FACTORY BUILD MATERIALS COST ECONOMICS

[phavriluk]

Just finished a 6-string project. Sitka/black limba body, rosewood fingerboard & bridge, cherry neck, enclosed tuners, wood binding, Martin truss rod, Martin strings, Minwax nitro finish. Ordinary amateur build. I've got two hundred bucks in it.

How is it that factories can upcharge five times what I spent - - - retail one-off purchases - - - for an just an 'upgraded' soundboard? Or bracing?

Does anyone have any idea of the materials cost to a factory for one guitar out of a production run of a thousand? I suspect that whatever I spent was an order of magnitude greater than 1/1000 of that bundle of stuff.

And the cost to the factory for 'upgrades'?

I also suspect that I'm asking questions whose answer are most confidentially kept by manufacturers.

But an informed SWAG sure would be nice to hear.

[Rudy4]

Originally Posted by phavriluk

Just finished a 6-string project. Sitka/black limba body, rosewood fingerboard & bridge, cherry neck, enclosed tuners, wood binding, Martin truss rod, Martin strings, Minwax nitro finish. Ordinary amateur build. I've got two hundred bucks in it.

How is it that factories can upcharge five times what I spent - - - retail one-off purchases - - - for an just an 'upgraded' soundboard? Or bracing?

Does anyone have any idea of the materials cost to a factory for one guitar out of a production run of a thousand? I suspect that whatever I spent was an order of magnitude greater than 1/1000 of that bundle of stuff.

And the cost to the factory for 'upgrades'?

I also suspect that I'm asking questions whose answer are most confidentially kept by manufacturers.

But an informed SWAG sure would be nice to hear.

A few hundred would be in line with the normal cost of building an acoustic.

If you want to know why "factory" guitars cost so much more then add the cost of a dedicated building, taxes, specialized tooling, supplies, employees, health care costs, workman's comp insurance, the occasional lawsuit, distribution charges, subtract the discount that allows retailers to be interested in carrying your instruments and divide that total by the number of instruments you make per year. Factor in the lifetime cost of providing a good warranty on your product, too.

Many "small shop" builders end up working 60 to 80 hour weeks at a very low overall income. Plus you get to do this without having a life of your own, and forget any time to enjoy playing music.

Making enough money to keep your business afloat often requires outsourcing your production to countries that are more "business friendly" (and adversarial to any care for the environment). We see that for many small shop owners who are trying to eek out a living. Breedlove is a recent addition to outsourcing, for example.

I'm gonna pass on that.

[Fathand]

Originally Posted by phavriluk

Just finished a 6-string project. Sitka/black limba body, rosewood fingerboard & bridge, cherry neck, enclosed tuners, wood binding, Martin truss rod, Martin strings, Minwax nitro finish. Ordinary amateur build. I've got two hundred bucks in it.

How is it that factories can upcharge five times what I spent - - - retail one-off purchases - - - for an just an 'upgraded' soundboard? Or bracing?

I have built 4 acoustic guitars, not counting tools and shop supplies like sandpaper, I estimate they cost me $75 -$150 each in materials. The big caveat is labour. Here in Ontario, the minimum wage is $15 /hour. I think I spend 80 -120 hours on a build. Even if a production shop can cut that back to 40 hours, that adds $600 to your $200 build, add the price of marketing, distribution, equipment and overhead, you can maybe double that. Then the company owners want to make a profit as does the retailer and possibly a distribution company in between. It might double again, now you're at $3200 for a ballpark.

I just sold the 3rd guitar I built for about 10 x my materials cost. Sounds great, but that equates to about $5 an hour for my labour, and doesn't include equipment cost. It is a nice chunk of pocket money though for doing something I enjoy. If I tried to turn it into a business it would ruin it for me.

[KevWind]

Originally Posted by phavriluk

Just finished a 6-string project. Sitka/black limba body, rosewood fingerboard & bridge, cherry neck, enclosed tuners, wood binding, Martin truss rod, Martin strings, Minwax nitro finish. Ordinary amateur build. I've got two hundred bucks in it.

How is it that factories can upcharge five times what I spent - - - retail one-off purchases - - - for an just an 'upgraded' soundboard? Or bracing?

Does anyone have any idea of the materials cost to a factory for one guitar out of a production run of a thousand? I suspect that whatever I spent was an order of magnitude greater than 1/1000 of that bundle of stuff.

And the cost to the factory for 'upgrades'?

I also suspect that I'm asking questions whose answer are most confidentially kept by manufacturers.

But an informed SWAG sure would be nice to hear.

Your asking a question about why an orange is different than a steak (there is no possible way to compare your project with commercial manufacturing) they are not in the same universe


Consider ::


First what is the fixed cost of overhead for the location where your project was made ? ( your monthly rent or mortgage , property taxes , utility bills etc) ?
What is the wage value of your skilled labor? (not minimum wage---- skilled labor ) in the US that often runs $30 to $40 per hour
How much does your employer (you) have to pay in matching Fica SS unemployment ins. etc. to your skilled labor wage ?
How much does it cost you advertise and to pay sales people ?
And on top of all that what profit margin above costs do you need (AT the Wholesale price point ) for you as commercial mfg to make a profit and survive let alone grow ??
So in the industry all that has to factor into the cost of guitar

And Then ,,,,what is markup difference between all these fixed mfg costs , plus materials and labor costs plus your profit margin for manufacturing ,,, and then what the retailers can actually sell it for ?? Which in the guitar market is roughly 30% to 50 % because the retailers have all the same fixed costs plus required profit on top of your total mfg costs and profit., so that is what goes into the retail cost of guitar.. Not just the raw materials ...


While actual figures are confidential in specialty products mfg in general
if the materials costs alone (no labor no overhead not sales or advertising ) are much more than 10% to 15% of retail that manufacture is likely in trouble ...
Generally speaking the if the total cost out the door is much more than 25% to 30% of retail ,,,that Mfg is likely in trouble