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How are Hig-End Speakers Priced?

I recently (early Feb 2012) purchased a pair of Model 61 Human Speakers, intending to build a small office system with them. I've been listening to them through my main system for a few days now, while breaking them in. These were purchased directly from the builder/designer; my cost was only $675, delivered to my door.

I am so very impressed with the build quality of these small speakers and the quality of the music emanating from them (even though they are not yet fully broken in). I'm honestly surprised they are as inexpensive as they are, and have begun wondering how high-end speakers are priced.

The speakers are manufactured in the Northeast US, and (so far as I know) the builder/designer doesn't advertise and doesn't attend trade shows. The speakers are built with only one pair of binding terminals, two hand-built drivers, and a very simple 1st-order crossover using a design I believe is refined from an 1970's-era design. I'm not sure how much the designer is actively pursuing R&D currently.

I'm wondering if there is a formula that speaker manufacturers generally use when designing/pricing their products. For example, does a manufacturer target a price point, and then decide to follow an "industry-standard" formula like (say) 15% for R&D, 15% for materials, 15% for manufacturing/assembly, 15% for marketing, 15% for distribution, 15% for manufacturer's profit, and balance for seller's profit? Certainly, eliminating (or reducing) one or more of the above categories could yield a speaker that is much less expensive than the price point it was designed for.

Any thoughts?
rx7audio
lowens
38 posts
 
the reputable speaker manufacurers price their speakers off parts cost plus marketing,distribution, research + profit. Its a hard go in the hiend industry these days. Companies without substance tend to fail eventually.
bigkidz
3,312 posts
 
Here is my example to my preamp. To develop my preamp it cost me over 5,000 in various parts just to try them out to see how the preamp would sound. Along the way there were so many changes based upon parts availability and how they worked together. I had read up on resistors, capacitors, wire, etc., to use that so many others found to be better than the other ones someone else liked. I had to hear most of them myself to come up with what worked for me. Then there was the chassis. So far that will be the biggest expense in the entire design even with custom wound transformers made to my specifications. So for example, if the preamp comes in at actual parts costs around $2500 how much of a market up should I charge. That does not take into consideration cost of parts to get me there, over a year or two of time to develop the component, chassis designs, etc. Plus the cost to use a copper chassis which I wanted to use would add another $500 minimum to the cost of the chassis. Try and find companies to make a chassis or cabinet for you and then you can see what it takes to manufacturer a product. I have not even mentioned website, custom shipping box, marketing expenses, etc. It all adds up very quickly. Until you try to manufacturer a product yourself, you cannot really know the total expense.

Happy Listening.
tonywinsc
583 posts
 
I don't know how hi fi companies work, but in the world of high volume manufacturing, the direct labor (the people who build the product) is about 2-3% of the cost. Parts are about 60-70% of the cost. Overhead, including salaries are about 15-20% and the remaining is EBITDA. When EBITDA runs 15% or more, investors are happy and the company can reinvest to develop new products. When it is below 5%, the future is bleak. Don't forget that warranty costs and scrap eat into EBITDA too. The earnings also cover all of the investment costs like a building, manufacturing tooling, and taxes. In a low volume specialty business, I could see labor being up to 20% of the cost. In the end the biggest margin is the middle man- ie. the dealer. Brokers make money anytime a deal is made. I don't believe markets can handle 40% margins on big ticket items in today's climate, in general, but I could be wrong. Even a box of cereal has a fairly thin margin these days. I notice cell phone companies do fairly well...
rx7audio OP
24 posts
 
I wish there were a "like" button for individual posts on Audiogon forums.
schubert
7,386 posts
 
By what the market will bear.
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