Production VS wholesale VS retail: iPhone, nexus 5 and you
Production VS wholesale VS retail
There seems to be some confusion about the realities of pricing and how retail works. With iSupply giving production costs on a part by part, they also include the cost of the packaging and labor costs. There are some confusion about what these breakdowns really mean when applied to the retail costs of the units in store. Especially with the release of yet another Nexus phone.
I’ll use the iPhone 5s as an example of what is going on:
iSupply break down 16gig (BOM + Manufacturing): $198.70
Retail Cost at your local store: : $649.99
this is the total production per unit - period.
A lot of posters to bring up a few things:
1) R&D costs
4) patent licensing
All of these a valid points that do add to the cost of each unit, but you need to understand it is a per unit add.
Apple shipped 137 million iPhone 4 and 5 in 2012
let me repeat that: 137 million units
Apples marketing budget for all products was 1 billion dollars, that includes the Mac line, iPad line, iPod line, all of it.
3.4 billion on R&D company wide.
These are the 2012 numbers.
Even if the iphone was paying for ALL of this, a per unit add on to the per unit cost would be $32 per unit!
let that sink in, all of the marketing and R&D for the entire company, adds up to $32 per unit - this isn’t counting iPad, iPod, mac, or accessories. Not taking into account the per unit reducing all of the marketing and R/D I am lumping on just the iPhones production cost. (admin costs also factor in, but $32 per unit is already high)
Now, lets take into consideration the patenting licensing issue, I cannot find a per unit breakdown on this, so we are going with Nill, since the breakdown included the wholesale parts cost per unit. (we can go for $10-$20 but it really doesn't matter at the end of the day)
Apple then turns around and sell these to retailers (your carriers). last estimates out of apple peg this around $420 per unit or more, they say average and since they run 3 models at once, we going to tack on a little for the iPhone 5 in this example depending. Rumors persist that Apple is getting more per unit than other OEM phone manufacturers like Samsung or HTC.
Lets go with $475 per iPhone 5, since it is a little more than double production and ALL marketing and R&D. We will tack on a few bucks for admin and shipping costs per unit. So, your carrier/retailer is making $175 per unit Sold.
lets break this down:
iPhone leaving the factory: $231 - with marketing and R/D included
Iphone at wholesale: $475 ← why apple is making so much money, especially at their own stores
iPhone at retail: $649
Your cost from the carrier: $200
Part they are financing $449 or $19 per month for 24 months which is hidden in your bill (except tmobile who is honest about it at $20.83 iPhone 5s)
So far I hope no one has questions about this - pretty straight forward (the real painful rape comes into play once you buy the 32 or 64 gig models, because there is no bloody way it cost more then $10 to add another 16gigs)
Now we come to the Nexus 4 and 5
LG is contracted by Google to produce the phone, Google helps design it, does all the R/D and marketing, and get the units straight from LG at super wholesale rate.
last year the cost of an nexus 4 was around $200 according to the same breakdown done to the iPhone, they were sold at $299 and $349 to start. This can be seen as the barebones wholesale cost from LG including all production and licensing fees included. LG makes their money as the producer and Google resells them right near wholesale. I would go as far as to say they were selling the basic model at the wholesale price, and making a bit on the 16 gig.
This is why T Mobile had to up the "on contract" price over that of the play store, they were buying them at the same price Google was selling them for, minus the bit of profit Google was making.
fast forward to this year and the Nexus 5 - $349 is the WHOLESALE price, T mobile and Sprint are both paying this - same price as us customers on the play store pay.
I do not see why this is so hard for people to grasp, there is no conspiracy here, there is no crap. every industry is like this. Do you really think a Ralph lauren shirt costs $90? or Nike sneakers cost $150? to produce?
I owned a retail store 14 year ago -example of products I sold retail for anywhere between $25 and $50, I would pay half that from a wholesale distributor, who in turn paid about 5%-15% less from the company that produced them, because they had to buy in bulk quantity. 100-500 units where I might buy 2 units. This is how it is done, and has been done for a long time. Ask any small business retailer that is willing to talk. Now think about the buying power of a walmart or Home depot, when they buy straight from the manufacture or just contract factories to produce their in house lines.
Cliff Notes: nexus 5 is the wholesale cost, we are paying what retailers pay from a distributor, which Google now is.