What is the "real" cost of a knife?

If any of these companies are publicly held, we could get a pretty good estimate of their average cost by simply comparing their yearly profit to their yearly gross. For example, if they made a million bucks on ten million in sales, then their average cost for an average product would be about 90% of the selling price.

Average cost, of course, is much different from marginal cost (the cost to make just one more knife, after all the supporting investments are in place). As others have pointed out, marginal costs for manufactured products are usually less than half the total price, because all those supporting investments are so expensive.

As a general rule, if there is lots of competition, the price you pay is going to be more than fair...
 
My one experience in commission sales back in the early 80's resulted in my understanding that the MSRP on some items, was roughly divided into thirds. The manufacturer sold it for 33% of MSRP to the distributor, the distributor sold it at 66% of MSRP to the salesmen and we had to sell it at full MSRP.

Since the manufacturer had to make his money on the original sale I always figured that their cost was somewhere around 10% of MSRP.
 
Lets say you buy a laser, a pretty good used laser even. It will cost you the next best thing to $500,000. Lets say it lasts 10 years, and depreciates to zero. You now need to extract $50K a year, which is $1K a week. How many knives do you build a week? if you make 5000 (1000/day) that is $.20per knife. If you really want to stay in business, you need to make about 2.5times that amount to buy another laser when the first one is worn out. Almost done, you now need to feed the laser the following: gas, electricity, labor, maint, and parts. Better add a solid dollar to $1.50 per knife just for the laser.

This is pretty simplistic, but it adds up fast. I don't see how many of the knives we buy are as cheap as they are.
 
Good question. I suspect you normally get your money's worth, though I don't know why super steels like S30V are so expensive once you get past a certain size. For example, why aren't reasonably priced knives with S30V blades available in fixed blades? You'd think it was precious metals instead of steel.

I've never seen the reason to pay as much for a knife as I would a decent handgun, regardless of what the tolerances are like. Yet people drop big bucks all the time for a big name, and in so doing they zip past the point of diminishing marginal returns. One could reasonably ask, would it be better to have two $250 knives than one $500 knife? If the answer is YES, then, would it be better to have two $125 knives than a $250 knife? And you can do this until you settle on your own point of diminishing marginal returns.

Of course the second thing to consider is, am I completely so well off that diminishing returns be damned. If I don't spend the money, my kids will! My problem with C notes is that I tend to get a few and then start thinking about firearms instead of knives. My own personal comfort range is about $85 for a knife, topping off at, say, $125, and this is a folder, of course. I also tend to like longer blades, which puts most of my folding knives into this price range.

I have no doubt that people put a lot of work into five-hundred dollar knives, but it's too much work for my taste and I just love the feel of Zytel. Doesn't scratch, doesn't conduct cold or heat and it's stronger than a bull moose. Still, if a knife had wonderful materials of stag, ivory or finely polished steel that reflect like mirrors, or fine Damascus steel — I can see that. Intricate medieval armor has always been something I enjoy looking at.

When I used to ask my uncle open questions, he would reply, "How long is a piece of string?" I suspect that when knife companies write off all their faulty pieces, pay production costs and salaries and such, that the prices we pay are fair, if we shop around. Some companies, though, are now selling only through brick and mortar stores, and there you'll normally see substantial markup. But you'll get services there you won't find through the Internet and hopefully they'll stand behind their products.

I'm getting so frustrated buying through stores in my area. Last week in a Home Depot, every single person I spoke to was from a part of Africa and no one knew anything about the products. Minimum wage, minimum help. And has anyone noticed that you can't buy a decent knife in a Home Depot? I mean, it's a hardware store!

On the plus side, it's difficult to buy a really crummy knife these days if you stick with known brands. That said, the prices of knives are moving up faster than inflation, and that's worrisome. But it's more than just materials you're buying. You can get some Chinese knives made with slave labor that are better than many knives sold in the U.S. 40 years ago, and they're getting better all the time.
 
Tonie Nichols nailed the costs,

I come from a manufacturing background, and used to work in channel distribution.

For general retail products, there's something called the "rule of 3's", which pretty-much means that the MSRP is 3X what the product cost from the manufacturer.

Here's an example: $100 MSRP knife was sold by retailer to distributor for ~$33. Distributor sells it to retailer for $66. Retailer sells it in the store for $100. Now you have to understand that this includes, warehousing, storage, shipping/delivery costs,overhead, insurance, salaries, etc. so very little of that is profit.

This is why distributors can often sell items for so much cheaper than retailers -but the manufacturer won't discount because he'll screw his distributors/retailers.

If a manufacturer charges $33 for his knife, his material costs will likely be 1/3 the that amount. Sometimes, it'll be higher, but I can't imagine them staying in business for long if he can't control his material costs.

Super high-end or in-demand products like Apple iPods will have higher profits for the manufacturer, but 3X is a very good rule of thumb.
 
Wholesale on most factory knives is half of retail and the wholesaler makes a profit. In general a knife from a company like Spyderco, Benchmade, Gerber etc. cost about 25% to 35% of the suggested retail. And that is what the manufacturer is selling it for so it includes his profit margin, which is hard to estimate. but is probably at least 10% of their selling price. So a knife that retails for $100 probably has about $20 to $30 in actual cost.
 
rookie4real said:
Antonio, but if you only have one competitor that's a little different from a knife business, where competition is very agressive, especially now days. People who buy knives usually don't have unlimited funds unlike the costumers of your company and they can shop around for a better deal.
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Rookie - that was an extreme example to illustrate the point that companies charge whatever the market will bear - not necessarily what it cost them to make, market and distribute. This applies to knives as much as anything else - yes products that are in a highly competetive bracket have to be priced accordingly, but many knives are very expensive - try buying an original Loveless or a current Randall and you'll see what I mean.
 
I recently took a tour of G.E.C. located in Titusville, Penna.. Very impressive operation. I never thought to ask any questions about production costs but I can share this interesting bit. One single folder is a 192 step process from start to finish, so that's 192 cost's to the company, for 1 knife. Oringinally they employed 28 people when they started operations in '06. Today they employ 16, all cross-trained to work at different positions. Even the CEO is on the floor daily working at production. So that translates to cost savings. It was an interesting tour. While I love my knives and collecting them, something so basically simple is actually quite detailed. At least that's what I gathered from it. Hope this add's to the conversation on cost. Dale H.
 
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