John Willett
Member of the Trade: Sound-Link ProAudio & Circle Sound Services
- Joined
- Jan 16, 2009
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Quote:
The rule of thumb for an audio company to succeed financially is that there is a 1:5 ratio between parts cost and retail price.
The ratio is about right, but not to "parts cost".
It's more like a 1:5 ratio between manufacturing cost and retail price - so that includes all the overheads and labour costs in making the product ans well as the raw parts cost. The raw parts cost can be quite low when compared to this.
The manufacturing cost is:-
Cost of parts
Cost of labour
Cost of building and upkeep
Business Tax and insurance
Power costs (gas and electricity)
IE: everything it costs to to actually make the product before you make any profit.
THEN
You have to add a profit margin
You have to add a Distributor margin
You have to add a dealer margin.
The Dealer margin alone will be 30 - 40% of the retail price for a consumer product (sometimes more - but less for a pro product).