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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
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.
vicks7
182 posts
 
I agree with Tonywinsc - I'd be amazed if the average speaker was sold at 4-5 times cost. I also want to really believe I did not pay such a mark-up for my equipment! Too depressing otherwise.
edorr
714 posts
 
The problem is you are looking at just component costs. from the point of view of the manufacturer overhead, labor, dealer margin, R&D are all cost. The fact of the matter is, I don't think any of these speaker manufacturers are operating on absurd margins.

Check Apple's income statement - how much do you think it cost to build an iPhone? The only difference is, the iPhone does not have that - I could just buy the components and build this myself feel to it.
jmcgrogan2's avatar
jmcgrogan2
6,346 posts
 
I don't think 4-5 times the manufacturing cost is unrealistic, I think it's a pretty standard number. Sure, some items like cables, bottled water or sneakers return 20 times the manufacturing costs, but they are in the minority...I hope. Keep in mind that we are talking about the big name mainstream manufactuers here, not manufacturers who can sell direct to the customer, which pretty much knocks 40% off the cost right up front.

Remember, there is a lot of money being spent on trade shows and free samples to help market products. I know a turntable manufacturer who has dozens of very expensive cartridges given to him as gifts. He also has given out gifts, I'm talking in the $10K+ per unit range. That's serious marketing!! So I still say that 60% of the cost goes to the manufacturer and is equally split between R&D, Manufacturing (including parts) and Marketing (including advertising). 40% is dealer mark up.

On another note, I also know more than a couple manufacturers who have come out with more expensive products because their dealers have told them that the market demands it. Just look around at all of the manufacturers whose top of the line product today is double the price or more than their top of the line product 5 years ago. There is a LOT of people with a LOT of money out there....I wish I was one. ;)
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