dealers. So to remain fair you have to charge the same price. Or he loses business and is no longer interested in carring your product. You must also agree to not take sales in his home market. (no compete with dealer thier home market agreement)
If your internet exclusive, then you don't have this issue.
Transportation is a large cost, distributors are a large cost, the dealer has to eat, and high end doesn't jump off his floor like 200$ boxes.
If I deal with mail order folks, and I do, then I offer trial and return. My policy is straight forward. You tries it, you doesn't likes it, you sends it back. No questions asked. However it has to be in same condition and you pay shipping both ways. So for a 2500 system risk free, you risk about 70$ in shipping. I have only had one pair come back, comments:
his wife didn't like the veneer match to other furniture. Such is life.My raw material costs on 2500 speaks: Drivers 900, X/O 120, boxes delivered to me, I sub out most of them 350, transport 40 to me.
Assembly time: 3.5 hours, crate time .5 hours, shipping and invoicing includes errant collections etc. about .5 hours, advertisement about 40$, design time about 90 days! Trade show display minimum 15,000.
You have to cover your overhead, health care and employee bennies, shipping, travel to dealers, dealer demo's etc. It is a business. I just chose the one I loved. Cables amps pre-amps damage in shipping or insurance, unemployment, SS, and on, and on, and still make some money at the end of the day or your out looking for work. You know I have to pay the same costs as your employer. For some reason a lot of audiophiles view speaker costs dis-similiar to the cost involved in purchasing a car or a house.
Its like building a house, if you do it yourself you can save some money, but ya gotta work, you may screw it up, and you may not like what you have when your done. It may also cost you more, because a large builder get volume discounts that you most certainly will not.
Bottom line my actual net on averaged sales is about 15%. Not great but I can live on it, and no I don't drive Ferrarri's I drive an old Olds, and my wife drives an old Mini-van. But we do have a lot of music and fun.
.
Jeff, you really didn't live up to your name. thanks for the informative insight, and good luck in your business. Very few get the chance to do what they like and earn a living at the same time.
> > > What percent of dealer cost would you guess...And the operative word here is most certainly guess . I guess I just don't know, any more than you or anybody else that isn't involved with whatever company you're referring to would know.
> > > eliminates dealers, distributors, and most advertising costs, what do ya think he should charge for his products?
What should he charge, or what will he have to charge to stay in business? If what you itemize is eliminated, chances are he'll have to charge a hell of a lot to make enough profit on 3 sales per year to stay afloat. In the economy of today, and especially in high end audio, international sales are required to stay afloat. Try that without a distributor. And yep, getting rid of advertising is a sure way to spread the word. It's what most companies filing bankruptcy did 1 year prior to their final demise.
> > > I believe these questions will be more important to both consumers AND manufacturers in the coming years.
More important than when? Now? 20 years ago? The dawn of capitalism? Has it possibly occurred to you that in a (mostly) free-enterprise economy, price is a function of value, nothing more and nothing less? Those that price their products above the value assigned by the consumer base will cease to exist. Those that price their products below the value assigned by the consumer base will thrive and grow. The cost of manufacturing determines only one thing: when the product is priced to meet or exceed assigned value (and thus bring about sales), does the result bring a profit or a loss?
I'm guessing that your last statement is kind of your point, but the fact is that you either have no point, or could benefit greatly from a basic course in economics.
BillC
Hey Bill, bet you'd be a fun guy to get to know.
Alot of ingredients go into the soup to create the perception of value. From a consumer standpoint, the knowledge of manufacturing cost might confer just one more piece of information which could assist in determining value. If product "A" costs 10 cents to make and sells for 1 dollar, a reasonable consumer might be more inclined to search for a similar but less expensive product "B", or perhaps a cheaper "A" from a more discount-oriented dealer, or might look for a product that offers more for the money. Knowledge is power for both the consumer and potential competitors.
Lighten up a bit Bill. I was just curious about manufacturing costs, and people's opinions. Believe it or not, some companies actually thrive on mostly word-of-mouth and web advertising. I suspect that this will occur increasingly so in the Internet age. And hey, thanks for playing.
> > > Hey Bill, bet you'd be a fun guy to get to know.Well, believe it or not.........
My apologies for the tone of my previous post. I misread your intentions.
> > > Alot of ingredients go into the soup to create the perception of value.
Agreed.
> > > From a consumer standpoint, the knowledge of manufacturing cost might confer just one more piece of information which could assist in determining value.
Depends on whether manufacturing cost figures in to a persons value assessment. Let's look at it another way. Say you heard two components, both selling for $5k. You really grooved to component A sonically and cosmetically. You didn't care for component B even remotely, as it sounded dreadful and was butt-ugly. You then found out that component A had a manufacturing cost of $500, and component B had a manufacturing cost of $1500. Where's the value now? Do you discard component A because you feel the profit is inflated, and buy component B because you feel the profit margin is more reasonable?
I still maintain that value is determined by the selling price, not the manufacturing cost. I suspect that most inmates here place the biggest value on sonics. I just don't see someone purchasing the less desirable of two identically priced products only because the profit picture is different. Maybe I'm wrong. Maybe folks here would place a high value on the profit data if the information were available. But it's not (Shamrock being an exception). Lack of information, whether justified or not, is nothing but a breeding ground for rumor and malicious gossip.> > > Knowledge is power for both the consumer and potential competitors.
No argument there. The problem that occurs too often is that supposition and misinformation are presented as fact because the real facts aren't known or available. I flared up 'cause I thought that's where you were headed. My apologies again.BillC
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Well, that was certainly enlightening. Very creative.BillC
The fact that you came off as very abrasive and rude to the initial well meaning post. You insulted the original poster multiple times for a fairly even handed and interesting post. The original poster never said anything *negative* about distributors or dealers, just inquired on others opinions. I'm guessing you are a dealer or distributor who feels threatened.
Hi Minh,Thanks for your reasonable response.
I admit I was abrasive, but was not intentionally rude. Sorry, but I read the post differently. It looked to me to be just another suggestive probe for an all out flame-bash on the cost and pricing practices of audio equipment, with blind speculation as the only basis. I simply don't find such posts to add anything worthwhile. And no, I'm not threatened. I'm not a dealer, distributor, or manufacturer of audio equipment. I would be most happy to obtain the quality of sound I want for less money, but I'd rather stick to facts when discussing it.
BillC
One hundred percent mark up, from where do you get your information sir. A more accurate amount would be thirty five to forty points on speakers and source components, and fifty points on cables. If you went and eliminated the dealer, distributor and advertising, I would think you would have a rather unsuccessful product.
I have the cost sheets of about 20 different manufacturers in front of me. In the parlance of the trade, speakers are usually 50 points= 50% of retail price=100% mark-up over cost. Yes, source components are usually 35-40points, and cables can be whatever ya work out. I've done installs for 6 years. I've spoken to numerous retailers, distributers, and manufacturers themselves; most of whom don't like to share their production costs.
How are YOU calculating mark-up?
Unsuccessful products? Tell that to Poh Hsu(Hsu Research), Mike Dzurko(ACI), and numerous relatively small guys who are using the Internet to their best advantage. The Internet is in its infancy, don't forget.
Speaking as a small manufacturer who has fought with this issue for some time, I don't see the basic business model changing much. The mainstream high-end business is more similar to making toasters and coffee pots than not. It's about marketing and distribution. Actual production costs are usually about 20% of retail. This means that for every $100 you spend for a set of speakers, about $50 goes to the dealer, about $30 goes toward marketing, advertising, review samples, kissing-up to various entities for the good of the business, etc., leaving the final $20 to actually manufacture the product.The only real advantage that using the internet as the focal-point of one's marketing thrust is that you can have a much greater number of people seeing your advertisement for less money than you would pay for the same exposure in any print media. However, the price you pay is in nervous clients who aren't yet sure of you or your products. They are comfortable with certain recognized brands utilizing conventional marketing and distribution channels. The whole idea of dealing at arms-length is less appealing than being able to look someone in the eye. It's one thing to spend a few dollars on flowers, a book, or a CD. It's quite another to spend serious money on an audio product without seeing or hearing it first. Offering a 30-day audition period, full money-back guarantee, and even paying for the shipping doesn't overcome the perceptions in the minds of the average consumers.
To more directly answer your question using our Eire loudspeaker as an example; our cost to manufacturer is right at $1,500 per pair. Retail is $2,995 per pair. The difference is what we cover all our other costs with including shipping to the client, lights, ISP, web site, food, TP, etc.
Mike
I just lost this post.....do over...
Hey Mike, thanks for your input. I agree with many of your observations and applaud your attempt to try the direct sales model. It's a tough road, but if you truly offer a real value, I suspect you'll be highly rewarded.
In your first example above, where's the profit margin? In that 20%? And I'm assuming that if you sold the Eire speaker thru traditional dealer channels, it would list out at about $6000?
Anyway, thanks for your input and good luck in your business endeavors.
By the time you're all done, 2-2.5% profit is pretty close. While our ratios may be different, there isn't much difference in the end. It's where our money goes that may differ a bit. What we may gain in one area we lose in another.Using conventional marketing and distribution channels would surely drive the retail cost of the Eire up. However, the economics of scale must be factored in as well. Greater production volume tends to drive the cost per unit down. One potential probelm is the investment capitol required to reach that point. The investor is only concerned with the ROI and feels no passion for you, your company, or your products. It becomes strictly a numbers game. You now work for the investor. We may be small, relatively unknown, and not taken seriously, but I work for our clients and no one else. That's hard to do using conventional marketing and distribution channels. After all, the dealer is your direct customer, not the end user.
Regards,
Mike
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