True price of hi-fi

[admin_exported]

Just a thought but does anyone have any idea how much it actually costs to manufacture and build hi-fi components. Lets say an amp that retails for £1000 and is manufactured by one of the smaller hand built guys. After the stockist makes his or her mark-up and the manufacturer makes his or her mark-up, how much is the product really worth.

Thanks, John

Sugden Bijou, Spendor A6, Atlas Hyper 3, Stratos 3 interconnects

 

[Anonymous]

johnnyjazz:

Just a thought but does anyone have any idea how much it actually costs to manufacture and build hi-fi components. Lets say an amp that retails for £1000 and is manufactured by one of the smaller hand built guys. After the stockist makes his or her mark-up and the manufacturer makes his or her mark-up, how much is the product really worth.

Thanks, John

Sugden Bijou, Spendor A6, Atlas Hyper 3, Stratos 3 interconnects

Manufacturing costs vary greatly based on the components making up said device. 2 companies selling a product X at £1K will have a different manufacturing cost and different gross margin and probably give their resellers different cost price and discount(s).

What the product is worth is to you the end-user: how much you (the "Market") is prepared to pay for it. But don't forget to list down all the benefits the product brings, including enjoying your favourite tunes, etc.

What I am personally interested in knowing is what is the financial cost of running a hi-fi system over a year (or per hour) just on the electricity being consumed. I'd love it if amps and other boxes came with a sort of rating like fridges and cookers now do. Also, does it cost more to run a system playing a low level or will turning up the volume to 11 make a big different on the energy bill?

 

[Anonymous]

Hi momo, i think the harder you drive an amp for instance, the more juice it will use, you can buy one of those electricity monitors that you sit in the room and it tells you how much you are using. The thing i was interested in was that after tooling up and wages etc, how much are the components inside the products really worth, i would think not a lot, but could be wrong

 

[fatboyslimfast]

The further up the scale, the bigger the margins (although in real, not necessarily percentage terms).

Richer sounds aren't going to making a great deal on the Cambridge A1 amp for instance (retailing at £70), but it does get people onto the "ladder".

A Naim Nait XS will be making a lot more.

But don't forget that a lot of cash will be spent both on materials and salaries actually designing and refining the product before it actually goes into production. For small-scale manufacturers, this can take a big amount of the final sale price, when compared to the component/material and labour cost.

I tried to make myself a headphone amplifier. By the time I had finished buying the components, and tweaking it to an acceptable level, I could have bought one off the shelf for less...

 

[Anonymous]

It would be very interesting to hear the opinions of some of the guys on this site who are stockists and actually sell the equipment. When i purchased my sugden system about 6 or 7 years ago from a high end stockist, it retailed for 3 grand, i had supplied and fitted 1 grands worth of signage for him which he didn,t have the money to pay for so we came to an agreement that he would sell me a new sugden system minus the grand that he owed me. When the system arrived and i went to pay him 2 grand difference he said that he buys the system from sugden for 2 grand and that minus the 1 grand that i owed him it only cost me a grand FOR A 3 GRAND SYSTEM, if a system that retails for 3 thousand is sold to the stockist for 2 thousand and the manufacturer is making enough money to profit from that 2 thousand then it might be that the component cost of the system is only a few hundred pounds, so when you are sitting listening to your 1 thousand pounds amp it could be that in relative terms your listening to 100 pounds worth of components.

I,m probably wrong, wait and see what the rest say

 

[crusaderlord]

I have always felt that a good hi-fi system represents good value for money on the basis that i try to buy a product at the highest price i can reasonably afford (and i do look around for bargains).

That product will then see many years of great useage and enjoyment and when eventually i decide to upgrade or change i can still get a decent amount back on re-sale value.

So i dont have any reticent in buying a good system - i will get my moneys worth.

On the other hand i always find it harder to open my wallet for a family holiday which can cost a few grand and therefore as much or maybe more than my whole system and then is all over sooo quick.

 

[Anonymous]

johnnyjazz:When the system arrived and i went to pay him 2 grand difference he said that he buys the system from sugden for 2 grand and that minus the 1 grand that i owed him it only cost me a grand FOR A 3 GRAND SYSTEM, i think there are big mark-ups to be made in hi-fi

Don't forget that he is very likely to be buying from Sugden at £2K (+VAT), and resell it at £3K (incl. VAT). I'm not sure mark-ups are that gigantic, then again there needs to be room for margin to account for cost of staff, kitted demo room and of course the electricity needed to run all these systems at the same time if required.

 

[Anonymous]

Yea crusaderlord i agree, 4 of us went to italy this year, cost 5 grand for the holiday and when you order a can of coke at the pool it costs £5. Bought 4 large ice-creams at a cafe in capri and it cost £50 to sit in and eat them. After the 2 weeks had ended i could have bought a fantastic hi-fi system but the mrs wants to go again next year, so that could have meant a REALLY good system

 

[Anonymous]

Momo, you claim your VAT back

 

[JoelSim]

What you have to remember, which has been touched upon above, is that there is a significant development cost involved with hifi, as well as the refining. Let's take an example.

Manufacturer A spends £100,000 on R&D and expects to sell 100,000 units. Therefore his R&D costs per unit is £1 (ie something like a Sony DVD player)

Manufacturer B spends £100,000 on R&D but only expects to sell 500 units. Therefore his R&D costs per unit is £200 (ie something high end)

Then of course you have materials costs, which will be higher naturally for the high-end kit, then you have the lack of economies of scale to buy these components as a supplier will give a far better rate when you are buying 100k of anything rather than 500.

Then you have manpower, someone still has to man the Customer Service, and with high-end you get better service (usually), again this has a cost. You still have a CEO, and MD, a sales force blah blah blah.

Then of course there is marketing...

Let's assume that a page ad in a hifi mag is £5,000, that works out at 5p per unit for manufacturer A (plus production costs), but works out at £10 per unit for manufacturer B. Let's then assume that the campaign is to run in 5 magazines and 2 insertions in eacg mag ie 10 times. That's 50p per unit for the A, or £100 per unit for the B.

There are many more factors involved but I think this illustration shows just why prices shoot up as volumes of kit sold reduce. Unfortunately when buying high-end kit this means that the costs are much higher.

It's the same in any market though, take watches as an example...a Rolex isn't 100 times as good as a Timex.

 

[sometimesuk]

The original question was basically asking what is the Dealers markup, not how much it costs a manufacture to develop a product.

Granted, every product is different, but i would imagine for a given price band that there are "rules of thumbs" out there.

personally, although some would say look how much markup they make on each product, but everyone seems to forget that running a shop, offering demonstrations, paying wages, tax etc etc is expensive, plus the fact, the number of units sold is low, so you would expect a high markup.

There are exceptions, e.g. Richer Sounds, but they do not offer prober demonstration facilities and only sell lower priced items. for this price range it works, but for items of higher value, most people (well i wouldnt) wouldnt buy an expensive product blind, just off the shelf.

 

[Anonymous]

momo72:What I am personally interested in knowing is what is the financial cost of running a hi-fi system over a year (or per hour) just on the electricity being consumed. I'd love it if amps and other boxes came with a sort of rating like fridges and cookers now do. Also, does it cost more to run a system playing a low level or will turning up the volume to 11 make a big different on the energy bill?most manufacturers will supply you with these figures for instance my amp consumes 50w on idle and about 300 when playing at a fair volume

 

[jaxwired]

Mark up on hifi is quite large. This is because it requires a lot of expense for retailers. It is common to see a 40% retailer markup. So when a £2000 amp is sold, £800 is going to the retailer. Obviously this varies based on equipment, but 40% is typical.

Internet direct sellers usually offer extremely good value because they can cut out 25% or 30% of the price of comparable retail goods.

 

[Anonymous]

You think that in Italy an English amplifier of 1000 euro, can cost even more than 2000 euro! I often buy directly UKD,

Bye,

Valerio.

 

[staggerlee]

Not being rude here, but what is the purpose of the question ?. General interest. how much something costs to manufacture and what it sells for come down simply to what the market will pay and the return on investment either the retailer or the manufacturer gets.

Worth is purely subjective. If you have the money to pay for it. Its is worth it.

 

[Anonymous]

Stagerlee if that is the case then if you go and buy an amp at £1000 then you are saying that it is worth £1000, but if i buy the same amp in jan sales for £500 then all of a sudden its not worth £1000

 

[JoelSim]

johnnyjazz:Stagerlee if that is the case then if you go and buy an amp at £1000 then you are saying that it is worth £1000, but if i buy the same amp in jan sales for £500 then all of a sudden its not worth £1000

It is and it isn't in my opinion. Yes it's RRP is still £1,000, but it's value could be deemed as being lower as it has been reduced in price, and this is usually for one simple reason...that it isn't selling at the RRP in the expected quantities.

 

[Anonymous]

Then if thats the case and the retailer is still making profit at the £500 price then its not worth that price let alone the original price of £1000

 

[Anonymous]

johnnyjazz:Then if thats the case and the retailer is still making profit at the £500 price then its not worth that price let alone the original price of £1000

Not really - as others have tried to explain already.

When a product is developed and a wholesale price is determined that price will carry an overhead designed to recover the indirect cost of running the production business as well as the R&D costs and of course the profit that the company seeks to make on the item.

This cost become the cost at which the retailer can buy the goods in. He then has to add his mark-up to cover the cost of having the goods in his shop. That includes (as has been said) the cost of his shop, wages, cost of credit (he has the kit in his shop for you to see and has normally got money tied up in it.) plus his profit. (Plus the dreaded VAT of course - remember that 17.5% of the price you pay is tax).

So in reality the manufacturing cost of the unit you buy is unlikely to exceed 10% of what you pay for it. The rest is taken up as described. This is actually true in most industries not just HiFi.

So how does a £1000 product get marked down to £500. (don't forget the effect of VAT here also) - its easy. At some point the maker will offer the trade a deal on the stock they have. This might be because they have a new model coming out or they need more cashflow through the business or whatever. They'll probably happily surrender the profit on old stock just to get it out of inventory. (or most of the profit anyway) If they are desperate for cashflow they'll sell it for as little as the actual cost to make it which is quite normal.

The retailer also knows if it's old stock that he needs to move it fast so he similarly reduces his margin per unit (in actual £'s - he might keep the %age the same) and has a bit of advertising or a sale or whatever and bingo you get the product for half price. Of course six weeks later your kit is out of date 'cos the new stuff has been launched at full price.

It's not a rip off it's just normal business and it happens in all sector not just HiFi.

 

[Anonymous]

Wow 10%, mega mark-up. Does that mean that what hi-fi magazine is only realistically worth 41pence then. lol

 

[JoelSim]

johnnyjazz:Wow 10%, mega mark-up. Does that mean that what hi-fi magazine is only realistically worth 41pence then. lol

If you only include the paper, then I imagine yes.

 

[Thaiman]

Different manufactures, Different importers will have different mark-up. RRP are normally working on 40% - 60% dealer's profit which is very acceptable imo.

 

[matthewpiano]

In TV and AV gear the retailer margin is a lot less than 40-60%.

Welshboy's post is a wholly accurate indication of how these things work.

 

[Frank Harvey]

I've only just read this thread and was going to explain the same thing. There's also another few posts I want to answer, which might take me a while!!

But you're right Matthew,Welshboy is pretty accurate there. Some people think that when a dealer is selling something for half price or 60% off that the margin must be huge - this is only possible when the manufacturer gives the dealer stock compensation, or when the dealer has to buy more in order to reduce the overall cost per unit.

A retailer won't actually know what margin the manufacturer is working on, so I can't comment there, and neither would it be my place to even if I knew.

 

[Anonymous]

Hello David, i think you might be the very man to answer my querie, by all means i,m not having ago at hi-fi retailers, just curious.