Today’s HAM post is different. We’re looking into the financial side of the airgun industry and examining if we’re getting a good deal for our purchases.
Answer. Yes we are!
In fact, this is not a story just about airguns. Well, yes, it applies to airguns. But this analysis applies to just about EVERY product we buy, from toilet roll to cars – and everything in between. It’s not only about the airgun industry, I’m just using it as an example.
Steve Buys A BB Pistol
Yes, everyone want to have the best deal we can when buying something. No-one likes to be ripped-off, after all.
But let’s look at things from the other side of the fence, for once. The airgun industry is not a high margin business. There’s plenty of competition and companies can’t just charge whatever they like for their products.
Occasionally a new product comes along that appears to offer particularly outstanding value. For example, it’s exciting to see a terrific new BB pistol that sells for just $100 here in the good ole’ USA. (It’s $100, just to keep things simple). And, yes, they do exist – just check out the HAM reviews!
I couldn’t help thinking “What did that pistol really cost to make?” So let’s try to work it out…
Above. Look at the fine finish on this BB revolver. Quality costs money!
Big Disclaimer
I have NOT approached any airgun company for information to write this story. So the costs and prices I’m showing here are in no way official or precise. They are just my opinion.
However the numbers in this piece are reasonable estimates based on common business practices. So they won’t be that far out.
Certainly they’re close enough to give us something to think about next time we spend our hard-earned Dollars on any product.
Below. When you buy a BB gun, it also includes a warranty, instructions, accessories and packaging. Those things all cost money, too!
Business Basics
First I’ll be clear. Anyone wanting to make high margins in business has many other more lucrative opportunities than to get involved with airguns. But business is business and everyone involved in the airgun industry needs to make a profit in order to continue to develop and sell the products we want to buy.
If companies can’t make a profit, we – the customers – won’t get the shiny new products we want in future. It’s that simple.
Airguns are not a “razor blade” business – like computer printers with their toner cartridges, for example. There’s generally no way to lock customers into using specific pellets, BBs or CO2 cartridges, for example. So profit has to be made from selling every individual airgun, including my BB pistol.
Below, this Glock BB pistol is officially-licensed. That means Glock is paid a royalty for every one sold. Another cost!
In EVERY industry, most companies will need to make between a 30 and 50% margin between buying and selling a product just to break even. That’s paying employees salaries and benefits, providing office and warehouse space, insurance, utilities etc. Then there’s service and warranty costs and more. The list is almost endless!
Most companies really need to make higher margins, but competitive market pressure – that’s you and I looking for a deal – keeps a lid on this.
Who’s Involved?
In between any product being manufactured and you or I buying it, there’s almost always a chain of companies involved. Let’s construct a fictional – but likely – scenario for my purchase.
Below. You want blowback? That requires more parts, more machining and so costs more.
Let’s say I buy a $100 BB pistol from an airgun Dealer. The Dealer purchased that pistol from the company that puts its name on the product – we’ll call it the Brand Owner.
In this case we do know that my BB replica pistol is manufactured in Taiwan – most are and it says so on the box. Almost certainly the Brand Owner doesn’t have a manufacturing facility in Taiwan.
That’s because there’s several Taiwanese companies that specialize in manufacturing amazingly high quality CO2-powered replica airguns for other companies.
So basically we have three companies involved in our airgun industry chain. The Dealer, the Brand Owner and the Manufacturer. (Actually there’s more players involved in reality, but I’m keeping this simple).
Below. The P08 Luger was a very expensive firearm to manufacture. So an ultra-realistic field-strippable CO2 replica with operating toggle link is not going to be cheap either.
Last Is First – The Dealer
I buy my new BB pistol from the Dealer for $100 – actually $99.99, what a great price! – plus any applicable sales tax and shipping.
It’s the Dealer’s job to maintain stock of the product. That requires a warehouse. Shipping out my order requires people to pick and pack the order (and to put it away in the correct location in the first place). Then they also have to pay for the shipping carton and other packaging supplies to send it to me.
The Dealer likely also operates a website that obviously costs money to create and maintain. There’s office and management people working there too. If I order by phone, yet another person talks to me.
A quality dealer also has service and support people working for them. Then some customers will return product because they don’t like it or for some other reason. More people have to process these returns, make refunds etc. Everyone requires space to work and needs to be paid!
Below. A simple firearm design allows for a simple, low-cost CO2-powered copy.
All-in-all, any Dealer in any business will need to make at least 30% margin to cover its costs. They need to buy my BB pistol for $54.00 to sell it at $100.00 – at a minimum. That’s a margin of just $26.00 on my BB pistol purchase.
Of course I pay by credit card. Straight away the Dealer lost something like 3% of that $99.95 to pay the credit card company fee for handling my transaction. That’s about $3.00 – or around 8% of their margin.
Then they are probably offering “free shipping” on my order. Shipping is NOT free. Ever. If you are not paying for it, the dealer is. So that costs them more money. Ouch!
As you can see, if the dealer makes one third on my BB pistol purchase, that’s far from excessive.
But what about Amazon – I hear you say? Well they charge similar margins but spend the money in different ways. Likely it’s more on the website and logistics but nothing on pre-sales service and post-sales support – that’s not part of their offer. But, overall the percentage will still be similar.
The Brand Owner (The Name On The Gun)
My new BB pistol is a product of the Brand Owner. They generated the idea for this gun then developed it.
Below. Realistic distressed finish? That costs more to manufacture, too.
Typically, it takes between 18 and 36 months to develop any new product (not just airguns). It requires engineers, managers, test specialists and many other people. They all need to be paid for their work “up front”, before a single product is sold. You and I don’t work for free, neither do they…
Then there’s the overhead of working with the Manufacturer – travel back and forth to Taiwan, in this case. It doesn’t “just happen”!
Almost no products are designed in one stage. There will be many prototype guns produced during the course of development, with many design revisions and issues corrected.
Each iteration needs to be tested – yes, people have to fire the new designs many thousands of times before it can move to mass production. Guess what? More cost.
And it’s not just the gun. Someone has to design the box, another person writes the instruction manual. Someone else keeps track of everything and makes sure that nothing slipped through the cracks over time. Phew!
Then there’s tooling. Our BB gun is made from many individual parts. Some of this is “hard tooling” like molds for plastic parts. Then there’s “soft tooling” which is computer machine programming essential for CNC manufacturing.
Again, all of this has to be financed and created before a single sample of any product is sold. That’s true for the airgun industry and any other product-based industry.
Below, there’s lots of tooling involved for a BB gun like this replica “Schnellfeuer” Broomhandle Mauser.
The Brand Owner also provides a warranty for my BB gun in the (unlikely) event that I have a problem with it. They also stock spare parts and have service specialists ready in case I need support. More cost!
Of course the Manufacturer is not going to start work on this project without some up-front payment from the Brand Owner to cover their start-up costs.
All this requires deep pockets to stand these costs before even a single unit of the product is sold. (And what happens if it’s not a sales success?).
Don’t forget that someone (the Brand Owner) has to pay to ship the gun to the Dealer so that they could sell it to me. The Brand Owner also had to pay for transport from the manufacturer in Taiwan, shipping my gun half way around the world to their US distribution facility. (Another warehouse, more people, yet more admin).
They also pay about 4% Import Duty to “Uncle Sam” also, for the pleasure of bringing my BB gun into the country. It may be more – possibly MUCH MORE – soon!
Then the Brand Owner also needs to market and publicize the new product. They attend the SHOT Show and similar events (that’s BIG MONEY), take out advertising, sponsor YouTube videos etc. etc.
I certainly wouldn’t begrudge the Brand Owner a 50% margin on my BB pistol. That would be somewhere around $29.00 profit, if they can buy it for $25.00. Not a lot for all that work and risk, is it?
The Manufacturer
In Taiwan, the Manufacturer will have shared much of the up-front development work with the Brand Owner. My BB pistol obviously required some innovative engineering to produce such a realistic BB gun. For “innovative”, read “difficult”. That means it takes more time and costs more money!
Below. Replica CO2-powered BB guns sometimes can be developed from the original firearm drawings. Like this Webley.
Of course the Manufacturer too, has people, buildings and utilities to pay for. They also invest up-front to develop a new product, do their own testing etc. And they have suppliers that they buy from (screws, nuts and packaging, for example). Guess what? Those suppliers have costs and need to make a similar margin, too.
Again, I’m happy for the Manufacturer to make 50% margin on my BB pistol. If they sell it to the Brand Owner for $25.00, they need to manufacture it for $13.00. That means the Manufacturer makes just $8.00 in margin on my gun.
That’s right, it costs the Manufacturer just $13.00 to make my hundred Dollar BB pistol. How do they do stay in business?
What Did We Learn?
Developing, manufacturing, distributing and selling any new product is a very complex matter. Mostly there’s more steps and players involved that I describe here. Yes, I’ve actually kept it extremely simple for this example!
Thinking of what’s involved from the airgun industry perspective, it’s tough not to agree that we get great value from the companies that provide the products we love – like my wonderful new $100 BB pistol.
And don’t forget, similar scenarios apply to EVERY business selling every product we buy. Plus, many of them work on far higher margins than the airgun industry.
When you take a “supplier side” view like this, it’s very clear that we get great value for our airgun purchases!
The post The Airgun Industry – How Do They Do It? appeared first on Hard Air Magazine.
Merry Christmas, Doc, enjoy your Komplete!
Pew-Pew!
