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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

Showing 4 responses by jmcgrogan2

jmcgrogan2's avatar
jmcgrogan2
6,346 posts
 
I'd say the standard model is more like 20% R&D, 20%manufacturing/distribution costs, 20% marketing and 40% dealer costs. Except cables, they have their own special set of rules. ;)

Generally spending less on marketing or dealers will give you more bang for the buck sonically. The problem with that is re-sale. Since no one has heard of your special XYZ speakers, resale value plummets immensely.
jmcgrogan2's avatar
jmcgrogan2
6,346 posts
 
It appears as if most of us feel the same, we are simply stating it in different ways. My comment that the cost was 20% (1/5th) the price seems to line up with Thorman and Bigkidz saying 5 times the cost and Marty's 400% of the parts. Many different ways of saying the same thing. Yet far from the 45% that the OP thought (15% each for parts, manufacturing, distribution). I say main stream product is 20% for parts/maufacturing/distribution, except for cables, where the cost may be MUCH lower than 20%.

The key is to know yourself Rx7audio. As I previously stated, you definitely get more bang for the buck buying from a small company that cuts out retail, marketing and other fees, as long as you know that you will keep the equipment forever. Then re-sale value is meaningless. For someone like me, who likes to sample many different flavors, re-sale value is very important, so I tend to avoid small boutique manufacturers. Know yourself....enjoy your speakers Rx7audio. ;)
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. ;)
jmcgrogan2's avatar
jmcgrogan2
6,346 posts
 
A grandson runs an import business... sales by internet. He had some small speakers priced at about $40. Few sales.

He reintroduced the same speakers priced at $200. Sold many.

Go figure.

I've heard similar stories before, sometimes even from a manufacturer. Hey, it's hard to knock them. They are simply along for the ride, the market drives them. A LOT of people just want to spend a LOT of money. This isn't quarantined to the audio industry either. You can find this in many luxury entertainment markets.
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