Aside from what people are willing to spend on espresso machines and grinders, I always wonder what the true costs are vs the markups needed to gaurantee a target profit margins (whatever they might be).

I've heard arguments that the a big part of the cost is simply in materials. I don't buy that. When you look at what it takes to build a typical modern refrigerator, it is undeniable the material costs for such a machine weighing 5-10 times will be higher yet they cost half as much or in the case of really high end espresso machines, 4-6 times less.

As to the engineering complexity, espresso machines aren't actually that complicated and I'd argue they certainly aren't any more complicated to design than that refrigerator.

Of course I admit these comments are made purely for the sake of argument and are superficial as I am clearly not in the espresso or refrigerator manufacturing business. They are just meant to spur conversation so the truths come out from those that do know

So. I wonder how much of that $4500 for the LMLM or $8000 for the Speedster or $10000 for the Slayer going into the actual cost of the machine? It's not my intent to argue whether or not the asking prices are warranted only to understand the justifications.

Anyway I think this might be an interesting topic.

Espresso machines are built in smaller quantities, unlike refrigerators. I've worked on a few refrigerators and the lineas and my GS3 is definitely on another level of quality. Chinese vs American/Italian manufacturing makes a huge labor cost difference too.

weebit_nutty wrote:I've heard arguments that the a big part of the cost is simply in materials. I don't buy that.

Sometimes the cost of materials has a significant impact on the MSRP, but it often doesn't. For example, the manufacturing cost of a plastic smartphone case is surely much, much less than the typical $15+ retail price at the mall kiosks. But that's what the market will bear, so that's what they'll charge. It's no different for espresso equipment.

Prosumer Espresso machines are a slight manufacturing oddity compared to many products.

they are usually manufactured in small facilities in Italy, Germany UK etc.. in general they all use generic parts, these parts are usually manufactured in Italy rather than China. This immediately significantly increases manufacturing costs. Boilers (the best ones) are often and again manufactured in italy, not pressed out of bean can steel in China. The groups again are usually of Italian manufacturer e.g. E61.

The small Italian espresso machine manufacturers enjoy close ties with their local suppliers and are able to ensure quality and responsiveness. This all comes at the higher basic materials cost for the machine. cases are of course bespoke and machines hand assembled in relatively low volumes. As for the comment it's what the market will bear...this may be true for certain things, but in general this is not true for espresso equipment, especially from the smaller manufacturers and possibly even from the bigger ones, although of course esoterica does have a higher markup. These machines are uncommon though. The biggest problem for the espresso machine manufacturers is to be able to produce a machine at a low enough cost that:

1. It's worth them producing it

2. The retailers have enough margin that it's worth them selling it and supporting it (bought out warranty remember), they also have to be shipped and there is the high cost of holding stock

3. You can afford to buy it

It's a hugely risky market and to say they are no different and charge what the market will bear is not fair or accurate. When I am consulted on selling price of machines in the UK and sometimes I am. it's always a tough battle with the retailer and manufacturer, both of which, often have to accept a significantly lower margin than is ideal. if they don't they simply won't be able to sell the machines.

my guess is that pilgrim is on the right track. It is a much smaller market, so margins probably need to be greater. Using your refrigerator as a comparison, it is obviously a much bigger market. Even on the high end of the market, there is are many more consumers than there are in the high end home-barista market.

I can't find the thread to link but one of our members just posted all about an espresso machine that he built. Obviously his labor cost is not relevant but I wonder what the material costs were for his machine. It was certainly nicer than a stainless steel box.

Here's the thread about the home-built machine by brettzee:

Home built espresso machine

It would be interesting to know Brett's materials costs, but unless you plan to build one yourself, the cost of labor (such as design, fabrication, testing, etc.) would certainly be rolled into the price. And it sounds like Brett worked on his machine for 5+ years as a labor of love, so he probably spent far more time on each step of the process than would be possible in a commercial setting. I think you would need a manufacturing engineer to figure out how to manufacture Brett's machine to understand the true cost.

edschlukebir wrote:my guess is that pilgrim is on the right track. It is a much smaller market, so margins probably need to be greater. Using your refrigerator as a comparison, it is obviously a much bigger market. Even on the high end of the market, there is are many more consumers than there are in the high end home-barista market.

Gross margins need to be higher. Not sure net margins are also higher once you add the margins the dealers take, support costs, shipping and everything else is included.

But that isn't it. Some of my all time favorite companies are La Marzocco and Bryston. They both listen to customers and build products I want to use.

After 11-12 years a Bryston amp burst a filter cap. They expedited a replacement channel and capacitors for me to replace on the other channels. They sent schematics and helped me make modifications I wanted. They were always attentive.

Similarly, when I moved from the states to Israel, La Marzocco helped me replace all the 110v components with 220v ones (after verifying I was indeed capable of doing this). But it doesn't stop there. When Dick and I wanted longer shots, Enrico Wurm helped us and got a special version of the software for us.

Dick's GS3 does pressure profiling. Mine does flow. All the modifications are done with an understanding that LM will help if I get stuck.

All of this comes at a cost. Not just high grade stuff but high grade people who are willing to help. That is expensive and is also figured into the cost of the product.

BTW - not all high-end works like this. Fluke is great but good luck trying to get a Gossen Metrawatt service manual....

AssafL wrote: BTW - not all high-end works like this. Fluke is great but good luck trying to get a Gossen Metrawatt service manual....

I would stipulate the same is true of Mercedes-Benz technical service manuals for 30 year old M-B cars. If you do not have the secret handshake and speak old high level German they are not interested.

The cost of continuing customer support long after any warranty has expired does add to the up front cost but it is worth it when purchasing what is nominally considered high cost limited appeal equipment.

I have spent some time in high end audio and high price tags are only minimally affected by materials used, but a small increase in material cost adds a lot to the price tag. High cost factors are the hours spent tinkering, we found that we were unable to ever factor in all the time spent on R&D, once that is done and not factored in the cost structure for f.e consumer audio stuff is like 15% of the price is material, the rest is profit for the factory, importer, distributor and/or retailer and some taxes and s&h left and right. I assume it's no different with espresso machines, which are also not made in huge quantities.

I gave up making those comparisons, if it's worth it and I can afford I buy it, if I cannot afford it I'll try a DIY solution or buy second hand following the motto: a good quality used product is better than a crap cheap product which works well for me.
My whole audio chain is DIY, and still costly, as I'm lacking the machining equipment (eeerr and skills) I chose used/vintage espresso equipment.