Economics of small speaker manufacturers

If up-front money wasn't an issue and I bought a containerload of speaker enclosures from overseas, by the time they arrived here in beautiful downtown Preston Idaho I'd have saved about 30%. I could probably save a similar amount on drivers and crossover parts by buying in quantity, but couldn't expect any savings on the labor needed for final assembly. So I'm guessing that I could save maybe 25% per speaker, before the additional overhead of needing a storage/assembly facility and maybe one office employee. I don't feel like doing the math to figure out how much overhead would add, so let's say 10%. Let's add another 5% for advertising, as dealers would expect me to spend some money promoting the product. This leaves me able to sell speakers to dealers for about 10% less than what I currently charge end-users under my direct-sales business model.

So in this scenario dealer cost on my currently $4500 a pair (direct sale) speakers would be about $4050 a pair, and retail would be about $7400 (assuming a 45-point margin). Assuming you could talk the dealer into giving you a roughly 15% discount, street price would be about $6300.

Now I don't know how representative my situation is, and I haven't taken everything into account in my little run-through here. It looks like my current business model allows people to purchase my products for about 40% less than a more traditional business model would. The disadvantage is that you can't hear my products at a local dealership; you have to go to some effort to hear them, or be confident enough that they're what you want that you're willing to risk some shipping-cost money.

JohnK and Lou of Daedalus and yours truly aren't trying to take market share away from one another. We're trying to take market share away from B&W. As the number of brick-and-mortar high-end two-channel stores diminishes, our business models (or variations thereon) may become more common. Ty Lashbrook has done quite well selling direct, and more power to him. Apparently Von Schweikert has gone to direct markeing, something Ohm did long ago.

Duke

On the topic of "the sum of the parts should matter less than the end product and how it sounds", while I cannot disagree (we have all auditionned expensive gear made of expensive parts that sound crappy...hello Diamond or Be or Ceramic drivers poorly tuned!), there is a limit, as a consummer and a music lover, to pay $3,000 for a pair of vinyl covered speakers which drivers costs about $50 each (even if there are 4 of them + 2 $20 tweeters per pair). This is where I LOVE Made in China audio: the ability to make very affordable "me-too" products which designs are based on cheap components (Dussun and Aurum Cantus vs. Red Rose Music).

one more side to this is that with all the pressure currently on brick & mortar stores it’s almost impossible for small speaker companies to build a dealer network. the big guys don’t want to see small companies directly competing with them in the same showroom and the store owner doesn’t want to gamble those accounts for a small company with a small advertising budget. B&W, Wilson and companies like that spend hundreds of thousands a year and more on advertising that helps the store sell the product. speakers take a lot of space, cost a fortune for shipping and are the biggest draw in a store, all these are reasons store owners have to go with the big names. the competition is so intense in today’s market that they can’t take a gamble on new, small speaker companies.

i agree with Duke. Ty, JohnK, Duke, myself and others aren’t competing against each other. we all do our own flavor but we all believe we are offering a better value than many of the big names. i know that for my flagship speaker which sells direct at $8800, the dealer retail if i went that way would have to be at least $15,000. is it worth $15,000? well i think so but the real test is does the person buying it think so and if they do then they are getting a great value.

last point ,and i think i can talk for most of the small speaker manufacturers, is that we all want to help create systems that working people like us can afford. silly money systems costing more than a house are fun to hear at a show but that’s just not what we want to do. a big part of this process for us is actually helping people. i get letters from people thanking me because the music is how they find respite from the stresses in their lives. that is what really makes it worthwhile.

thanks,
lou

Interesting thread. I'd be curious to read an analyst's view on the industry and its trends. Reading Duke and Lou's open and honest posts, it sounds like a consumer is definitely benefitting, cost-wise, from purchasing direct from the manufacturer, which certainly feels like it makes sense. The biggest downside is, as identified, that you can't, or can't easily, demo the speakers. But that is already a downside for most models for most of us - unless one has a dealer close by, hearing before buying is difficult at best.

The value proposition of buying from a local dealer is disappearing in many, if not most, cases and with it goes any reason to pay the prices of a dealer-network distribution model. The direct-from-manufacturer model probably doesn't scale to huge heights, but high-end audio gear will likely always be a niche market, so it probably doesn't have to scale that way.

someteimes it is better to compete with fewer manufacturers than many.

there are many designers using "cone" drivers, but very few design dipole speakers.

"small" companies take note: please design panel speakers. there are many cone designs, but so few panel designs.

hi duke, i'm trying to persuade you to design an electrostatic speaker or planar magnetic. i'm looking for one now. you have already gone the cone route. it's time for a change.

one of the advantages of a small company is the ability to sustain a viable company without having to sell as many "units", because there are fewer salries to pay, plus possibly less rent to pay as well.