bigben320e

I read it as a compliment to hooleyboy as well, and as he said contrasting from the people that claim to know what they are talking about as well. Damn, the flaming and bad attitudes around here are at an all time high.

What is going on here?

hooleyboy

I got a few PM's for me to check out the post so I was not the only one who read it as negative. It if was not meant to be negative than I am sorry. If I am Amused is ever in the PHX area I will buy him a beer.

SSM AMG

All this and it still doesnt explain why headers still cost soo much. I understand R&D but come on now. AMG or corvette or mustang, a jig is a jig. It doesnt take more money to make them.

madgoat

My point exactly...

wawy

I think hooleyboy's explanation hits the nail on the head...

madgoat

If I can get custom made stainless headers for the same price it really doesn't make any sense that a header that was in production would cost as much or more than that. Must be made of Unobtainium.

Akademiks

+1, I also saw it as a compliment to hooleyboy.

That said, I read it once and was like WTF and read it again, after about the third time I got it, so I do see where hooleyboy thought he was being insulted.

alumar

Variable cost +
Transportation Cost+
Excise Tax +
Wholesaler Markup +
Retailer Margin
= MSRP (plus state tax)

R&D, Material Cost, manufacturing cost and 'production margin' (where the creator makes its money) are all part of the variable cost.

After a price is established there, you have to add in a general freight cost per unit or pallet of units.

After that federal excise tax comes into play (the tax the producer pays)

Then it goes to a wholesaler (or directly to retailer depending if its a two / three tier system)

The wholesaler will make a 8% to 18% on average, then the retailer marks up their base PTR from 20% to 200% depending what the item is.

Pricing is not that complicated, its all at what amount keeps everyone involved in business + a profit, before it gets to a point you can purchase. The Break/Even cost are probably pretty cheap on headers, but why would a company sell them for that?

The largest factor is the production run element, on the manufacturing side when it comes to headers. Low production run means a higher cost to make up for material and R&D.

Take this as an example.

Production/R&D/Materials for the creation for the first header = 25,000.00

(80.00 in materials, 10k for a month of 2 engineers working on design, renting jig 5200, lawyer fees, packaging, marketing 9720.00)

Production run scheduled for 200 more headers, Jig time, material cost most of it. Another 16 grand in material cost, 4 k for the employee cost for the 1 month it takes to make 200.

So now you have 201 headers that took you 2 months and 45,000.00 to produce, market and setup shipment to wholesalers. All you care about is getting say 12% on your return. That is what your going to charge your wholesalers in variable cost markup.

45k * 1.12 = 50,400.00 will be the invoice to your wholesaler.

So now you have a wholesaler that has 201 headers @ 50.4k = 249.00 unit price.

Now they are going to make their markup to a 'retailer' say costco 20%

FOB cost (what wholesalers paid) * 20% = 60480 to the retailer for 201 headers

Unit Cost now @ the retailer is 301.00; obviously they want to make money and decide to mark up 40% to start (this can have a wide range of pricing, hence a case of beer @ 17 bucks at a store to 24 beers at a ballpark @ 7 bucks each!)

Say on headers, its most likely 20% to 40% from a retail level (dealerships, aftermarket dealers)

Now this does not mean it’s the final price by taking the 60.4k and * by 1.2 again... that would be a figure you wouldn’t know unless you were a person at the retailer paying the invoice. (per this example, 20% would be 72,576.00 for 201 headers or 361.00 each)

Most of the time retailers will market it up to a fixed pricing point MSRP (600.00 headers) and discount through offers of "20% off MSRP" which bring you in line with their 20% to 40% margin they need to make.

Note, those pricing steps are not ness to "screw you", its put in place for their company's to survive and grow a profit. The best thing we could ask for is higher production runs, which would mean a lot more people modding their AMG's, thus driving up demand or pick a higher production car that has a larger variable demand.

If we were to use this reverse methodology using 20% retailer markup, 20% wholesaler margins, you could figure out what the manufactures are charging to produce whatever production run rate they are charging per unit.

So a set of 3000k headers = 2400.00 = 1920.00 ... it cost the manufacture that much to produce 1 header? more than likely not, but again, that is a good start if your trying to create your own. Can you create a set of headers for 1920.00 if you intend to sell to retail market, maintaining a 20% markup and Margin rate for your wholesaler and retailers?

I’m not in the making header business, but seem’s like an opportunity to make some grip, if the demand is worth it.

--------------

I know this turned into a long winded post but lets close on the profit margin for a manufacture on that example.

So lets say those were all real figures and at the end of the day there was only one pass of 201 headers... Essentially all that was made was 5 grand profits after expenses paid per 200 @ 12% markup

What i bet is these figures are pretty close, but the manufacture is charging 200% to the wholesalers to make it worth the expense, cause lets be honest, 5 grand is not giving much opportunity to grow the business.

--------------

Moral to the story = More production = Less price!

alumar

And yes... I work in Revenue Management for a fortune 100 company

wawy

madgoat

I fully understand what you are saying on a larger scale of things if you are talking about a company like K&N and being a proper way to do business. I work for a manufacturer (electronics) in the automotive industry do 3 step distribution (WD/Jobber/Consumer). I have seen many automotive performance manufacturing buildings/facilities and most of them are not on the grand scale of what that people think they are. This includes header manufacturers. Most of these places start out as an enthusiast who goes into manufacturing and are fairly small.

alumar

Its all of the little things that nickel and dime a small project and a relative simple thing like a set of headers grow exponentially in cost. But then again, why sell something for 500.00 that you can get 1500.00 for? (Its a rhetorical question)

I agree wholeheartedly ...to a point...

A lot of people start to understand this once they try to create a business. There are amazing things people can create and bring to market, but a majority of these ideas and opportunities never make it to market because the margin on them are not 'good enough' for banks loaning the initial note's out.

If the economy was setup on a few different principles, there would be a lot more opportunities and products available to the masses. Essentially, borrowed money must make a return, if that return is in jeopardy or on 'paper' looks like it will be a risk, the money is normally not granted.

Something like low production headers, may cost a limited amount to R&D, create, market and get to distributors, but the person making them more than likely is going to a bank, to get a loan to get the initial run going. The bank is not going to write them a check to start production if a specific return is set. You take a 500 dollar set of headers and mark them to 1920.00 and you will get that check from the bank. That is the straight up true to the situation.

Do i agree with it? Not really, but I’m not the guy writing the check to the producer to start production. I understand the perspective and why it’s in place, but feel it could be built on a different concept.

i_am_amused

Hey Hooley

That's an awesome, very honorable offer of a beer. If I'm ever in Phoenix I'll take you up on it. I most humbly apologize for any offense you and others may have seen in my post.



Edit: I don't get out much (too much work == not enough time with munchkins), but if you're ever in NoVa you'll have a beer on me. You can school me on my S55

hooleyboy

If you go to a sight that sells high quality stainless steel and just wanted to buy materials alone. your looking at over $1000 just in materials. A quality colector if its not hand made by a fabricator is about $350 per colector. Then there are CNC and or watter jetting fees to have the flanges cut. Then all the tubing. Its like $60 per U bend and up.

I could go on, but if you want 321 stainless the stuff is not cheap not to mention 321 filler rod thats not cheap either.

Granted I'm talking about long tubes cost of materials.

Before the fab even gets a weld laid down your in over 1k. then its just strait labor.

It should be noted some headers are made with 304 stainless (less expensive then 321) then a mild steel collector is used. IMO its not the combo I would want. For me its 321 or bust.

Anyway what this does is makes materials less expensive.. However it does not change the labor time for the better. Nor does it make a jig come together faster.

My rule of thumb, and some things to know.
. ask what type of material is being used 304, 321 or mild steel
. is it a mild steel merge collector? You want a SS collector if SS is being used
. 321 is the most expensive and Mild steel is like $.08 a pound
. Mild steel is cheep for a reason
. American steel is stronger than Chinese steel.
. American Stainless Steel is stronger than Chinese Stainless steel.
. Not all stainless steel is the same.

These are all things you may know, but for the novice and first time header buyer this is good stuff to know.

Trust me I've dreamed about having those $89 headers you see advertised on Summit's and Jegs website.

There is an crazy mark up and on some headers available for Mercedes when most of them only have $100 worth of stock in them.

The only real way to get the cost down is to take out some of the hands that feed off them. You have Manufacturer - Sales rep - Retailer. All these guys are taking a cut.

Full Throttle

I really hope domestic manufactures/tuners get involved in the MB community. What we are paying for low quality and sub standard parts is criminal.