This. If you're doing hardware, your price needs to be minimum 3x-5x the COGS.
If you think you're going to win some market by pricing with lower margins, like 1.5x-2x, you're setting yourself up for failure.
Interestingly, the same rule holds for restaurants: food input costs should be no more than 20-30% of the meal price.
Someone else about to close a business down for a physical product. He was boutique sized, because of competition from factory made higher volume, he could never get above 2x COGS, and it has been a hard grind that is now losing money instead of the narrow margins he'd had for a while.
- 33% food
- 33% all other expenses
- 33% gross profit
[0] https://www.bls.gov/opub/reports/minimum-wage/archive/charac...
Maybe if America slowly increased the minimum wage at inflation + 10% each year, it would end up in the same place as Australia. Right now, US social rules and expectations are set up around a low minimum wage, and doubling that minimum wage overnight might rock the boat a lot.
Woah. One of these things is not like the other ones.
(As an Aussie, though, the tipping thing just seems weird. It's nice to tip a little for really good waitstaff, but if doing so means they get a pay cut on their hourly wage then that's bogus. Paying your staff poverty rates because you expect them to live off tips is like paying your police force poverty rates because you expect them to live off bribes.)
A waiter literally works for you during the meal you tip for. A policeman is not supposed to.
No, they work for the restaurant. Their job is to relay orders from me to the kitchen and bar.
You got the whole thing wrong, and you managed to insult every waiter and waitress in the process:
A waiter does so much more than that. They generally take care of you - they help you to choose your places to your liking, undress, seat, they recommend food based on their expertise and clever judging of their client, and so on - they generally take care of you, and that can and is (and should) way more complex than being a human conveyor belt.
The actual argument is whether this job is a job done to the customer or to the restaurant (because it can be thought of as a whole package service or their image).
Americans think that the waiter will help a client more if the client is the person who pays them - literally, with actual cash changing hands.
Other people don't. I'm from such country and sometimes it leads to horrendous results, however most of the time it's OK - yeah, "OK", never great, so I definitely can see the point the Americans have.
Overall, IMO there are places where human staff is appropriate (fine dining places, brewery, upclass cafe...) - tipping is appropriate here. Of course there are places where the point is to obtain a plate and eat everything as soon as possible so you can be gone - but IMO people shouldn't serve the plates at these places.
As you say, the real difference is whether the waitperson is an employee of the restaurant who is paid by them to look after you, or whether they're an independent contractor who resells the kitchen to you at the table as a service. The service produced is generally the same, IME, but in the U.S. model you have to negotiate with two different contractors while each is trying to push the costs onto the other. Ugh.
In a tip economy they are what they are - poor supplicants begging for your scraps. They have no power over the kitchen nor much over you, since they get their feedback after they've made their 'pitch' not before.
1. They can't choose a place to your liking, because they are assigned to specific zones of the restaurant. At best, you can request the host/hostess for a particular location, at which point your waiter is selected for you by virtue of your location.
2. They don't . . . undress you. You may be thinking of a brothel, not a restaurant. This claim is probably the most bizzare.
3. Again, it is generally one of the host staff that does the actual seating.
4. If asked for a recommendation, at best you'll get what they prefer eating, or a generic "what's popular" suggestion. In no way do they judge their client (On what? They just barely met you!) and immediately recommend that you'd love the lobster bisque because . . . your hair is brown.
>2. They don't . . . undress you. You may be thinking of a brothel, not a restaurant. This claim is probably the most bizzare.
I'm not native english speaker. What is bizzare about waiter taking your coat and carrying it to the coatroom, "helping" you off it in the process? It's act of courtesy.
As a European I would say that US type waiter works against me. When I'm trying to eat my meal, I don't need some stranger to come to my table every two minutes to ask me "how are you?", "is everything ok?", "do you need something more?". It's just annoying. I can't eat, I can't talk personal talks with friends, when someone is around me trying to annoy me all the time. I can't raise my head or look around because the waiter would come to annoy me again. And in the end, that annoyance comes to your table and expects 15-35% of the price for the annoyance "service" he gave you during the lunch?
Sorry, but when I'm in restaurant, I just want to order food or drink and be left alone. If I need something I'll raise my hand and wait. What's the issue in waiting for a guy to come, he's a waiter after all ;) If the waiter comes quickly after I raise my hand (usually to pay the bill) I would round the bill to the next full €, and that's it.
That's why in Germany you have 3-5 times less waiters serving the same number of people in restaurants, they are paid a livable wage, and you pay what you see in the menu, without a need to add 50% for VAT and service tips.
I wish there was a way to signal that I don't want to be bothered but even when I voiced this feeling to a waiter in NY he was still coming around unasked.
Restaurateurs - just pay your staff properly, waitstaff - don't bug the customers; there you go - european advice for free.
There is root cause underneath - poverty. Let's focus on that.
In one specific instance I had finished my meal and was pondering on getting dessert or another beer, talking to my friend, the waiter came over to ask if we wanted something else, I said "not yet" and 2 minutes later had the check on my table.
I really didn't have any great experiences in the US on a sit-down restaurant, the food was nice but the service is always too much on your face. I understand that it's done because of American's social norms but even coming from a Latin country it felt way too much. And way too fake, my feeling was always that this behaviour was for the tips, never for a genuine care on how I'm being served.
It would seem unusual if “prices just [went] up” without any other changes to the overall system.
"Study: Wages cause billions of damage for German companies"
https://www.der-postillon.com/2014/08/studie-lohnzahlungen-v...
There's ancillary effects of course but not in the way you're suggesting.
24 ounces of Prime beef, aged for a month? I'm not sure I can get it myself for less than $25/lb.
No way they're making money on the beef.
Good waiting staff is worth their weight in gold. Knowing when to ask if the customer would like an extra drink is an art. On a side note: I never get the 'free refill' policy in the states. Why would you give something away that has a 300% margin...
No problem!
There is a market opportunity and many people capitalize on it. Amazon is full of things like this. Generic items or barely designed items with your brand stuck on them, built by somebody found on Alibaba and shipped to the consumer. They're fantastically cheap, the margins are much thinner, and the products range from adequate to terrible.
It's terribly difficult to build a high quality product people will want for many years (no new design costs) which you don't have to market or do anything with and can just manufacture and sell for a tiny profit. When it is done you'll usually find it as a small very specialized family type business which hasn't sold out yet.
I would imagine things are super high tech and new, would need some iteration in their first 5 to 10 years, but after that, I don't know.
the costs that scale with each good sold is: Support, cost of returns, Sales, marketing, etc.
Ad from 1924.[1]
Current product brochure.[2]
Jenkins used to advertise that one from a 19th century water main had been removed because the line was being re-routed by a water utility. The valve was cleaned up and put on display, and after a while, when everybody was tired of looking at it, it was put back into inventory and went back into the ground, probably to serve another 100 years.
[1] https://s.ecrater.com/stores/260372/5725ed67b3cab_260372b.jp...
[2] http://www.cranecpe.com/chem-energy/products/valves/gate-val...
recent past
1924
More than 150 years!
"Jenkins Valves - Since 1864"
How many other electronic devices can make that claim?
But who can forget the stellar recent hardware companies like Fitbit, Jambox, Sonos, and Pebble all of whom waited a minimum of 5 years before bothering to introduce a second product.
If you go direct to consumer, you need to invest in building out awareness, and online and offline sales channels by yourself, which costs margin too.
The need to just make any money at all, means that you have to import cheap goods from China, unless your competitive advantage will worth more than that 5x margin ones get from "cheap sh*t." And you will never ever get this for any non-high tech (which implies easy to manufacture) consumer product.
Price anything at professional grade. For example, a heavy duty professional microwave can cost well over $1,000, but you can run it 20 hours a day for years.
Thanks to my former restaurant owner friend for this example.
There are plenty of direct-to-consumer brands now thriving with around 50% to 60% gross margins, i.e., selling at 2x-3x COGS.
If you have a quality product and a lean sales organization, the 5x COGS model is a thing of the past.
Mature ones, sure. Unless you plan on financing growth pretty much exclusively out of the middle of your cash flow statement, however, you'll need a wider margin as an upstart.
I’m obviously biased from my bad experience, but do be mindful to do due diligence on pricing, delivery, and costs. Well, my other issue was that I didn’t know how to do those things and I ran out of time.
Best of luck on the launch.