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From: cmcmanis@sun.uucp (Chuck McManis)
Newsgroups: comp.sys.amiga
Subject: Re: Great big huge floppy disk?
Message-ID: <10870@sun.uucp>
Date: Mon, 29-Dec-86 15:54:41 EST
Article-I.D.: sun.10870
Posted: Mon Dec 29 15:54:41 1986
Date-Received: Mon, 29-Dec-86 23:36:37 EST
References: <346@csustan.UUCP> <5396@ukma.ms.uky.csnet> <2261@well.UUCP>
Organization: Sun Microsystems, Inc.
Lines: 125
Summary: Argh! Look at the volume.

.  = kdd@well (Keith David Doyle) 
.. = sean@ukma.ms.uky (Sean Casey)

.. Yeah.  Why do Amiga compatable hard disk drives cost THREE TIMES AS MUCH
.. as the same capacity IBM PC drives (with controller).  Is there three times
.. as much magic inside?
..
. No, we're just a good 3 times as desperate to get ahold of hard disks
. as the average IBM owner.  The law of supply and demand.

Argh! Please consider this, if you want to sell hard disks, and stay in
business, you have to sell them above your cost. 

Take as a given that you cannot sell a hard disk to *everyone* that has
an Amiga, and if you are lucky you will sell to 10% of them. Now the
latest hearsay on Amiga sales puts them at 150K in the U.S. That is
15K hard disks. Assuming you are a conservative person and want to hedge
your bets, you try to break even at 10,000 units sold, and I will also 
assume you can sell 10K in one year. The first thing to do is add up your
cost of the parts and labor to produce a hard disk subsystem .

Part I. Calculating the Costs 

[See the notes below for some assumptions]
	
	Hard disk drive, 20Meg 1/2 height			$250
	SCSI controller						 $75
	Cable (50 pin, shielded)				  $5
	Power Supply (12V@4A, 5V@3A, switcher)			 $30
	Allegra sized PC board (4 layers) stuffed & tested	$100
	Enclosure for Amiga Interface				 $30
	Enclosure for Hard Drive				 $50
	Fan							  $1
	Power Cord, Decals					  $1
	Manual, Unit packaging (shipping Box etc)		  $3
								-----
			Per Unit Recurring Costs		$545

	FCC Approval 						$10000
	Driver Software (by contracted consultant)		$2500
	Maintanence Utilities (backup, chkdsk, also cons.)	$4000
	Engineer (1yr, initial design, debug)			$40,000
	Technician(1yr, support, documentation)			$18,000
	Advertising (1yr, 4 large ads in two publications)	$36,000 
	Office/Phone (could be a garage, 1yr)			$12,000 min
								-------
		Minumum NonRecurring costs			$122,500
		or as a cost/unit ($122,500 / 10K Units)	$12.25
								=======
	Your cost/drive shipped					$557.25
	Dealers Suggested List Price (50% margin)		$1114.50
	Discounted price (mail order)				$900.00

Notes and Assumptions:
    1.) You are buying 1000 drives at a time from the drive manufacturer,
	as well as 1000 units of the other stuff.
    2.) You can find a cheap contractor to write your software for you
  	and still have it be reliable. 
    3.)	You advertise in specialize periodicals like AmigaWorld and 
  	Compute! and stay away from BYTE. 
    4.) You do one mailing to the Commodore registered owners list -
	150,000 17 cent stamps is $25,500.
    5.) You have either no office or one of those one room jobs. Or
	you run this thing out of your house which cuts down on how
	much the consumers trust you to stay in business.
    6.) All you are doing is selling hard disks for the Amiga, if you
    	do other things like sell software you can share office and
	advertising costs, and maybe even your technician but that
	only affects the enduser cost by about $10.

Part II. Reaping the rewards :

As the reader should note there is no mention of "your" salary in the 
costs above. That is because you "own" the business and you get all
of the profits! So using the figures above lets assume you make your
market forecast and actually sell 15,000 units. Now the first 10,000
went to paying off the operating expenses of the company and the 
FCC approval and such like. Now you get 5000 units of pure profit for
the year, lets see how that adds up ...

5000 units @ ($557.25 - $545.00 materials cost) = $61,250 for the
year.

Wow! You made $61,000 dollars. But what about next year? Will another
150K amigas be sold? How do you deal with all those people bitching
to buy $500 hard disks? Even if you never sell another disk in your
life your customers will be expecting support. What it boils down to
is now you have to sell at least another 5,400 drives to pay for the
Tech, the Advertising, and the Office, 8,660 drives if you want to 
keep the Engineer around (more if you give him/her a raise) And another
5,000 on top of that to pay your own salary (unless you take a pay cut).
Thats another 10,000 drives minimum the second year. 

Part III What is the Point?

    The point of this entire article is to point out three things :

    First, the Unit Recurring Cost to the manufacturer is biggest 
contributor to price, since a reduction of $100 will pull $200 of 
the suggested list price. When you sell to the IBM PC market, 10% 
of the market is 60,000 drives and you don't need either a case or a 
power supply since the PC provides them and you don't need any custom 
software since IBM supplies that also. With a volume of 4000 drives a 
month and the only parts being a $200 drive, $50 interface, and a 
$.50 ribbon cable the suggested list is now around $500. With mail 
order going for about $400. 

    Second, the amount of money the manufacturer is making is usually
so low that the difference between selling "at cost" and at their
regular price is at most $50. They make there money by selling 60,000
drives (thats $3,000,000 for the PC Drive seller) The dealers haul
in a bundle but one dealer may only sell 50 drives the whole year
so although he makes $25,000 he also has a lot of overhead like store
space and sales clerks etc.

    Third and last, until the volumes go up, and the cost gets reduced
the Amiga drives will continue to be more expensive than PC drives. 
Look at the Macintosh Plus drives, the only difference is the built
in SCSI interface on the Mac (a $100 charge to the Amiga drive maker)
and their disks are almost exactly $200 lower than the Amiga drives. 

-- 
--Chuck McManis
uucp: {anywhere}!sun!cmcmanis   BIX: cmcmanis  ARPAnet: cmcmanis@sun.com
These opinions are my own and no one elses, but you knew that didn't you.