How much may it cost?
3 years ago
In online discussions circling around the broad topic of music hardware one burning question seems to arise commonly: how much is a piece of technical/musical equipment allowed to cost, before it gets branded with the haunting label "overprized"? This question is more complicated than it seems at first glance, because quality, availability and so on plays also into this. A old Roland drum machine may be worthless if you count the value of its components, it may be overprized for the complexity of its circuit and so on – objectively it would never be worth the money, if there wasn't some sort of vintage hype around it. Yet nobody seems to complain about the pricy vintage gear. Why?
It is about what you actually want to pay
If many people decide something is worth it, they will be willing to pay more for it. Let's come back to the question – what is actually overprized? Isn't this about perception? Objectivly a vintage 808 may be overprized, but we understand why it is expensive: because 808s are not built anymore, because many people wanna have a original unit of this legendary drum machine and so on. But why would we then preceive a modern version of the 808 (with better electronics, more features, true to the original sound etc.) as overprized if it had the exact same prizetag as the historical drum machine? Because one thing is a rare resource and the other can be immagined to be there without limits? I think we always try to imagine, how much it would cost the manufacturer to build one. If this cost (mostly the BOM or Bill of Materials) is much lower than the prize, it must be overprized.
What is a fair prize?
But how much more than the BOM can or should a manufacturer be allowed to take? Manufacturers need to invest serious time in sourcing, prototyping and all sorts of stuff, which shouldn't be free if we value the work of human beeings – as everybody who does a honest work they want to get paid at least minimum wage. They also need to make money to finance future drafts, further development or just the monthly bills. So obviously they cannot sell their stuff for the cost of the parts alone. If something costs say 50€ in parts, how much markup is actually fair and good? Many professionals including Dave Jones who hosts the infamous EVVblog on youtube, say you should go for at least 3 times the costs in parts.
So the final prize for our fictional product with the 50€ BOM should be at least 150 € in the long run. There are ways to lower the BOM (take lower quality parts, take very generic parts and buy really huge amounts of them, let poor kids in some asian country solder it for you, etc), but in the end it comes down to the numbers of units sold. If you build 500 of something it will be cheaper for you than if you go and build ten. Of course manufacturers must be clever about this: order a too big run and you will start to earn just when the market is saturated and noby wants to buy your things anymore, order a too small run and you pay more per unit which will either reduce your markup or make things more expensive for the customer.
This is why markup is also important: if I order parts for 1000 units of our fictional 50€-BOM-product, and I charge exactly 60€ for it, I will only start earning money when I sold 834 units – before that I basically paid money to sell and work. What if I only sell 500 units and then people loose interest in my product? Then I will have a debt of 25k and the only way to save my ass is to sell them under the value. And with a 10€ markup per unit I don't have much room to go lower.
So if I would have charged 150 € instead, I would be start earning money after 334 units sold. This could mean that some people wouldn't buy my product, because it is more expensive than what they think I deserve to demand for my work, but in the end I would have less risk and could make better products with more peace of mind, while still getting out a fair wage.
Of course this doesn't mean products which are really overprized do not exist – they sure do. In the Hifi-World for example, a lot of the stuff that is sold is definitly overprized for what it is able to do. I think the world of modular synthesis is different. Eurorack Modules have a fair prize, if you look at what the costs of manufacturing one is. They would be cheaper, if they were as commonly used as a dishwasher, a car or a at least a guitar pedal. We in the Eurorack world are not here to rip off customers, but we are also not here, because we wanna pay to do our work.