RE: Looper development and production costs?

[Andy Ewen <andy.ewen@trace-elliot.com>]

This is great stuff. I am totally serious about this as it is a very
interesting subject.
However, there are a couple of points that I would make:
If we are talking a Looping Device here, the best ever conceived by far, it
would still probably not sell in these quantities and certainly not for 
more
than a few years. The competition would catch up making further R&D
investment necessary to keep it at the forefront.
Manufactured cost for such a device, assuming it is made in the UK, is
likely to be at least double what you have suggested, maybe more.
Gibson require at least a 30% return on all products bearing the Gibson
name.
It would then have to go through the chain of distribution and then retail,
probably 50% then 50%, then local taxes before the user gets it, this 
would,
on your calculations make it about the same price as a small family car.
Oh, and the transport costs which you mention, but cannot be overlooked, UK
to US, UK to Europe Australia etc.

Taking these points into account, how viable a project is it?



-----Original Message-----
From: Doug Cox [mailto:bickleypunk@pdq.net]
Sent: 10 October 2001 16:45
To: loopers-Delight@loopers-delight.com
Subject: Looper development and production costs?


Since I don't have experience in the audio hardware development field, I
have to make some broad assumptions.  I'm sure Kim will let me know where
I'm wrong.

If $2 million was spent on R&D, including the labor and materials for
development, testing, market analysis, etc... everything that R&D implies,
these $s can be put on the balance sheet and amortized over 5-7 years.
Let's use 5 years for conservatism.  That's $400k per year of amortized
(non-cash) expense.

Let's say that following the R&D effort, the organization had an ongoing
overhead cost of $1M per year.  That's just for executives, 
sales/marketing,
haircuts, etc.

Let's say that the ongoing cost of production is $150 per unit.  That
includes materials, labor, equipment depreciation, any licensing costs, 
etc.
"Cost of goods sold", as the beanheads call it.  Let's also say that this
$150 per unit figure assumes that 2000 units are produced and sold every
year.

So:

$400,000 R&D Amort.
$1,000,000 Overhead
= $1.4M general expenses annually
divded by 2000 units
= $700 per unit of overhead costs
+ $150 per unit mfg costs
= $850 per unit total costs

If the company wants to earn a 15% return, they'd need to charge $1,000 per
unit

All of this ignores transportation costs, which seems to be an important
issue in the current EDP scenario.  Although I lumped a lot of things into
those 2 general expense categories, I may have left out other important
costs too...

Is this even close?  How do other complex pieces of audio hardware get
developed and sold for less?  Obviously, if the same company can spread 
that
$1m per year of overhead across multiple product lines, each one gets
cheaper.  Same is true for some of the manufacturing costs...  Finally,
economies of scale kick in for wildly popular products - if I can make and
sell much more than 2000 per year, my costs per unit will drop 
dramatically.

Hey, you asked... and I assumed you were at least 50% serious.  At least
Kim, Andy, Matthias, et. al. could use this as a starting discussion point,
and help us understand the costs involved.  Or not :)

Doug