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People make this mistake all the time. “The iPhone sells for $999, but only costs $320 in materials!” Well, sure. But you aren’t including shipping costs, stor

People make this mistake all the time. “The iPhone sells for $999, but only costs $320 in materials!” Well, sure. But you aren’t including shipping costs, storage costs, training costs, labor costs, marketing costs, office costs, employee costs, research and development costs, legal costs, patent licensing costs, wasted material costs, environmental costs, electricity costs, packaging costs, margins for resellers, distribution costs…

cedilla 4y ago
This isn't even the mistake. Price has very little relation to costs - except that most products can't be sold below cost, at least not for long. The price of the iphone is a good example. All the costs that you name exist, but they are completely irrelevant. Apple sells the iPhone for a thousand dollars because enough people still buy them at that price.
- brookst 4y ago
  Yes. Commodities are priced at cost plus. Differentiated goods are priced based on value delivered.
  - lotsofpulp 4y ago
    >Differentiated goods are priced based on value delivered. I prefer “perceived utility” rather than “value delivered”.
    - brookst 4y ago
      Sure, I enjoy semantic rhetoric as much as anyone does.
    - homarp 4y ago
      hence the cost of linux centos (before being killed) “value delivered”: same as RHEL “perceived utility”: a path to RHEL subscription Since the second is not true anymore for IBM, centos was converted to be less of a threat to RHEL by decreasing its delivered value, and offering a 'new' utility: kind of work like RHEL but please pay to get the full RHEL experience.
- mlhpdx 4y ago
  Understanding the cost of a product to a vendor is important to me as a consumer. If I’m having my house painted I will have many vendors willing to do the work at very different prices. It’s not a commodity since I have quality expectations and vendors have different levels of experience, skill and diligence. I know how much the paint, other consumables and equipment costs, so if they quote low or high on that I can take it into account. I can figure out what portion is labor, and conclude what level of skilled folks they’ll use. I can ballpark their profit and make sure it is in line with my values (I want them to have a successful business if they do good work, I don’t want to pay for a shiny new lifted F-350 4x4 dually Cummins diesel crime against humanity). Maybe it’s just me.
GalenErso 4y ago
All costs are personnel/employee costs in the end. Office costs? Those are going to the office owners, who pay themselves. Patent licensing costs? Those are going to the patent owners, who pay themselves. Wasted material costs? Those are going to the material producers, who pay themselves? Electricity costs? Even those are going to the power utilities, who pay themselves. Power utilities pay workers to maintain the power network and buy equipment from manufacturers. Those manufacturers pay themselves. Packaging costs? Those are going to the packaging manufacturers, who pay themselves. Even the costs of extracting raw materials from the ground? Those are going to the mining companies, who pay their employees to extract the materials, and to the companies selling them mining equipment, who pay their employees to produce the equipment.

cedilla 4y ago

This isn't even the mistake. Price has very little relation to costs - except that most products can't be sold below cost, at least not for long. The price of the iphone is a good example. All the costs that you name exist, but they are completely irrelevant. Apple sells the iPhone for a thousand dollars because enough people still buy them at that price.

brookst 4y ago
Yes. Commodities are priced at cost plus. Differentiated goods are priced based on value delivered.
- lotsofpulp 4y ago
  >Differentiated goods are priced based on value delivered. I prefer “perceived utility” rather than “value delivered”.
  - brookst 4y ago
    Sure, I enjoy semantic rhetoric as much as anyone does.
  - homarp 4y ago
    hence the cost of linux centos (before being killed) “value delivered”: same as RHEL “perceived utility”: a path to RHEL subscription Since the second is not true anymore for IBM, centos was converted to be less of a threat to RHEL by decreasing its delivered value, and offering a 'new' utility: kind of work like RHEL but please pay to get the full RHEL experience.
mlhpdx 4y ago
Understanding the cost of a product to a vendor is important to me as a consumer. If I’m having my house painted I will have many vendors willing to do the work at very different prices. It’s not a commodity since I have quality expectations and vendors have different levels of experience, skill and diligence. I know how much the paint, other consumables and equipment costs, so if they quote low or high on that I can take it into account. I can figure out what portion is labor, and conclude what level of skilled folks they’ll use. I can ballpark their profit and make sure it is in line with my values (I want them to have a successful business if they do good work, I don’t want to pay for a shiny new lifted F-350 4x4 dually Cummins diesel crime against humanity). Maybe it’s just me.

GalenErso 4y ago

All costs are personnel/employee costs in the end. Office costs? Those are going to the office owners, who pay themselves. Patent licensing costs? Those are going to the patent owners, who pay themselves. Wasted material costs? Those are going to the material producers, who pay themselves? Electricity costs? Even those are going to the power utilities, who pay themselves. Power utilities pay workers to maintain the power network and buy equipment from manufacturers. Those manufacturers pay themselves. Packaging costs? Those are going to the packaging manufacturers, who pay themselves. Even the costs of extracting raw materials from the ground? Those are going to the mining companies, who pay their employees to extract the materials, and to the companies selling them mining equipment, who pay their employees to produce the equipment.