Optimizing for magic, not for price

Everybody is asking what the price is going to be for the Floyd. It is a bit early to say exactly, but let me briefly outline how we see pricing in the grand scheme of things.

There is a lot of lighting hardware out there. Most of this hardware is mature technology, development is amortized a long time ago, the tech is well understood and many manufacturers are optimizing for price. Which is another way of saying that if you want cheap gear, there is a ton of chinese knock-offs on eBay.
In many ways, it is awesome that photogs can get access to lighting gear for an unbelievably low price. But there are reason this is possible.

Fall Foliage

Fall Foliage by XKCD

Business Economics for by Dummies

When you make something you need to decide what type of product you are making and optimize for that. Say you are in the shovel-making business. Are you making inexpensive shovels? Then you need to use cheap materials that might break more easily. You need to reduce cost of production by lowering the number of parts and operations, e.g use pressfit instead of screws, etc.

By offering a less expensive product you will typically sell more. But if your product is in demand, someone else will soon undercut you, and you find yourself looking for more ways to cut cost. You can see where this is going. Quality, customer support, innovation, all goes out the window in a race to the bottom. In a super-transparent worldwide market you soon find yourself operating on 2% profit margin. But if you sell a shitload of shovels, maybe you are fine with that.

If, on the other hand, you are making the best shovels for some particular purpose, you don’t look for the cheapest materials. You look for the best suited material, the lightest or strongest, or most flexible. You add reinforcements to weak areas, you spend time and effort trying to improve and better the performance of your product. Your product is not going to be the cheapest product on the market, but that is ok. And if your product is in demand, someone else will develop an even better product. Forcing you to innovate and improve again. No rest for the wicked.

As long as there is a significant difference between the “better” and the “cheap” everything is fine. People who need a better product are generally willing to pay more. People who do not need a better product, or don’t know better, will just buy the cheapest one.  I guess a good example is bicycles. There are some friggin amazing bikes out there. Not cheap. And there are super low cost alternatives. Problems arise when people don’t see much of a difference between the “cheap” and the “better” but that is a story for another time.

One major point of this (very simplified) worldview is that it is *not*  possible to optimize for price and performance at the same time. Do you use the cheapest or the best suited material or process? The cheapest and the best is very seldom the same.

What do we want to optimize for?

Around here, we are optimizing for innovation and awesomeness. Not the brightest or the smallest, or the biggest or the cheapest. We are trying to make the most interesting, the most creative, the best. We are optimizing for magic, not for price.

Affordable pricing is is definitely on our mind, we want to get this gear into the hands of as many people as possible. But to paraphrase Einstein: “Everything should be made as cheaply as possible, but not cheaper”.

Hardware, which is expensive to make, is priced at the minimum necessary to ensure the healthy growth of a sustainable business to ensure quality, support and availability of the products.*

Pricing formula

The method we use for pricing is not complicated. Take the BOM (the Bill of Materials), add a markup for us and a markup for the distributor and you have the sale price. The BOM is the cost all the mechanical components (like CNC machined front and rear enclosure, injection moulded button tops, screws, mounts), the electronics (the printed circuit board, the microprocessor, the LCD display, the LEDs, the connectors and all the rest of the electronics), the assembly of all the above, the loading of the firmware, calibration and  quality testing. Add to this the cost of any cables, power adapters and the cost of the packaging. Basically the cost of making one complete product ready to put on a shelf.

The standard pricing formula for Open Hardware is 2.6 times BOM. This allows 40% margin for us and 40% margin for distribution partners.  The margin allows for the cost of labor, sales, taxes, rent, customer support, returns and all the rest that is necessary for running a healthy business and taking care of the customer. It also allows for continued research and development, we plan to stick around for a long time.

So for those of you who wish that eBay knockoffs was even cheaper, you won’t find what you seek here. But I hope you will find some of the most awesome lighting gear around, at prices you can afford.

* The quote is from Chris Anderson, editor-in-chief of Wired.

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