The Hidden Cost of Your Guitar

How much does a hotdog cost? There really isn’t much to it. Have you ever looked at something and wondered why it costs what it does? How can a single Diet Pepsi from a convenience store cost $1.99? Why is a large coffee at Dunkin’ $3.00? You can pay almost $2.00 for a jug of that clear stuff that comes out of the tap at home—why is that? I’m not suggesting that everything should be free, but I often hear guitarists complaining about how expensive gear is, with little understanding of why. On the other hand, I know there are those who revel in telling everyone how much their custom shop or vintage guitars are worth. Yes, it’s true that I make instruments that some feel are pricey—but my customers think the investment is worth it. In both cases, and in the marketplace at large, musicians base their opinions on what? Market values? Emotional reaction to advertising? Some folks add up what they believe the cost of all the components is, but rarely understand what it actually takes to turn raw materials into products. A few of these people are the builders themselves—but that’s another story.Of course, the answer is going to vary widely between big outfits churning out hundreds of guitars a day, and the neighborhood guitar hobbyist who builds a few instruments for friends and the occasional Instagram customer. The big ones are receiving thousands of board feet of lumber on 18-wheelers, or might even have their own railway sidings. Vendors can offer big discounts when the orders get large, or factories can reduce costs by making their own pickups, cases, and hardware. Small builders don’t have all these options, which affects the end cost. Still, it seems counterintuitive that some of the brands that benefit from economies of scale are also at the top of the price point. So what are you actually buying?There are a lot of costs when an operation grows. Administrative costs balloon as a company expands. They’ve got to manage a lot of things that the backyard builder doesn’t. Employees mean paperwork and management headaches. Tax expertise, customer service, shipping, purchasing, accounting, and legal costs mount up. Once a business gets to a certain size, human resource acumen is required. OSHA and the EPA have thresholds above which a company is subject to more oversight and regulation. Naturally, this means even more management and cost.“Prices for a lot of parts, services, and raw materials have increased—or even doubled since pre-Covid levels. Importing goods has become costlier lately, too.”I’m not even going to get into the weeds about accounting stuff—like carrying costs, that include warehousing, labor, insurance, and capital costs. High carrying costs can negatively impact a company’s cash flow and profitability. Staying too lean might leave you exposed to supply chain snags.
At this point, it becomes even more essential to market your product. Sales staff are expensive—lots of travel and commissions. There’s a saying in business that a funny thing happens when you don’t advertise—nothing. So while a small shop might be kept busy with a steady stream of social media posts, the large outfit has to cast a big net. Now you’ve got a huge ecosystem to support, and a big ship is hard to maneuver if sales hiccup. A midsize shop might be able to do some of the required advertising production, but when campaigns get bigger—like worldwide—things get complicated and costly. Some large companies have in-house advertising departments, but others farm it out to ad agencies. Endorsers gravitate to small builders at the beginning of their careers, but often are enticed by more lucrative arrangements with prestigious brands once they become well-known or highly influential. Yes, big companies have artist relations departments, too. All that promo racks up costs.
The micro business—one that sells up to $1 million USD of goods at wholesale and typically has 20 or fewer employees—has a hard time competing. Larger firms that have the resources to buy at steep discounts can often out-market and out-sell them. Another factor for everyone is that prices for a lot of parts, services, and raw materials have increased—or even doubled since pre-Covid levels. Importing goods has become costlier lately, too. What it comes down to is that it’s pretty expensive to be in manufacturing, no matter what size the company. The little guy has to be scrappy and watch every penny, but the big boys have the burden of a large nut to crack. I don’t believe that companies are out to gouge customers at the risk of losing them, but there is cost-cutting going on to entice musicians on tight budgets. All of this is invisible when you’re looking at a guitar on a website or hanging on the music shop wall, trying to decide if the object of your desire is worth the price. In the end, you’re gonna spend what you’ve got to spend.