Daryl said:
How much could it really be costing him to manufacture a transistor that fits a tube socket? It pisses me off because I like new technology and it sets technology back when it is cost prohibitive. I mean these things may be awesome enough to make you goo your pants, but if the price point is not appealing then there is going to be a tepid response and may die out because of lack of demand.
It's all about economies of scale. If you're a small business trying to develop, manufacture and introduce a new product onto the market, there are a huge number upfront and ongoing costs that have to be paid for. It is also a risky endeavour as you're never 100% sure how well the market will accept your product - at any price. Any miscalculations and you may as well donate your investment money to charity instead of trying to build a business.
If this guy is predicting that his sales are only ever going to be so high, he can calculate a minimum cost to him, below which he loses money. He can try to amortise the upfront costs over a few years to keep the per unit loading down, but it still comes down to expected volume.
Let's assume each "tube" costs $20 in parts. If he expects to sell, say 1000 units a year, and he needs to pay for his time, upfront engineering (maybe a few months of R&D timewise, a $10,000 in upfront costs for PCB, injection molding tooling and test equipment, time for per unit testing (assuming thorough Q/A testing), business and legal expenses, possible CE/UL approvals, advertising costs, time to create a dealer network, packaging, etc. And if you add all that up, you'll probably find the per unit cost (with upfronts amortised over the first 2 years) would come to something like $40 per unit. Remember, 1000 units isn't really that big a quantity for something small like this.
Now we have to talk about at least trying to make a profit and not underselling any dealer network that you're working with. The dealers won't be happy if you undercut them on your website for cost+10% as they'll be looking at making at least 20% themselves from the sale. When you sell to the dealers you'll probably also want to make at least 20%. That means you have to sell them for at least $60 before anyone will care enough to help you sell them. That sets $60 as the minimum reasonable cost to the end user. Double that for RRP and let the street price sit around $90 and everyone in the dealer chain happy.
So, no this is not some guy trying to blindly rip off the masses. If he does some more market research and finds a way to sell higher volumes, then the cost can be reduced - again it all comes down to economy of scale.
Daryl said:
He needs to be thinking about his marketing strategy and that it is better to have less profit per unit type sales instead of high profit with hardly any sales. It's simple economics. If they were maybe $20 tops, I would try one in my effects loop and experiment with different position in my modules.
Yes, he probably does need to be thinking about better marketing. But, it's still better to sell 1000 units with a $50 profit margin than have 100000 sit in stock and end up being forced to sell them at a net loss.
Daryl said:
DO you guys smell something funky?
No. But I can see how you could come to that conclusion if you weren't aware of how much pain and 'hidden' costs are involved in the development/manufacture/sales process.
