Courtesy of Chris McMahon
“No one in the industry is going to give you their cost-plus pricing,” said everyone in the industry... But someone did...
An executive at a guitar manufacturer recently spoke with Reverb magazine about the manufacturing and cost realities of the guitar industry. For the sake of consistency, he selected a base-level, generic slab-body, two-pickup T-Style guitar with a bolt on neck for his reference point.
Labor Costs and Quality
The cost of the core materials, meaning necks, bodies and components, such as tuners, pickups, wiring and switches, are not significantly different from one place to the other, he says, though they do vary significantly at various levels of quality. The bulk of a guitar’s cost, and the source of much of the cost variability, is in the labor, which is largely a function of geography, our exec says.
At this point, essentially all of the major factories now use the same CNC machines to carve out parts, whether they are in China, Indonesia, Korea, Mexico or the United States, and the person running the CNC machine is not one who adds the biggest labor cost.
“The amount of hand work that goes into sanding, fitting and finishing every nook and cranny on a body and a neck is way more than everybody thinks,” he says, and the cost is not the only concern. Quality, which manifests in the attention to detail on the fit and finish, including the paint and fret work and everything else associated with assembling and setting up the guitar, is a determining factor in the retail value of the product.
To illustrate the out-sized impact that labor costs have on the cost of goods, he offered an even more simple illustration: hard-shell cases, which his company sources from a builder in North America.
“For a guitar case that we sell for $99, our cost on that case is about $45 or $50; it’s maybe $2 less for a mandolin case, which is a quarter of the size,” he says. “95% of the cost is the labor. It’s just plywood wrapped in black Tolex, but the labor is the same in either case. People ask me why we sell a bass case for $100 and mando case for $100; it’s the labor.”
Comparison of Basic Build Costs by Country:
And the cost of labor doubles when production is moved from China to Indonesia then doubles from Indonesia to Korea, then doubles again as compared to the cost of labor in the United States, he explains.
The other big variable is volume
“I visited a factory in China; they were spitting out 2,000 right-handed sunburst Beatle basses. It’s way easier to make 2,000 of something than 24 in blue and 24 in red, and having to change the assembly setup.”
For the Beatle basses, everything down to the packaging was identical, and the cumulative impact on pricing is dramatic. “That’s why those things sell for $299 at Musician’s Friend,” he says. “They make a ton of them.”
For smaller builders, because the production runs are so much shorter and smaller, it’s impossible to get the price point that a larger-volume producer does, he explains, which is true for any consumer item. “If people wonder why they are paying $600 for [a smaller brand] guitar made in China, it’s because they don’t scale like the Beatle bass,” the guitar executive says.
Cost of Sales, Marketing and Operations
While the cost of components is flat across geographies, and labor is a big differentiator, the cost of sales and marketing has the most impact on the final cost to the consumer.
“Let’s say I buy $200 T-Styles out of Indonesia, what do you think the price of that guitar should be?” he asks. “It’s going to have a manufacturer’s suggested price of at least four to five times that,” he says. “Then you have the street price, which is probably 15% or 20% off of that.”
The reason for the markup is the many hands a guitar has to pass through before it gets to the consumer. Obviously, a guitar’s maker, distributor and dealer each need to make money on every guitar, and at each step in that process, the cost increases by a minimum of 50%, and more likely: 100%.
“This is basic economics,” he says. For any consumer product, 50% to 75% of the cost is not the product and includes the costs associated with transportation, warehousing, personnel, benefits and computers. “That’s why we don’t make Nike running shoes in California. They’d cost $600 per pair. They probably cost less than $30 to make.” And it’s the same reason that guitars built in China very seldom include boutique pickups.
The High Cost of Upgrading Components
“We have this debate often. We build our own version of an ES-335 and put our Chinese-made version of [boutique brand pickup] in there. If I’m street pricing that guitar for $500, that means I have to sell it to the dealer for $320, so there’s enough profit in it for them. I need to be making it for $150, and certainly under $200, to make it profitable for me,” he says.
“If I put actual USA-made boutique pickups in, they cost almost as much as the guitar itself. Even if they give me those pickups for $100, that brings my cost from $150 to $250, and I have to almost double my price to the dealer,” he explains. “Then the dealer has to sell it for almost $900, just because I added $100 pickups. It’s just the distribution model. That’s why you rarely see guitars with boutique pickups for less than $1,500. There has to be enough profit for the manufacturer, the pickup maker, the distributor and the dealer.”
What Actually Costs to Build a Guitar
“If you want to build a generic slab-body, two-pickup with a bolt on neck — a T-Style — in China, it’s going to cost the manufacturer $50 to $100,” he says, if you use the bare-bones quality necks, tuners and components.
“If you use better-quality components, you can hit $100; you end up in the $200 range in Indonesia; the $400 range in Korea. If you carry those same components to the U.S., it’s likely $1,000 to $1,400.”
His final word of advice was to buy high-quality woods and build / fit and finish but basic electronics, (this is when looking at both electric and acoustic) then upgrade to better high-quality pickups later on yourself.