James,
Having been in that business for a quarter century, I'll give you my 2 cents. The correct answer is all the above, plus some others. The quantities that you can move does have a direct bearing on the retail price.
If you can sell 100,000 copies, then the molds, instructions, decals, box and box art can be amortized over that number. Of course, I am speaking strictly of plastic kits. Resin manufacturers, especially today are all tiny. VP and VLS resin production were once much larger than any of the resin manufacturers that followed and by a large percentage. Those days are gone. I'm guessing that today a resin manufacturer is lucky to move 2-300 kits if that. Resin is an oil based product and just like gas at the pump, it never stops increasing in price. RTV is even more expensive and if you maintain a reasonable quality, you can get barely 20-25 runs from a set of molds. It is very labor intensive as well.
Being domestic or imported also plays a major part. The primary reason for my then partner moving to America was currency exchange. The American dollar is so weak I don't even follow it anymore. Let me explain that. In 1985, the partnership set up an importing/exporting system around the world. The resin manufacturing was done in Belgium. At the time, the Belgian franc was 60bfr = $1. In the beginning, I began buying about 2,400,000 Belgian Francs worth of merchandise per month and importing it into the states. That came to around $40,000 for each invoice after converting it to dollars. The idea was to have VLS' distributing arm, Legacy distributing, build a substantial inventory. VLS couldn't afford to pay those invoices for awhile but that was the plan we divised. The problem was that within a few months, the dollar dropped from 60bfr. to the dollar to 40bfr. to the dollar. By that time, VLS had received 5 shipments of around 12 million bfr. The bill when calculated @ the 60bfr rate would have been $200,000.
However, when VLS went to pay the invoices, they were converted to dollars and became $300,000. (Do the math). As maybe half of the merchandise had been sold, calculating the retail based on 60bfr. to the dollar, VLS lost a hundred thousand dollars immediately and I learned a very costly lesson.
The average person has no idea what a weak dollar means to Americans. When we were a manufacturing country that was a good thing as the cost of our exports to other nations was low. No More! The vast majority of goods purchased in America is imported from abroad, I don't know the percentages, but they are huge! When the dollar is weakened, everything we buy costs more. Today, the dollar is weaker than I ever dreamed it could be and makes me very glad I sold out and retired when I did. The weak dollar is one of the major contributors to the high gasoline prices we see today. (One of them).
Every time I go to my LHS, the prices on everything are more and more outrageous! Unfortunately, I see no end to that in sight. With the national debt we have, the dollar will continue spiraling downward! Only a few years ago, plastic kits ranged from $25 to a high of $50. Today, they pretty much start at $50. Of course, I can remember $5.00 Tamiya armor kits and thought that was outrageous!
Another reason is the market system. All merchandise goes initially to a distributor. If you are a garage manufacturer or even a kitchen manufacturer and, believe me, there are hundreds of them, and you want to get your products around the world, you have a tri-level price structure to deal with. There is the retail price, (Manufacturer's suggested retail) and that is not set by what you want for your product, it is set by what you will get from the distributor, which is normally 55% minimum to about 65% off the retail. So, If you want to sell your product to a distributor and are a good wheeler-dealer, then you sell it for 45% of the retail price. The distributor in turn sells it to a hobby or web retailer with a 40 -50% discount. Then the retailer sells it for a small discount or full retail. Brick and mortar shops have far more overhead and can't discount the way internet retailers can. That is why hobby shops are vanishing around the world. Something I really feel sad about! I like to hold, touch and feel what I am buying before I buy it!
Now, let's say you have a product that has cost you $4.00, including the cost you pay a pattern maker for the master, then you pay for somebody to sprue it up for casting, then for the RTV rubber molds and the two part resin to fill the molds. You have the instructions mastered, then the PE, or the plastic tubing, etc. etc. Then when you have the casting, you have somebody build it, paint, weather and photograph it. Then you have the labels made and the packaging and the cardboard cartons to ship it, then the shipping costs which, because of gasoline prices are off the page.
Then based on your experience in the past, you believe you can sell 300 of these. You decide that your return on investment should be around 25% to enable you to make a very small percentage of profit after all your other expenses, so you calculate your lowest price at $5.00 plus the shipping cost and advertising cost. The major American model magazine charges around $5,000 for a full page in color, plus the cost of ad preparation. Of course, you advertise many products on that single page. Then there is catalog costs, I always tried to charge enough for the catalog to cover costs of layout, printing and shipping costs.
You put a retail of $14.95 on your product. Then you sell it to a distributor for $6.73, (55% discount), but you have to pay shipping. After the dust clears, if you are lucky, you may end up with your one dollar profit, but.... then you have the rent for the building, (The mortgage payments on the 40,000 square foot building that housed VLS was $16,000 per month, much less than it would cost to rent it!), then the utilities and maintenance, and don't forget the largest expense by far, payroll. Our payroll quadrupled the mortgage payments and twice a month! Don't forget social security, unemployment insurance, health insurance, Medicare, medicaid, workers compensation, building, fixtures, equipment, liability and accident insurance.
Of course, there are tiny manufacturers out there that only sell direct retail, and with almost no overhead, they charge similar prices for their products. Guess who is making some serious profit per kit. Even then, they will never get rich as they have such a tiny volume. It is almost a catch 22!
Actually, I could go on writing for days on this subject. It is extremely complex and I have tried to make it as simple as possible here. For someone who sold tens of millions of dollars, (Actually approaching a hundred million over the 25 years), worth of model products, I can tell you this. For the same amount of work and investment, I could have made a hundred times the profit in a mass market industry over what is possible in this tiny one we all love! Unfortunately, I was well into it before I came to that realization.
Bob
