#1
https://reverb.com/news/guitaronomics-how-much-does-it-actually-cost-to-build-a-guitar?_aid=newsletter&utm_source=newsletter&utm_campaign=d16a09f90b-rn160410_Content_General&utm_medium=email&utm_term=0_5889ed6702-d16a09f90b-58183173

This popped up on Reverb today. I think a lot of it is truly BS. I don't see how they pay $100 in labor per guitar in China. I think it is close to $20-$30 max. A few other things don't ring true as well.

I've used to work in web design for a bit and did another manufacturing catalog where I saw the real prices of boots, sneakers, etc. Price was all controlled by the factory and double what the dealer paid. If you cut prices, i.e. lower your profit margin they pull your dealer license. You're only allowed to have sales when the manufacturer decides. I am sure that is how the big guitar brands operate as well.

Anyway...it will be interesting to read your thought.
#2
What I know of manufacturing costs is closer to diabolical's number than Reverb's.

Rondo is importing this guitar, for example: http://www.rondomusic.com/eg462mrd1.html
It's a full-size strat-type guitar with surprisingly decent playability and sound, and he's selling it *at a profit* for $89.95 after he's paid the manufacturer (who also made a tidy profit) and the shipping to get it from China or Indonesia the roughly 10,000 miles to the Vermont/NH area. Rondo, of course, is a different marketing model from that which we see in most retail/brick&mortar stores.



Most importers (Schecter, Epiphone, etc.) will have a final sell price (not MSRP) on a guitar that's 6-10X what they pay for it. This accounts for shipping internally to the various Guitar Center (and other) fulfillment hubs, corporate profit for both the importers and the retailers, inventory loss through ding/dent/theft, etc and advertising support.
#3
If anything that article points out how distribution china overheads are..
which might explain why a lot of boutique guys couldn't quite make the jump guitar center retailing.

That being said, they do say that there is still a lot of hand finishing and checking that goes into a guitar.

In rondo's case I'm sure they can have a machine do almost everything. 100 in labor seems high though. Labor in China is dirt cheap.
Prs se Holcomb is the answer
#4
Yeah, but they state (the article) that labor in China is expensive, relatively of course. They're trying to tell me that labor in USA accounts for $600 in a guitar. Considering that say auto dealeships pay licensed mechanics about $35-40 per hour tops, that means 15 labour hours per guitar and I doubt that is what goes into one. CNC machines cost the same all over the world (lets assume that) so I don't really see the labor difference being all that big.
There was a local guitar factory and they paid their guys $15/hr since I was thinking about joining once upon a time, so that will make it about 30 hours of labor if that figure is right.
#5
That's not how labor costs work, though. You don't just multiply a floor worker's hourly rate by how long you guesstimate it takes them to make one instrument. Obviously Fender doesn't work on the same model as mechanics do, and even if they did your model doesn't approach reality in any form. You cannot just divide (guitar making employee's hours in) by (guitars out). It's not like one guy bangs out one guitar then goes home, and it's also not as simple as saying that it takes 5 minutes to sand the neck on each instrument, so you only pay the neck sanding guy for five minutes per guitar. That's what your model assumes, in essence. You have to pay neck sanding guy for the whole workday, including the time when he's standing around waiting for a guitar to sand. You also have to pay the guy who programs the CNC machine, and the guy who checks to make sure the paint mixes ok, and the guy who makes sure the smoke alarms all work and the exits aren't blocked and the saws all have guards so that the whole factory doesn't get shut down, even though none of those guys even touch a guitar. I guarantee Fender has at least one safety compliance guy full-time per factory, and more likely it's closer to 5 for the US factory knowing California regulations (and I do). So the first thing that your assumption misses is that scaling up production introduces inefficiencies and factors that don't exist when you have just one guy building one guitar.

Worse, though: that small army of oversight, quality control, and regulation guys have to get paid, even if they never touch a guitar, and you can bet your ass that that $600 figure (even if it is BS, which it is) factors all those salaries in when they spit out their labor figures. On top of that, their hourly wage isn't even close to what it costs to the company to employ them for an hour. There are mandatory health care, tax, and insurance costs, and then you have to factor in administrative costs since you have to pay some person in an office somewhere to pay the person bolting guitars together, file their paperwork, hire them, provide HR services, all that stuff. It costs the company several times their hourly rate (generalizing, since hourly rates vary wildly) to keep a factory floor employee on the payroll. All of these things, I guarantee, are rolled into that "labor" number. So it doesn't matter at all if the guy sanding necks makes $15 an hour. You could triple that guy's salary and if that's the only change you made, Fender's prices wouldn't go up a dime. It's all the other stuff that you didn't think of that matters. The salary is a red herring. It's a factor, but you've assumed that it's the entirety of the cost when in fact it's not even the majority.

I think your actual claim is correct, $600 is probably too high, but you're right for the wrong reasons. I think the easiest thing to do is notice that both Fender and Gibson have USA guitars that retail for not that much more than $600 (and until fairly recently, actually less than $600) to think it's not the right figure. So I agree that the number is high, but your way of getting to that conclusion is entirely flawed. You're confusing the actual take-home pay of an employee with labor costs. In reality those two numbers are waaaaay different, and shouldn't be used for estimating how much it costs a company to make a product.
#6
It's also interesting to read the comments to the Reverb article where store owners claim to make only 20-25% per guitar. Doesn't sound right, but who knows.

Out of curiosity I looked up minimum wages in the some of the guitar manufacturing countries. And to my surprise Korea's is close to the US, and China's is higher than Indonesia's.

Of course if they include US executives salaries and bonuses under "labor cost" then, sure, US labor costs are impossible. Doesn't look like they include them under labor costs for imported stuff though.
#7
Given that the executives get paid no matter where the guitar is made, and since they're not really integral to the hour to hour manufacturing process, I assume that's not part of the 'labor' equation.
#8
Quote by dthmtl3
It's also interesting to read the comments to the Reverb article where store owners claim to make only 20-25% per guitar. Doesn't sound right, but who knows.


25% may be a reasonable overall profit figure for a well-run business, but it has nothing to do with what they're paying for a guitar relative to what they're selling it for.

For years GC had these big books behind a counter that purported to have the actual wholesale price of everything in the store. It was usually about a 30% discount off the asking price. No self-respecting store *ever* paid that much, just as GC never bought *one* of anything. There are advertising and advertising coop incentives, inventory reduction discounts, volume discounts (with various break points), sales spiffs and much more. For most guitars, 50% of the sale price is nearer the average of what a store will pay.
#9
Quote by Roc8995
That's not how labor costs work, though. You don't just multiply a floor worker's hourly rate by how long you guesstimate it takes them to make one instrument. Obviously Fender doesn't work on the same model as mechanics do, and even if they did your model doesn't approach reality in any form. You cannot just divide (guitar making employee's hours in) by (guitars out). It's not like one guy bangs out one guitar then goes home, and it's also not as simple as saying that it takes 5 minutes to sand the neck on each instrument, so you only pay the neck sanding guy for five minutes per guitar. That's what your model assumes, in essence. You have to pay neck sanding guy for the whole workday, including the time when he's standing around waiting for a guitar to sand. You also have to pay the guy who programs the CNC machine, and the guy who checks to make sure the paint mixes ok, and the guy who makes sure the smoke alarms all work and the exits aren't blocked and the saws all have guards so that the whole factory doesn't get shut down, even though none of those guys even touch a guitar. I guarantee Fender has at least one safety compliance guy full-time per factory, and more likely it's closer to 5 for the US factory knowing California regulations (and I do). So the first thing that your assumption misses is that scaling up production introduces inefficiencies and factors that don't exist when you have just one guy building one guitar.

Worse, though: that small army of oversight, quality control, and regulation guys have to get paid, even if they never touch a guitar, and you can bet your ass that that $600 figure (even if it is BS, which it is) factors all those salaries in when they spit out their labor figures. On top of that, their hourly wage isn't even close to what it costs to the company to employ them for an hour. There are mandatory health care, tax, and insurance costs, and then you have to factor in administrative costs since you have to pay some person in an office somewhere to pay the person bolting guitars together, file their paperwork, hire them, provide HR services, all that stuff. It costs the company several times their hourly rate (generalizing, since hourly rates vary wildly) to keep a factory floor employee on the payroll. All of these things, I guarantee, are rolled into that "labor" number. So it doesn't matter at all if the guy sanding necks makes $15 an hour. You could triple that guy's salary and if that's the only change you made, Fender's prices wouldn't go up a dime. It's all the other stuff that you didn't think of that matters. The salary is a red herring. It's a factor, but you've assumed that it's the entirety of the cost when in fact it's not even the majority.

I think your actual claim is correct, $600 is probably too high, but you're right for the wrong reasons. I think the easiest thing to do is notice that both Fender and Gibson have USA guitars that retail for not that much more than $600 (and until fairly recently, actually less than $600) to think it's not the right figure. So I agree that the number is high, but your way of getting to that conclusion is entirely flawed. You're confusing the actual take-home pay of an employee with labor costs. In reality those two numbers are waaaaay different, and shouldn't be used for estimating how much it costs a company to make a product.


That was a great explanation, and saved me a lot of typing!
“Ignorance more frequently begets confidence than does knowledge.”
Charles Darwin