What is the Actual Cost of Producing...


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Phydeaux642
November 1, 2007, 11:15 PM
...a nice handgun compared to the price we actually end up paying for it at the register? Is the cost to produce a Springer EMP that much more than the cost to produce an SA Milspec .45? I'm guessing that when a company introduces a new handgun they are trying to recover some R&D money up front, but in actual dollars I wonder what it costs to produce a well respected autoloader or revolver which would include materials, labor, advertising, etc.. Does the built-in legal and liability issues associated with firearms add a sizable chunk to the cost? Just curious.

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chris in va
November 1, 2007, 11:21 PM
I cannot confirm this, but rumor has it Glocks are produced for ~$90.

Tokugawa
November 1, 2007, 11:42 PM
Can't be much to manufacture a handgun with modern methods. I suspect a LOT of the cost is overhead like insurance- and then markup, thru a wholesaler and retailer. Look at a scan/print/fax machine and figure the parts-makes a handgun look like a stone ax. And even so, the cost of a good gun has stayed the same or dropped in terms af how long an average guy has to work to afford one.

Autolycus
November 2, 2007, 12:03 AM
I have heard an even lower cost for Glocks: $60.00 or so. I am not sure but either way I would suggest checking over on Glocktalk as some people there probably know.

Soybomb
November 2, 2007, 01:35 AM
Does the built-in legal and liability issues associated with firearms add a sizable chunk to the cost? Just curious.
I don't know how much they add in but you have to remember that several companies like hi-point sell handguns at the $100-150 price point. If you can sell a handgun at $100 to the consumer and make a profit I think its telling how much of the price of a $600 gun is lawyer money.

On a side note s&w, among others, is a publically traded company. I imagine you could find some things in their investor documents that could give you a better idea of how the expenses and profits that come from their handgun business.

RyanM
November 2, 2007, 02:56 AM
Pretty sure the actual cost for Glocks is more in the $150 range. I've heard of people destroying their Glocks in such a way that the warranty was voided, but that the factory offered to sell them a new gun at their cost, around $150 or $175 or something. Of course, that's also going to include stuff like cost of importing them.

I'd guess a steel-framed gun with machined internals would be something like $300. Of course, something more like a "modern" gun with MIM internals, probably more like $200, $250. Cast frame would take it down to $150-175, same as a Glock.

BigBlock
November 2, 2007, 03:04 AM
If you can sell a handgun at $100 to the consumer and make a profit I think its telling how much of the price of a $600 gun is lawyer money.

I don't think it's "lawyer" money so much as "CEO wants a ferrari" money. Smith and wesson, for example, can't possibly have any more legal costs than high point...yet their firearms cost ten times as much. Mr. Smith must have a pretty cool garage...

Soybomb
November 2, 2007, 03:33 AM
I don't think it's "lawyer" money so much as "CEO wants a ferrari" money. Smith and wesson, for example, can't possibly have any more legal costs than high point...yet their firearms cost ten times as much. Mr. Smith must have a pretty cool garage...
Well I'm sure their guns do cost more to produce than high point, I'm sure they spend more on advertising and research than high point, and of course they deserve to make a profit on their work and in fact have a duty to make a profit to their share holders. I don't know just how cool the garage of the ceo is though, his annual compensation package is 450k a year. While I wish thats what mine was, it isn't really all that much as far as ceo pay goes. The ceo of ATK (federal ammunition among other things) takes home 800k, The 25th percentile of CEO pay is $510k and the median is 686k. The brady group would have you believe the gun industry is filthy with money, but its overall a relatively small business.

BigBlock
November 2, 2007, 03:38 AM
Well I'm sure their guns do cost more to produce than high point, I'm sure they spend more on advertising and research than high point, and of course they deserve to make a profit on their work and in fact have a duty to make a profit to their share holders.
Sure they do, but ten times as much? Hi point may be a bad comparison, because they make bottom of the line and ugly guns. But compare S&W to, say, Ruger, and they're still twice as much. I find that ridiculous and will never own a S&W for that reason.

As a business owner myself, I think it's just plain bad business to charge exorbitant prices for your products. I of course take a good profit for myself, but I also pride myself on offering fair prices to my customers.

plexreticle
November 2, 2007, 04:24 AM
Running a factory is rather expensive. The cost of electricity is alone is staggering. Skilled labor, engineers, mechanics are all expensive. The actual material and machine cost may not seem like much but when you ad all the other stuff involved it's amazing that they are not five times the price.

Soybomb
November 2, 2007, 05:43 AM
If you owned s&w stock wouldn't you be furious if they didn't make you as much profit as possible? The market ultimately decides what prices are fair, compared to sig, hk, and the like s&w guns can seem like real bargains. Unless sales are in a slump, they probably are on the right track with pricing. I don't even know that ruger is a good comparison. Does ruger sponsor shooting teams? Do they have range demo days? Do they make LE contract bids?

Anyway some interesting data from s&w, at least to me:

Our Smith & Wesson pistol sales accounted for approximately $78.2 million in net product sales, or approximately 33.3% of our net product sales, for the fiscal year ended April 30, 2007 and for approximately $48.9 million in net product sales, or approximately 31.0% of our net product sales, for the fiscal year ended April 30, 2006.

Through our advanced products engineering department, we enhance existing and develop new firearm products. In fiscal 2007, our gross spending on research activities relating to the development of new products was approximately $1,248,000. In fiscal 2006, our gross spending on such research activities amounted to approximately $349,000. As of April 30, 2007, we had 13 employees engaged in research and development as part of their responsibilities.

Insurance coverage for firearm companies, including our company, is expensive and relatively difficult to obtain. Our insurance costs were approximately $5.5 million for the fiscal year ended April 30, 2007. Our inability to obtain insurance, the cost of insurance we obtain, or losses in excess of our insurance coverage would have a material adverse effect on our business, financial condition, and operating results.

78.2 million in net pistol sales (1/3rd their total net sales), and 5.5 million a year in just insurance costs. Wow. Meanwhile ruger's net sales for all their gun products was $139m and still spent 2.5 million on product liability (law suits and insurance). Despite only having half the sales of s&w they also paid their ceo nearly the same as s&w. Neat.

everallm
November 2, 2007, 09:16 AM
Costs are being driven by, in no particular order

1. Material costs including stock, power etc
2. Investment in plant
3. Advertising and sales
4. Direct manpower costs such as pay and taxes
5. Indirect labour costs such as health, pension etc
6. R+D
7. Adminstration costs including accounting, regulatory, legal, HR etc.
8. Cost of carry of holding stock in inventory
9. "shareholder value"
10. Distribution network
11. Markup through the entire Manufacterer -> Wholesaler -> Retailer -> User chain.

There is also the "Perceived value" markup as well.

A "premium" product, to stay as a premium product has to be seem to be more valuable and so more expensive.

If you make the product too good a value it can then start to carry a stigma as a "cheap" or inferior product.

An example that is seen regularly on this board is the CZ range of pistols.

They have a great price point for the quality but have had a perception by some non owners as "cheap/inferior" because of that.

sojournerhome
November 2, 2007, 09:37 AM
Consider the value of a pistol/firearms. Taken care of it can last 10-50 years to be past on to future generations with maintenance we have surplus rifles over 100 years old.

Now, compare that to the car industry. How long does a car last that is much more expensive that a firearm? Firearm makers spend R&D to improve their product every year. We know that an independent car maker in Florida has a car that gets 90 mpg. But, do you see this coming out in all car makers products? No. Sometimes I feel some manufacturers of products "want" the item to breakdown and have a shorter life than it can have, so they can keep sales going.

To conclude, I feel the value of most firearms greatly exceeds the value of many other consumer products we can spend our money on.

So, much so, that investment advisors list firearms as investments along with stocks, bonds, real estate, and precious metals.

Just my 2 cents. And another reason to make that next firearm purchase. :D
It's an investment honey. ;)

KelTecian
November 2, 2007, 12:49 PM
I have also heard the glock rumor that night sights cost more then glock spends to manufacure a pistol.

Jim K
November 2, 2007, 04:23 PM
I was told some time back that the average actual factory cost (materials and labor) of producing a firearm was about 1/7th (about 14-15 percent) of the MSRP. That did NOT include all the diverse costs of running the factory, only direct costs of manufacturing.

Jim

Wil Terry
November 2, 2007, 06:31 PM
Well under $50.00 to make a pistol ready to sell.
I would make a minor wager it is NOT much higher than that now. Material costs per gun cannot be over a dollar or two, AT THE MOST.

Hypnogator
November 4, 2007, 07:57 PM
FWIW, the Gov't acquisition cost of a S&W 2" Model 10 revolver in the late '60s was $57.00.

Papaster
November 5, 2007, 12:05 PM
One huge part of the pricing of anything is the innovation to produce said item. It's part of the same reasoning that drives prescription medication. When a medicine first rolls out, the brand (only one available at the time) medication is going to be significantly higher than the generic. The generic drug companies are not putting the investment in creating the drug, merely reproducing based on someone else's formula. Same concept with the EMP. Springfield re-engineered the 1911 design for the 9mm cartridge, whereas the standard USGI SA's are straight from the tried and true formula which lessens the investment necessary to produce the pistols. We pay alot for innovation, design, and originality.

mljdeckard
November 5, 2007, 02:21 PM
I am trying to imagine what there is in a Glock that costs more than $50 to produce. As stated above, the tritium in the night sighs is more expensive.

A 1911 is a different animal. You can get a 1911 in a very broad spectrum of trim and quality. The EMP is an example of a newly produced, very specialized gun. It's even different than the other sub-compact 1911s that had already been produced. Start with the parts, grade of steel, MIM or machined, grade of finish inside AND outside, then move to fit, custom options, blah blah blah.

I am one who who has repeatedly screamed in these forums that a $2700 Nighthawk can't do anything my Kimber (which was $630 NIB) can't do. BUT, if you hold them and shoot them together, you can certainly tell which one is more expensive. (Whether or not you think the difference is worth $2k.) for a Springfield or RRA mil-spec 1911, even more so. Not bad, not at all, but different pistol for different market.

strat81
November 5, 2007, 02:45 PM
http://www.sec.gov/Archives/edgar/data/1092796/000095015307001953/p74340e10vq.htm
According to that, S&W's gross margin is 37%. Gross margin is the "stuff" in a product. It excludes marketing, legal, etc. ETA: Don't forget the profit distributors make and the profit of the gun shop.

As for Glock (or any other company), even if there is only $50 worth of steel and/or plastic, people need to run those machines, and people are expensive.

Since so many of you have it figured out, start your own gun company selling $150 pistols that are the equal of Glock or S&W.

Owen
November 5, 2007, 03:06 PM
Will, I can tell you that the bar stock, just the 1"x1"x9" bar, the slide is made from costs about $7-$15 now.

The tools to machine the slide from that bar cost $5 to $15 per part. (probably low end for a glock: few radius cutters)

A large horizontal milling machine costs at least $50/hr for 5 years, not doing anything at all. It starts to cost a bit more when it is actually being used, and running hard in a factory, has an absolute life of maybe 15 years, and an economically competitive life of maybe 8 years.

Glock uses hammer forged barrels. I don't know how much the machines cost, but I know they are expensive. I know from experince they are maintanence intensive.

While the actual polymer in the frame may only cost $2, the tools to make them (which have to be rebuilt and replaced periodicly) cost between $50-$200k, depending on the compexity of the tool.

As other posters have said, you need to include the cost of your engineering department, human resources department, accounting department, etc.

On top of all that, figure that the distributor adds a percentage, and the dealer adds another percentage. In the end, the manufacturer probably makes the least money/gun.

It's not so much that guns are expensive, its that almost everything else in our lives is made in such massive quantities. There are no gun companies in the West that really come close to true high volume production. The current total capacity for M16-pattern rifles in the US is MAYBE 15k/month.

What's truly amazing is how cheap entry level cars are.

Euclidean
November 8, 2007, 12:15 AM
It's not the materials, it's the workmanship and infrastructure that cost big bucks.

mainmech48
November 8, 2007, 12:01 PM
Lots of valid points brought up here. There's a whole lot more to it than just materials and labor.

In the Springfield EMP vs Mil-Spec 1911 example cited one must consider the huge investment involved before the first unit goes out the door. In addition to the design,engineering and R&D of the proposed product the manufacturing process for that specific product must also be engineered and the resources to effect production allocated and/or acquired. Whether this involves retasking an existing production line or setting up an entirely new one, this is a complicated and costly process. Even with CNC and CAD/CAM, it ain't just a matter of 'plug-in and go'. There's usually a substantial capital investment involved, too, especially if new tooling or machinery is necessary. All of this and more has to recouped. And there is a finite period where this must be done if the line is to return enough of a profit to support itself. Obviously, the actual number of units sold will affect what percentage of this investment must be figured into the unit cost of each, but any economies of scale can't really start to kick in until that break-even point has been reached.

That holds true for the Glock and other polymer framed pistols, too. Those molds have a long service life, but new ones are hideously costly. It takes a bunch of units to amortize the cost and you don't realize a profit on that investment until that's done. When your basic design and process is already proven and new models are basically just a variation on that theme, it's a huge competitive advantage because your costs for each new model are going to be a fraction of those incurred in developing an entirely new and different product from your previouly established line.

Just MO, but isn't comparing a High Point, Lorcin or the like to a S&W, Ruger, Glock etc. and not 'getting' the cost difference pretty much like comparing your Yugo to a 'vette? I mean, they're both cars, aren't they?

BigBlock
November 9, 2007, 12:29 AM
If you owned s&w stock wouldn't you be furious if they didn't make you as much profit as possible?

Who says charging the most for a gun equals the most profit? If S&W shaved off $200 from each gun, which they could do, they'd sell a LOT more of them. For example, if Chevy charged $60,000 for a basic pickup truck, does that mean they'd make more profit? HELL no. Nobody would buy them.

The only reason S&W can get away with charging so damn much is because there are so many morons in the world that think more expensive = better. This goes for any product, not just guns...

gandog56
November 9, 2007, 12:26 PM
don't think it's "lawyer" money so much as "CEO wants a ferrari" money. Smith and wesson, for example, can't possibly have any more legal costs than high point...yet their firearms cost ten times as much. Mr. Smith must have a pretty cool garage...

I'm not too sure about that. Who is going to sue a dinky company for multimillion bucks when there is deeper pockets in major name brands.

Koblenz
November 9, 2007, 01:27 PM
There is a 10% federal tax added in to the price of handguns, and 11% on rifles and ammunition.

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