Home » Posts tagged 'bill of materials'
Tag Archives: bill of materials
Let me tell you why this $1.19 funnel that I purchased from AutoZone should astonish you. Behind it lies not only a secret about consumer product pricing but also an amazing but true fact about manufacturing.
First, the secret: a consumer product is typically priced at two to five times what it costs to make. Does that mean that most of every sale is profit? No, most of it goes to getting the product to where you’re going to buy it. Here are some real numbers from a project I’ve worked on:
The “Gross Margin” would be profit except that’s the money used to keep the central office running. Administrators were getting paid to keep everything running smoothly, and so was the landlord and also the power company keeping the lights on. Actual profit was far less than that 9%.
Now for the amazing part. Let’s apply the 37% that is “given to manufacturer” to the funnel. It works out to be $0.44. It costs forty-four cents to make this funnel. But it’s not only to make this funnel, it’s also to make the plastic. Imagine you were working at a funnel factory for $8/hr, minimum wage in Massachusetts. Forty-four cents represents 3 minutes of your time. But you’re not really in a funnel factory, so think about this: if I pulled out a stopwatch and I said “Go!” and gave you 3 minutes to make some plastic and press it into the shape of this funnel, could you do it? Three hours? Three days? Three weeks? Three months? Give me three years and I’d probably have a pretty good frankenfunnel, with the price tag printed up all nice, but it still wouldn’t be as good as this. And I’ll have spent a lot more than $0.44.
That’s the amazing but true reality of the world we live in, where you can go from “nothing!” to having a nice funnel in three minutes. And you just have to walk down the street to AutoZone to pick it up.