How Much Does It Cost to Manufacture a Washing Machine
Washing Machine Costings
How much washing machine are you buying for your money?
All too often when a washing machine of another appliance goes wrong the conclusion is drawn that a replacement is needed or a refund required and, as washing machines especially have gotten cheaper and cheaper in real terms over the past few decades even repairers often think that a replacement is a better option.
Within that paragraph also lies some of the reason for the problems that we see. The actual value of the appliances themselves and, the way in which they are regarded by people and, not just the public.
In this article and, quite possibly others that are related, we want to explain to you what makes up the actual cost of your appliances by using the humble washing machine as the primary example and show you the wafer thin margins that are often worked with to explain why, when things go wrong, that it may not turn out the way that you expected.
It should also highlight what you are actually getting for your money and what you can expect to get back as an exchange or refund if that situation ever crops up.
Devaluation
Like cars, bikes, furniture, clothing and many, many other goods appliances lose value over time as they have a finite life.
This means that as soon as you unwrap your shiny new product that it loses value and, just like any other product of a similar nature, this can be a substantial amount. Typically, as soon as an appliance is used it is worth 30-50% less than the ticket price, just like a car.
However, after a few years when traders are buying in old appliances to recondition the costs are significantly lower than this. Obviously in that case there is no history, often any pre-existing fault cannot be seen so that's worth keeping in mind but, even for appliances that might only be two years old the trade would normally pay about £10-£25 per unit.
This may come as a bit of a surprise to many people but, the truth is, this is what you can expect to be paid for a second hand appliance. If you read the rest of this article you will begin to understand why this is the case.
Bottom Of The Washing Machine Market
At the bottom of the market, which is generally regarded with washing machines to be anything under £300 from about 2005 through to the time of writing, it's a mass market feeding frenzy filled with one label brands. Cut throat prices are the order of the day and brands at this end of the market have to mass produce tens of thousands of units to keep the prices down.
That may seem to be a good thing for consumers, cheap washing machines for all, but the realities of it may be somewhat different.
You see, people that pay over good money for a product often base their notions of how long the product should last, how well built it is, how well it will perform and what level of support will be available if there is a problem on the last one they had. Which, when it comes to washing machines and other large appliances doesn't actually translate as the last one was most probably, in real terms, much more expensive.
But let's look at a typical £200 washing machine as an example and show you where the money actually goes.
If this example there are fixed costs factored in as well as some that are calculated on a percentage basis but we'll break these down and explain them to you so you can understand it as easily as possible. Do bear in mind that these are simplistic models for information purposes only.
So here's how it's all worked out from the top down from the diagram explained as simply as possible.
Value Added Tax
As you can see a big chunk of the costs (currently running at 20%) is the VAT element which is paid to HMRC by the retailer on your behalf as it is a tax collected at point of sale. This is a complete write off in so far as the actual value of the machine is concerned and is largely ignored by everyone until you get to the actual selling part. But, for end customers it is important to realise that a full fifth of the cash you paid over disappeared into the government's coffers, not the manufacturer or retailers.
In our £200 example this is a full £40 of the cost paid to HMRC.
Storage, Distribution And Delivery
This is usually a fixed cost per box, what the box is doesn't really make any odds although the cost varies on the scale and transport methods used.
What is also important here is the product being shipped from factory to the destination country. A typical container holding between 120 and 150 washing machines will cost about £1500-2000 to shift from one country to another so it isn't rocket science to work out that this is somewhere between £10 and £15 or so per machine in cost. This is factored into the overall price obviously.
The larger the product, such as fridge freezers for example or range cookers, the higher the transport cost per item.
Then there's storage costs which, everyone has but the amount will vary. In a third party warehousing type operation this will typically run to about £1-2 per week per machine so, based on your sales run rate you calculate out the cost depending on how much stock you hold at any given time and how fast it turns over.
Then you have to work out the delivery cost to the customer as, for large appliances, not so many people have the ability to transport these large heavy items, so delivery to home or to the store is also factored in and, again, this can vary.
Again, this figure can vary but it's always factored into the equation and is ordinarily rolled into one number per box.
It is not unusual for this to come out between £30 and £40 per box. In our example, given we are looking at mass market machines, we will take the lower figure.
Retailer Margin
Believe it or not retailers expect to make money on the goods that they sell. It may come as a shock to some but, they sort of have to make some money or they wouldn't be there.
That said, different retailers have different ideas on how much that should be.
For most of the retail chains from John Lewis through to the supermarkets and electrical chains like Currys, Comet, Argos and so on they have what is often referred to as "margin expectation". What this means is, in short, that they expect to make a minimum percentage per item sold. This figure varies.
For our example we've applied a £25 margin on a £110 cost or, roughly a straight 25% uplift. This may be high, may not be. It very much depends on the retailer but it would not be exorbitant by any means to make this supposition.
That means that only £25 of the £200 is actually profit to the retailer. Not that much in the bigger picture is it?
And, quite funny that the retailer makes less money than the government from selling a washing machine.
Servicing And Warranty Costs
This one is a thorny subject as well as the largest danger zone.
Typically this is calculated on the expected failure rate or historical failure rates if they are available. If not the manufacturer or brand owner has to rely on industry norms and stats to calculate the anticipated costs.
The typical rule of thumb is that 10-15% of machines sold will have some sort of failure at this end of the market that is covered by the warranty and not chargeable to the user.
In our example, we went with the median of 12% failure rate giving a figure of £12.50 per washing machine.
Get a recurring or a epidemic failure and this whole model collapses as you cannot afford to pay for it. Now you can perhaps see why, even if there was a reason to recall the machines for whatever reason, the brand owner or manufacturer is on the knife edge of going bust due to the cost if that happened.
But, even if the brand sells ten thousand washing machines this only gives them £125,000 to provide all service required, keep spare parts on the shelf, pay engineers, pay for technical support and all the staff required to handle calls and manage the service. It is, frankly, a pittance to accomplish all of that. So, the poor customer ends up with poor service and support all too often as there simply isn't the money to pay for it and, that is the reality of the situation.
To put that into perspective, £125,000 is roughly enough to keep two engineers on the road with all costs for a year. That's all it gives.
Factory Margin
In most cases the factory will apply a margin, even internally within large companies, as each division has to show a profit.
For third party brand owners, there is no escape from this figure.
In our example here we are going to take a 15% figure on cost, so this will work out at about another £12.50 just for the purposes of this demonstration.
Actual Production Costs
This is where things start to get a little murky and, without reliable information from factory it's difficult to break the figures down a lot further without knowing the type of factory, units produced per day, annual turnover and a whole heap of other stuff.
Suffice to say that, in our example the total production cost to make our £200 washing machine including the labour, all the parts, energy and water etc to make it and the investment in the factory comes out at around only £80.
If you do the math or, just apply a bit of common sense, it would appear that the actual cost of the product itself is most likely going to be less than £60 produced. But, quite likely less than that once you strip out all the costs.
Cheap Washing Machines
This was written to primarily demonstrate to people that buying a cheap washing machine is nowhere even close to buying a quality product and, as you can see from the above, the actual value of goods that you are buying at this end of the market is low, very low.
Sure, you can mess about with the numbers till the cows come home but you cannot get away from the inescapable fact that these are really low priced goods that are unlikely to perform well or last a significant amount of time. I mean, for £60, what are you hoping to get, a Rolls Royce of washing machines?
And, in our little example, we didn't even factor in any marketing budget at all as well as a bunch of other things so, the actual value could be even lower still.
The point being, the vast bulk of the money you paid for a cheap washing machine wasn't actually paying for the washing machine that is sat in your kitchen.
Middle Of The Washing Machine Market
Above we looked at the bottom end of the washing machine market, now we'll look at the middle sector which is generally accepted to be between £300 and about £750.
Bear in mind that, based on the last statistics that we have that the mid-market is being placed under increasing pressure with the largest growth area being in the cheap end of the market so this will now account for about 30% or so of all washing machines sold. Quite probably this trend will be reflected in other product areas as well.
The cheaper washing machine sector is actually larger than this now as it appears people want cheaper and cheaper appliances. But, don't want to make any sacrifices to accomplish that such as on primarily product quality and performance. It is known as an enigma and one for which nobody appears to hold the answer to.
For our mid-market example we will look at a typical washing machine slap in the middle to make the numbers easier to understand and, again, we will keep it as simple as possible by using the same as above for the cheap end of the market.
Value Added Tax
Again this is an inescapable tax that simply must be paid and accounts for a full 20% of the overall ticket price that you pay in store.
In our mid-market £500 washing machine example a full £100 of the cost paid to HMRC.
Storage, Distribution And Delivery
As is the case with the cheap washing machines, this is usually a fixed cost and so therefore, proportionally, it actually constitutes much less of the cost.
Once again this figure will usually come out between £30 and £40 per box. In our mid-market washing machine example we will take the higher figure for a comparison on the assumption that the retailer or brand can offer better performing logistics.
So this now becomes £40 of the £500 total.
Retailer Margin
Another shock about retailers, they're generally not entirely stupid. They have people to sit and work this stuff out and a lot of them have sliding margins based on the product's cost price.
Therefore in the mid-market at this level we would expect the margin to drop a little in percentage terms but the actual cash margin on the higher priced goods is larger. So instead of making a little under 25% and only £25, in this example our retailer drops the percentage margin to 17% but earns £62 per product sold.
This is better for the retailer obviously but also makes them more competitive and the higher priced, better quality goods more attractive to customers.
Servicing And Warranty Costs
This also becomes more interesting as, since the machine is of a higher quality the manufacturer or brand owner can choose to either keep the percentage the same and offer a longer warranty or, cut the cost down and offer a shorter warranty.
Bear in mind that, as the washing machine is now a higher quality you can safely assume that you will get less failures. So, the cost of service drops when it is calculated on a percentage basis.
Or you could choose to keep it the same and just offer a better customer service.
For our example we will leave it be and say that the service cost built in is now £50 which would allow for a longer warranty, a better service or a combination of both.
Factory Margin
Just like the retailer margin this can be lowered for exactly the same reasons and the fact that there is a little more slack in the system to accommodate a lower margin take.
So for our example this now drops to 10% of cost or, £30 of the cost. The factory is still better off and more profitable, it's just a lower percentage of a larger cost.
Actual Production Costs
Again, we get into a grey area once again but, as you can see the factory now has a touch over £250 to produce a washing machine that is roughly double the retail price but, that is going on for three times the amount of money that it can spend building a cheap washing machine.
That means, far better build quality, far better durability and far better performance not to mention features.
Mid-Market Washing Machines
As we demonstrate here, when you step up into the middle of the market you get a much, much better product and in fact it represents far better value for your money as a lot more of the money is spent on what you actually want, a washing machine that works.
Of course, there are caveats in this and some of these numbers can change altering the figures quite dramatically in some cases which is why websites like this, Which? and Washerhelp etc exist, to try to show you why you should stretch the budget and buy a better washing machine. We know and understand the industry, people outside it for the most part haven't got a clue.
Top Of The Washing Machine Market
At the top of the food chain we have the cream of the washing machine market which is generally considered to be any washing machine that retails at over £750.
In this rarified sector there are only a handful of manufacturers with the knowledge, skill and means to bring you top quality products and, at the premium that they command, they have to be good.
At this level though, things change quite dramatically for the better for consumers.
For our example we're going to double the cost of the mid-market washing machine so that you can clearly see the absolute gulf that exists between the bottom, middle and top of the market. So, our imaginary example super top quality washing machine will cost £1000.
Value Added Tax
Once more, the VAT haunts the cost price upping it by a whopping 20% yet again as, government can't figure out how to do sliding margins.
In our best or top quality washing now costs £1000 so the VAT accounts for £200 of the cost going straight into the governments coffers.
Storage, Distribution And Delivery
As is the case with both the cheap and mid-market washing machines, this is usually a fixed cost and so therefore, proportionally, it represents even less of the total cost.
Once again this figure will usually come out between £30 and £40 per box. As was the case with the mid-market washing machine we will apply the higher end of that figure so we can have good quality logistics and storage. Plus, we know that as customers want cheap machines the storage costs will rise as stock will move slower and that any damages costs will be significantly higher.
So this now becomes £40 of the £500 total.
It is worth noting that the manufacturers that offer a direct delivery and installation service face a much higher cost than this though, upwards of £70-80 per installation normally. So, V-Zug, ISE, Miele etc, can be hit with higher costs here.
Retailer Margin
At this point, for many brands, the switch to cash margins as percentage margins really don't work. Just look at the VAT amount being paid on our £1000 washing machine to see why.
So proportionally the dealer margins drop considerably to a pre-determined margin. For the sake of simplicity in our fictional example we'll say that the retailer is earning £100 per washing machine, it's a good figure for the retailer as he's earning more but it's a lot harder to convince a customer that it's worth spending £1000 or a washing machine.
Plus, if you applied the same percentage margins as you did elsewhere the machine would be too expensive for even more people.
Also remember that for a retailer to hold stock is much, much more expensive. So many don't and hold a minimum for display or stock then order appliances as they are needed.
Servicing And Warranty Costs
Again this is far more interesting and, for the most part, what you will see is longer warranties, in some cases much longer indeed.
This is simply down to the fact that, as the washing machine is just about as good as you can get in terms of build quality and performance, the failure rates drop off a cliff. For most of these machines, what you would expect to see annually at the bottom end of the market and, in many cases even in the mid-market are high for even a five year period let alone a single year.
So, proportionally, the warranty costs are slashed because of the higher quality.
Of course within that you can choose to fund still longer warranties like the ten year ones we now see, higher quality service by paying more for it or a combination. Or, you could choose to increase margins and offer a shorter warranty but retain a high quality of aftercare service. Again, the brand owner or manufacturer has a lot more options than they do further down the food chain.
In our example we'll go for a high quality service and long warranty and allocate a flat £80 for service for the sake of argument. As you can understand though, this is more than three times the amount available at the cheap end and considerably more than the mid-market.
Factory Margin
Once again, like the retailer margin this can be lowered for exactly the same reasons once more.
So for our example this now drops to about 8% of cost or, £50 of the cost. The factory is once again better off and more profitable, it's just a much lower percentage of a larger cost.
Actual Production Costs
Yet again, we get into a grey area once again but, as you can see the factory now has well over £500 to produce a washing machine that is double the retail price but, that is proportionally a good bit more than any other area. In essence, a lot more of the money is used to actually build the product, not pay all the other bits and bobs.
That means, the best build quality, best durability and usually by far the best performance you can buy.
Top Quality Washing Machines
People not in the industry do not understand all this and, most likely, would rarely give it a second thought or consider why that they should pay so much for a washing machine as our final example. But, the reality is, that if you want to get the best out of a washing machine or pretty much any other appliance, you want it to last for years and you want it to actually do the job you bought it as well as is possible, well, that costs money and there is no escaping that fact.
The bottom line is simply this, it is worth the extra to buy better quality appliances in most cases.
If you have a family or you use your appliances a lot, the better ones that you can possibly buy the better it will be for you. The cheap low end machines are designed for, in some cases, only a few hundred cycles of use whilst the top end ones are built for many thousands of cycles of use.
Looked after, the best appliances will almost always last many, many years.
Gulf Between Best, Marginal And Worst
What we wanted to highlight here are several key points that the average person in the street is either completely oblivious to or, just hasn't had the points made to them before.
We highlight that the appliances you pay money for aren't really worth anything like the money you had to actually hand over to buy one.
We highlight that there are costs that you can't get away from such as service and warranty costs (unless you do not provide it like some cheap brands these days), the cost of transportation, storage and distribution.
The retailer margins, factory margins and all the rest, they cannot be done away with.
And all this leads us to the conclusions that you can draw from all this information which are that;
- At the bottom end of the market, you are actually getting incredibly bad value for your money
- In the middle you could argue the case either way depending on how you want to look at things.
- At the top end, whilst the initial investment is much higher, you are getting the best value overall for your hard earned cash.
Of course what you want to buy is entirely your own choice and we have no call to dictate but, if you've read this very lengthy and in-depth article, at least you have the information to make a somewhat more informed choice about the appliances that you choose to invest your money in.
How Much Does It Cost to Manufacture a Washing Machine
Source: https://www.ukwhitegoods.co.uk/help/buying-advice/washing-machine/3502-washing-machine-cost-breakdown