Alright, at this stage we learned about how the lightness achieved, but next, you need to learn how much it cost. With a simple molding process, you create a molding form that can be used for producing millions of pairs of shoes. This process doesn't demand highly skilled labor, nor does it consume a lot of time. Consequently, it typically costs around $50 to manufacture a pair of Nike Vaporfly shoes.
However, Adidas' approach is quite different. Their process require triple the amount of material because they need to bake a larger form. Additionally, they use CNC MILLING process, which calls for highly skilled staff, a significant amount of consumables, and an extended timeframe. Our calculations indicate that we can produce a shoe like this for approximately $320. We assume that adidas lands at somewhere around 280 bucks.
Isn't it astonishing that it costs nearly 6 times more to produce these shoes compared to a simpler method? However, what might surprise you even more is that all those Adidas shoes they sold for 500 Euros were actually unprofitable for the company. It was essentially a charity program. To explain this, we need to delve into the economics of the shoe market.
As we mentioned, it costs around $280 to manufacture these shoes. But that's just the beginning of the expenses. You also have to factor in the cost of shipping these shoes to the country where they will be sold. Typically, brands use cargo ships for this, and it takes approximately 90 days for the shipment to arrive. Upon arrival, there are customs duties and additional fees to transport the shoes to your warehouse. On average, these additional costs amount equal 36% of the production cost. However, in this particular case, it's somewhat lower, so let's estimate it at around 20% in our calculations.
But production costs are just one part of the equation. Think about the individuals who developed the technology, designed the shoes, and organized the logistics. There are numerous employees and associated costs behind each product. This figure can vary from one company to another, but on average, it is around 40% of the product's price.
Alright, let's sum it up. We've spent a total of 448 Bucks, and now we're ready to sell. But hold on a second, where did we get that initial money to spend? An investor provided us with the capital, and naturally, they expect a return on their investment. After all, they could have simply deposited that money in a bank and earned a 5% interest. However, they believe in our venture's profitability, so they expect a 10% return. This means our selling price needs to be 493 Bucks.
But here's the kicker: we've realized we don't have a store or a website to sell our product. Establishing these platforms incurs additional costs. There are two ways to sell our product. First, we can offer a 50% discount to retailers like Amazon, JD, etc. Alternatively, we can set up our own distribution network. Surprisingly, the profitability is roughly the same in both scenarios. So, the price on their shelves will also be 986 Bucks.
Now, let's not forget about the government. They want their share too, in the form of taxes, specifically VAT. The rate varies from country to country, but on average, it's about 18%. So, the final price of the product is 1.2k Bucks.
You might be tempted to cry out, "It's a robbery!" But let's take another look. The person who organized this entire process only ends up with 45 Bucks. Clearly, he is not the one robbing you.
That is why we told that adidas is a charity company. Fair price for this product is around 1200 EURO.
Scary fact, that we do not see any real possibilities to decrease it. CNC MILLING will not get cheaper.