The Cost of Cables

Calloway..not sure what you are trying to say? To be quite honest, I don't believe any of these cables companies started with huge R&D money and venture capital. I can only chuckle thinking of an individual starting with an idea going to meet with a Bank of America goup asking them to fund a startup for five thousand dollar speaker wires. If you note my post earlier, I freely admit that I do not have time nor inclination to start a cable company, my second post was for the very most part, tongue in cheek. I agree many people do not have "the guts to follow through with an idea". As a business owner of two separate businesses, the first of which I started with a five thousand dollar signature loan, and worked "part time" at it for four years, I understand the trials and tribulations required to get a business off the ground. I have never though, in my 17 years of owning businesses, done anything but provide superior value to my customers, the original question in this thread was a question of where the costs for these cables comes from, and my point is that it is cetainly not manufacturing cost, and very probably not R&D capital asset cost relative to most other industries. I do not intend to denigrate those entrepreneurs for their entrepreneurship, acually I am somewhat envious of what I see, and this is only my opinion, of their sheer elan in their markup over their manufacturing cost.

Cheers!
Chris

Great posts Chris.

I am certainly not saying it is easy to start a company, such as one to make and sell cables, but again, neither is it for any other part of the industry. Also, I wouldn't throw us all under the bus by saying we don't have the guts to start a company, there are myriads of reasons why people don't.

Metro04, I suspect that discussion could spin this discussion out of control.

Leedistad, maybe I don't follow your post well enough, I did have to use a disctionary a few times. :) Are you suggesting the beauty (visual appeal) of the cable itself or the performance of the cable as part of "art" of music that can be priceless? Either way, I go back to points already made, that I don't see cables different from any other part of audio gear, yet the profit margin of cables seems to me, and others, to far exceed other audio gear.

Brian

This is a truly remarkable thread. I believe you all have done an excellent job evaluating what is without question a very profitable market.

I want to make a few comments, both as a consumer of some of those very expensive cables, (Purist Dominus, Nordost Valhalla and Kubala-Sosna Emotion) and now an owner of a start up cable company. I am one of those who are freely ridiculed because I have owned cables more expensive than my system, but I must comment on why.

I have not owned these cables because of ego; I might buy a Porsche for ego, for I can think of no other “real” reason. (I once in a past life owned a Mercedes, and it turns out it was all about ego, but I was sure I deserved it!) The problem with owning cables for ego is you really need to have people around to understand what they are, and thus stroke said ego. Unfortunately, most people I know could care less about my system, its sound or what cables I use.

I bought these cables because they achieved things I could not achieve in any other fashion. Yes I could have bought a more expensive amp, but if I limit the performance with the cables, then what would I gain? The old standard of 10-20% of system cost comes from the days when there were very few high end cables, and at that time 20% would have bought the best MIT or whatever. Today there are so many cable choices; and in my opinion because we finally figured out cables matter. From the demand for better cables comes; R&D, marketing, advertising, patents, legal fees and of course construction costs.

Let’s take a look at the truly absurd. Tara Labs now has their latest greatest interconnect in a “true vacuum” and it comes in at a cool $15,000 for one meter! Ok, I buy the cost of development was high, but??? These guys do serve a purpose however; they push the envelope of what is possible. They help less creative manufactures to look outside the norm and possible they will then take the ball and move the performance even further.

I am (was) a competitive sailor. In the world of sailing the “audiophile” equivalent is America’s Cup. (Which is about to start the cutting down process as they approach the series) I remember about fifteen or twenty years ago when the trickle down from these boats hit our lake in the form of a carbon fiber mast. At that time masts were around $1000 for my boat. A carbon fiber mast, if it would have been legal in my class might have been $75,000. In some fleet, these types of developments are outlawed, where other fleets encourage the progress. (Imagine if we outlawed progress in audio)

The point is, today the entire hull of an America’s Cup boat, or the Volvo around the world race, and now many smaller fleets are constructed of 100% carbon fiber. The cost of course has come down a great deal, and we now see carbon fiber in most every boat made in some small applications where strength and weight are criteria.

Now I am sure the R&D was high to develop those early masts, but I am also sure the developers got paid quite nicely for their efforts. These developers (many from New Zealand) do not just walk away and retire on their one time discovery; they keep developing because that is who they are. For every success they discover, I would bet there is a land fill of failures.

Ok, I know our cables are not quite so extreme, but the point is made. I spent the winter testing speaker cable designs. The material is not cheap; it amounted to a few thousand dollars of “junk wire,” but this does not account for the big costs. Time is huge, if this was a business, and not my hobby, and I expected a reasonable return on my time, then I would need to factor this time into the R&D costs. Let’s say I have spent six months at five hours per day. Of course this is tine listening and to me not work, but I use this to make the point. 6 months x 30 days x 5 hours = 900 hours. Now if I am an entrepreneur, what is a reasonable fee for my risk taken to start a company to support my family???

Let’s say for the sake of argument I want $100/hour for my time, so I need to recover $90,000 in my product. Now I need to patent this great idea, this will cost about $6 – 10,000 in legal fees, not to mention my time (let’s say 40 more hors) so let’s just say this costs $10,000. Now how will I sell these? If I wish to stay low profile, I will just sell them here at Audiogon. In order to do this I must become a commercial member, and the lowest member category that I can be costs me $250/ month. Then we should consider the accountant and attorney who will advise us to spend great sums of money for their worldly advice. Therefore add $0.00 for the equivalent value.

Ok, all set for our upstart company, we need to recover $100,000 in time, $5000 in material consumed during the development and $250/ month. Now as a start up, what can I sell here at Audiogon? The first year I expect will be tough, but perhaps I can average ten cables/ month. (This would be very difficult, most upstart cable companies fail, but we are being optimistic here) If I want to recoup my time investment in two years, (paying myself $50,000/ year) I would need to charge $875 per cable set to cover my time and cash investment to develop the cable. Then I need to charge an additional $25 for Audiogon, and there we go, I can sell my cables for $1000 each set and come away with a cool $100 in profit!

Oops, I forgot to build these babies. So now I need to add the ten hours for a set of speaker cable, wire, cotton, connectors, shipping, insurance… For my cable, the cost of wire is quite high; an 8’ pair has over 400 feet of gold plated silver wire. This runs an average of $2.50 per foot (cost) or $1000; plus cotton sleeve at $70, jacket material, $50, spade connectors $50, misc. cotton and thread, $10 and my cost is $1180 for an 8’ cable. If I wanted to get $50 per hour, then we need to add $500, bringing my construction cost to $1680. This means if I was to cover the $900 in R&D and Audiogon, plus the actual material cost I need to charge $2080, and if I want to get $50/hour, I need to sell these for $2580!

In retrospect, perhaps I should not start a company, at least if the goal is to make money. If the goal is to share the hobby, well then…

Now this is me, a guy trying to build a cable to sell. If I am Nordost, Purist, Kubala-Sosna I have a different level of issues. These guys sell in magazines, they build demo cables to leave for dealers to audition, they travel to establish a sales force, and they??? Add to this the FACT that a dealer network is filled with greed. If I hope to sell in the Far East, I need an agent, a distributor and dealerships. Each of these entities takes a 100% mark up (this is the standard in audio, but true in many other industries as well) as they pass the product on. This covers their exposure (they buy bulk up front) time, travel … So going back to my example cable, that I decided I was going to charge $2580. Let’s say $2500 for ease of math. Now I am going to use a distributor and dealerships, but I am going to try and go without the agent. So my cable now retails for $7500, but that is my cable. If I am Nordost, or the like, what does my business cost if I advertise nationally, have a sales force, travel…. I assume at least another 100% so my little cable that has an actual material cost of $1180 would be selling for at least $10,000!!!

Now my costs are much higher than most cables, because I use a custom 99.99% pure gold plate over a 99.99% pure silver wire. If my cables were copper for instance; I would guess my cable cost might drop to $300 or so. The $2580 I had above might be more like $1700 for copper. Then the 400% mark up and the copper cable is $6800.

These are just examples to try and help illustrate how $300 in copper can grow to $6800.

If you consider the above analogy, anyone who thought this was going to be a cake walk is seriously disillusioned. Yes you can build your own copper speaker cable for $300, and if you happen to hit the right formula right out of the gate, then you will have one great deal. If you have a lot of spare time, then you can invest the hours needed to find the right combination to make a great cable. If however you do not have the time or inclination, and want the latest thinking in cable design, then it does cost money.

I agree that the costs are completely out of control, and yet I demand the best possible. I am one of the consumers who have demanded the R&D, and I have been willing to pay for it. Can you imagine an America’s Cup boat from twenty years ago, (steel hull and aluminum spars) racing against today’s all carbon fiber hull and spars? If we all simply stayed where we were, well the world would be a very different place. Perhaps the Scott receiver I had was good enough. Surly the zip wire from the hardware store is good enough too.

I am sorry, but pushing performance in audio, sailing, skiing, car racing… is something we choose to endorse, or not. I choose to be involved with the elite portion of the hobby. No one is forcing me to strive for the best, but if I want to be in the elite of any sport or hobby, then I will be the one who supports the R&D. The mass market enjoys the fruits of this labor, to a lesser degree. My Mazda is no Mercedes, but a lot of what makes it a good car comes as a direct result of the Mercedes $250,000 racing prototype. I want the best I can get, and therefore I buy the silly expensive cables. But are the prices silly, or simply the result of furthering performance that we the consumer demand?

jd

PS, please understand I wrote this to add insight and not promote a product.

JD, excellent post.

It's amazing how people don't factor in actual business costs (rent, etc.), ROI, marketing, salaries for employees, margins for dealers and distributors, etc., not to mention sales volume which has got to pretty insubstantial given the niche market. It's usually a business necessity to rake purchasers of halo products to recoup costs and continue development (as we have seen, technology progresses, those products that do not improve are eventually superseded). At the end of the day, those that afford halo products (don't feel too bad for them, they have the cash) make the technology available to all the rest of us down the line.

Frankly, if it were so cheap to build and market cables why aren't we seeing companies make a superior product to the ultra-expensive cables and then market it at 75% of the cost of the current ultra-expensive crop of cables. That way, it would still be expensive (if you believe that's why people buy certain cables) and protect the company's profit margin but the product would kill the competitors on price with superior performance and the company would clean up.