When will the bottom fall out of the RC heli market?

[Xrayted]

Originally Posted by Cincinnatus

Settle down, man. The original post was "When will the bottom fall out..." It was just a question, and it turns out few even agreed with the premise, much less the possibility of a bust. I never said I refused to pay or anything like that, and I didn't actually complain. You are absolutely right, this hobby is expensive and a luxury. But it is okay to wonder if prices are artificially high. Really, it is okay.

I'm fine, and no worries on my end here either Bro. I guess I just don't see the concern. The Prices are what they are because any vendor will charge the max they can get away with and still have customers. If it were over the line, no one buys and then the free market kicks in and things are adjusted. What something cost to make has no relevance whatsoever to what something is sold for, and I think you see that many of the responses here agree.

We all know the price of admission up front and choose willingly to participate.

Have a great day, and enjoy the game!

Tony

[xokia]

Originally Posted by rdlohr

Response to topic:
It's all about volume of sales. This technology can't be compared to car batteries and cell phones being that they are some of the highest volume items you could mention. Its a niche market, period.

Let's test your theory. Look at some well known helicopter manufacturers and see whether their owners are filthy rich. I'm not seeing it.

Rick

That right there is where I suspect the majority of the costs come from.

I've always wondered if they make more from the consumable parts then the do the heli itself. This hobby does have a high burn rate on parts and I think that's what keeps a lot of people out of the hobby. I know I stay away for a long time because of it.

[Jeff_Barrett]

Originally Posted by xokia

I've always wondered if they make more from the consumable parts then the do the heli itself.

It depends on each individual brands pricing structure, I see it go both ways with a number of manufacturers that I have dealt with, both past and present.

I've seen it where certain consumable parts that have higher velocities are less money than parts that are lower velocities, and cost more because of the low production numbers.

[Cincinnatus]

Originally Posted by rdlohr

We appreciate that this thread went from really bad to more in line with the helifreak motto. Obviously this includes the OP and participants. As said, you can debate a subject without resorting to attacks. Please lets keep it this way so we don't have to close it.


Response to topic:
It's all about volume of sales. This technology can't be compared to car batteries and cell phones being that they are some of the highest volume items you could mention. Its a nich market, period.

Let's test your theory. Look at some well known helicopter manufacturers and see whether their owners are filthy rich. I'm not seeing it.

Rick

I guess I don't see it as so much of a niche, or didn't anyway. There are, what, dozens, of big online shops and hundreds of LHSs. That seems like a large enough market to me. Yes, really high volume items are a bad example, but this definition of niche makes tons of items niche. Not sure about that. And are niche items *necessarily* more expensive? I bet we can think of tons that are not. I go to a city market every week filled with items that would fit any definition of niche, but they don't sell at anywhere near these multiples.

I'll have to take your word about the profits of these companies. Assuming that, then where the heck is the money going? Everyone keeps saying...oh you don't understand the various costs...but I do understand that all companies have similar costs, and I do understand that very few (software, pharmaceuticals) get away with selling for hundreds of percent over material costs. Those software and pharmaceutical companies have some of the highest profit margins around, so again, where is all the extra money going? If I get a kit with $100 in stuff in it, where on earth did the other $500 go? Any business person would salivate at a deal like that.

[jrwalte]

Originally Posted by Cincinnatus

Note:
Don't even get me started on batteries! I can get the best car battery on the market for less than a "good" 6S 2650. WTF?

Oh well, back to plastic servo mounts on my Protos!

Huh? Have you looked at car battery prices in the US lately? Unless you have a tiny car and just want the bare minimum, you're talking over $100 easy and into $150. Over $200 if you want a high end agm.

You can get good quality brand 6s5000 for less than most car batteries. They're smaller and obviously cost more per aH, but one 2650 definitely doesn't cost more than a car battery. Unless you're wasting your money on thunder power (imo)


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[rdlohr]

Originally Posted by Cincinnatus

I guess I don't see it as so much of a niche, or didn't anyway. There are, what, dozens, of big online shops and hundreds of LHSs. That seems like a large enough market to me. Yes, really high volume items are a bad example, but this definition of niche makes tons of items niche. Not sure about that. And are niche items *necessarily* more expensive? I bet we can think of tons that are not. I go to a city market every week filled with items that would fit any definition of niche, but they don't sell at anywhere near these multiples.

I'll have to take your word about the profits of these companies. Assuming that, then where the heck is the money going? Everyone keeps saying...oh you don't understand the various costs...but I do understand that all companies have similar costs, and I do understand that very few (software, pharmaceuticals) get away with selling for hundreds of percent over material costs. Those software and pharmaceutical companies have some of the highest profit margins around, so again, where is all the extra money going? If I get a kit with $100 in stuff in it, where on earth did the other $500 go? Any business person would salivate at a deal like that.

Here is what niche means to me. Take any 1000 people at random and find out how many use a particular type of product. If the percentage is in the lower single digits or less, you are talking niche market.

Rick

[jrwalte]

Originally Posted by rdlohr

Here is what niche means to me. Take any 1000 people at random and find out how many use a particular type of product. If the percentage is in the lower single digits or less, you are talking niche market.

Rick

I also see the op being confused in profit margin by comparing a company that makes multi-billions a year and pumps out millions upon millions in production. No heli company has this volume, therefore they have to charge more. Not saying some aren't charging too much, but you can't compare them to massively high volume companies.

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[Jeff_Barrett]

Originally Posted by Cincinnatus

If I get a kit with $100 in stuff in it, where on earth did the other $500 go? Any business person would salivate at a deal like that.

There's a long laundry list of places it goes:

Manufacturer:
- Design & Testing
- Materials Costs (Including shipping / brokerage / etc)
- Environmental Fees/Levies
- Utilities
- Staff Salaries / Benefits / Workers Comp
- Shipping Costs / Supplies
- Administrative Costs
- Equipment Costs / Mold Manufacturing
- Manual/Literature Development & Printing
- Advertising & Marketing
- Exchange Rates / Fees
- Website Hosting / Development
- Computer Systems / Network
- Packaging Design
- Warranty
- Profit

Distributor:
- Shipping Costs & Supplies
- Brokerage Fees
- Customs / Duties
- Utilities
- Staff Salaries / Benefits
- Administrative Costs
- Website & Development
- Computer Systems
- Exchange Rates / Fees
- Advertising / Marketing
- Warehousing / Shelving / Equipment
- Warranty
- Profit

Dealer
- Shipping Costs & Supplies
- Brokerage Fees
- Customs / Duties (depending on distributor location)
- Utilities
- Website & Development
- Staff Salaries / Benefits
- Displays & Shelving
- Advertising / Marketing
- Exchange Rates
- Warranty
- Profit

I'm missing a lot of other little areas as well .. but your largest costs are going to be in staffing across all 3 levels. After that, it will vary from level to level with regard to the % mixes.

[kayakboy69]

Originally Posted by Jeff_Barrett

There's a long laundry list of places it goes:

Manufacturer:
- Design & Testing
- Materials Costs (Including shipping / brokerage / etc)
- Environmental Fees/Levies
- Utilities
- Staff Salaries / Benefits / Workers Comp
- Shipping Costs / Supplies
- Administrative Costs
- Equipment Costs / Mold Manufacturing
- Manual/Literature Development & Printing
- Advertising & Marketing
- Exchange Rates / Fees
- Website Hosting / Development
- Computer Systems / Network
- Packaging Design
- Warranty
- Profit

Distributor:
- Shipping Costs & Supplies
- Brokerage Fees
- Customs / Duties
- Utilities
- Staff Salaries / Benefits
- Administrative Costs
- Website & Development
- Computer Systems
- Exchange Rates / Fees
- Advertising / Marketing
- Warehousing / Shelving / Equipment
- Warranty
- Profit

Dealer
- Shipping Costs & Supplies
- Brokerage Fees
- Customs / Duties (depending on distributor location)
- Utilities
- Website & Development
- Staff Salaries / Benefits
- Displays & Shelving
- Advertising / Marketing
- Exchange Rates
- Warranty
- Profit

I'm missing a lot of other little areas as well .. but your largest costs are going to be in staffing across all 3 levels. After that, it will vary from level to level with regard to the % mixes.

+100

Add middle man mark up a few times and Bang ur at 600 + .

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[xokia]

Originally Posted by Cincinnatus

If I get a kit with $100 in stuff in it, where on earth did the other $500 go? Any business person would salivate at a deal like that.

Every businesses hand the thing passes through the price is going to double that's a typical US business model. If you have a $100 in parts then the manufacturer is going to mark it up to $200. The retailer is then going to take that $200 and mark it up to $400.

The retailer side of things is where I have the problem. Most don't contribute much to the buying experience. A retail location does add some value because a person can look at an item and touch it. That retail space costs a lot of money. But personally I think the retail hobby store is a dieing business model. It will die just like video stores like blockbuster died.
It's just easier to buy stuff online. Except that the hobby stores are being propped up with the restrictive business practices of the manufacturers. So I have mixed feelings. I'd be even more pissed if I was giving 30% to a Internet retailer that doesn't have as much overhead. That's why you need an outside source like some of these Chinese companies that don't want to play by the rules to disrupt things.

[Cincinnatus]

Originally Posted by Jeff_Barrett

There's a long laundry list of places it goes:

Manufacturer:
- Design & Testing
- Materials Costs (Including shipping / brokerage / etc)
- Environmental Fees/Levies
- Utilities
- Staff Salaries / Benefits / Workers Comp
- Shipping Costs / Supplies
- Administrative Costs
- Equipment Costs / Mold Manufacturing
- Manual/Literature Development & Printing
- Advertising & Marketing
- Exchange Rates / Fees
- Website Hosting / Development
- Computer Systems / Network
- Packaging Design
- Warranty
- Profit

Distributor:
- Shipping Costs & Supplies
- Brokerage Fees
- Customs / Duties
- Utilities
- Staff Salaries / Benefits
- Administrative Costs
- Website & Development
- Computer Systems
- Exchange Rates / Fees
- Advertising / Marketing
- Warehousing / Shelving / Equipment
- Warranty
- Profit

Dealer
- Shipping Costs & Supplies
- Brokerage Fees
- Customs / Duties (depending on distributor location)
- Utilities
- Website & Development
- Staff Salaries / Benefits
- Displays & Shelving
- Advertising / Marketing
- Exchange Rates
- Warranty
- Profit

I'm missing a lot of other little areas as well .. but your largest costs are going to be in staffing across all 3 levels. After that, it will vary from level to level with regard to the % mixes.

We're going round and round here. EVERY company has similar costs, but the part that no one seems to be able to answer is how most of them get by with prices much closer to material costs. The "niche" explanation is the closest to explaining it, but it just really doesn't hold water either. Some of these models have been around a while, the molds are made, the volumes surely justify regular runs at reasonable cost, but prices hardly come down until the product is on its deathbed.

[Cincinnatus]

Originally Posted by jrwalte

I also see the op being confused in profit margin by comparing a company that makes multi-billions a year and pumps out millions upon millions in production. No heli company has this volume, therefore they have to charge more. Not saying some aren't charging too much, but you can't compare them to massively high volume companies.

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I've acknowledged several times that using mega volume examples was a bad choice. I used examples we all knew, rather than ones we may not all be familiar. People seize on little technicalities like this, but it doesn't change the point: Few companies, huge or tiny, can sell at these multiples for long. Someone comes along and does it cheaper, but so far not with helis.

[rdlohr]

Originally Posted by Cincinnatus

We're going round and round here. EVERY company has similar costs, but the part that no one seems to be able to answer is how most of them get by with prices much closer to material costs. The "niche" explanation is the closest to explaining it, but it just really doesn't hold water either. Some of these models have been around a while, the molds are made, the volumes surely justify regular runs at reasonable cost, but prices hardly come down until the product is on its deathbed.

The difference is that those costs are amortized against a much larger volume.

Take my small business for example. The cost of the material I use to make my products is only a fraction of my costs to manufacture products and I don't have nearly the overhead of a heli manufacturer.

Rick

[Jeff_Barrett]

Originally Posted by xokia

Every businesses hand the thing passes through the price is going to double that's a typical US business model. If you have a $100 in parts then the manufacturer is going to mark it up to $200. The retailer is then going to take that $200 and mark it up to $400.

I only wish it were like this.

It is true that each time product passes through hands, the price goes up, but not by the values you're putting forth. I don't know if meant those figures were just for an example, but they are incredibly inflated over the real world.

Originally Posted by rdlohr

The difference is that those costs are amortized against a much larger volume.

+1

This is exactly what I've been conveying, I'm not totally sure why it's not computing for a few of these gentlemen. There's not much else one can do other than show what our actual dealer cost is, and that isn't going to happen for a whole multitude of reasons, legally and ethically.

What I can guarantee, is that no one is getting rich selling hobby grade rc helicopters and parts.

[rdlohr]

Originally Posted by Jeff_Barrett

What I can guarantee, is that no one is getting rich selling hobby grade rc helicopters and parts.

Which is the final litmus test. I wish we were!

Rick

[mkirk76]

Hey Cincinnatus,

Before making all these assumptions regarding the profit margins of the manufacturers in this industry, did you have a chance to review Align's or SAB's P&L'S for the last couple years?

If not, you're really just talking out your...

Btw, your 10-15% margins don't hold true across all industries - and you never specified - were those margins top or bottom line? And you mentioned that other companies can "survive" at those margins. Well, what company wants to merely survive vs. grow?

If you're so upset over the alleged ridiculous margins and price-fixing currently in place in this industry,, why don't you go start your own heli manufacturing company?

[Cincinnatus]

Originally Posted by rdlohr

Here is what niche means to me. Take any 1000 people at random and find out how many use a particular type of product. If the percentage is in the lower single digits or less, you are talking niche market.

Rick

Arbitrary, but sounds reasonable to me. Let's run with it:

How many people do you think put a 2.5 inch SSD in their desktop computer? Bear with me. For those who don't know, 2.5 inch is the size of a laptop hard drive. There are no brackets in a normal desktop that will fit. I did this recently and I needed a bracket. Now, guys who are into modding computers and such do this, it is not unheard of. But I think we can assume that would meet your single-digit/1000 criteria.

So, it is hard, if not impossible, to find these brackets anywhere except online. Amazon has a few choices. They're about 5 bucks - steel, aluminum, whatever. So go price something metal for your heli about like that....uh oh, there went anywhere from 1 to 3 Jacksons! See ya, Andrews! Sayonara, we hardly got to know ye.

They can sell something that is probably even more niche than a heli part, made of similar material and requiring similar manufacture...for 5 bucks...but a single servo mount for a Protos is $26 (and you need 2). This is what I am saying. And they knew these had a limited market (desktops are dead) and lifespan (3.5 inch hybrid drives are already here).

[Jeff_Barrett]

Originally Posted by rdlohr

Which is the final litmus test. I wish we were!

Amen! I'd have a lot more helicopters, attend more events, and wouldn't be living through this -38C weather we're having up here this time of year! LOL!

Originally Posted by Cincinnatus

They can sell something that is probably even more niche than a heli part, made of similar material and requiring similar manufacture...for 5 bucks...but a single servo mount for a Protos is $26 (and you need 2).

Is it CNC or is it simply bent metal? What other products do the manufacturers of these items make? Do they already have machines and tooling that make similar products that can be used for this without requiring retooling / retraining?

There's a lot of questions that come into play here ... I don't claim to know their business. All I can tell you is what I do know, and that is exactly what Rick and I have been trying to tell you for some time now.

My suggestion would be to try starting a business in the RC helicopter market and see for yourself. I think your opinions might change with first hand experience and knowledge.

There's really nothing more we can offer from this side of the counter so to speak, to convince you otherwise....

[Cincinnatus]

Originally Posted by mkirk76

Hey Cincinnatus,

Before making all these assumptions regarding the profit margins of the manufacturers in this industry, did you have a chance to review Align's or SAB's P&L'S for the last couple years?

If not, you're really just talking out your...

Btw, your 10-15% margins don't hold true across all industries - and you never specified - were those margins top or bottom line? And you mentioned that other companies can "survive" at those margins. Well, what company wants to merely survive vs. grow?

If you're so upset over the alleged ridiculous margins and price-fixing currently in place in this industry,, why don't you go start your own heli manufacturing company?

I have no idea what their profits and losses are. I am talking about prices being too high. The two may be related, but one does not necessarily imply the other. Profits may be high when prices are low, or vice versa. What is your point?

As far as what numbers we are talking? I assumed we were just talking generally about profit margins, although at times we have been talking about the cost of goods sold compared to sales price.

Oh, I have no interest in manufacturing helis, but if I did I would not expect to sell them for crazy markups. I would expect that I would have to survive on the thinner margins that almost every small business must...

[Cincinnatus]

Originally Posted by Jeff_Barrett

Amen! I'd have a lot more helicopters, attend more events, and wouldn't be living through this -38C weather we're having up here this time of year! LOL!



Is it CNC or is it simply bent metal? What other products do the manufacturers of these items make? Do they already have machines and tooling that make similar products that can be used for this without requiring retooling / retraining?

There's a lot of questions that come into play here ... I don't claim to know their business. All I can tell you is what I do know, and that is exactly what Rick and I have been trying to tell you for some time now.

My suggestion would be to try starting a business in the RC helicopter market and see for yourself. I think your opinions might change with first hand experience and knowledge.

There's really nothing more we can offer from this side of the counter so to speak, to convince you otherwise....

Look man, you've been really cool and I respect your opinion. But now you are just nitpicking. You guys wanted apples to apples so I gave it to you. Now you are saying, wait, are those Macintosh apples grown in Oregon?

Actually, I am no longer really sure about this so you and others have succeeded to a certain extent. It will always seem fishy to me, though. Only time will tell.