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Costs & Profit Margins for the 3 Hottest Electronics & Gadget Gifts This Holiday Season

By Matt Breed

Hot holiday gadgets and what we pay for them.For better or for worse, electronics have pretty much taken over our lives. If you are not staring at a computer screen, you have your face buried in your phone. If not there, you’re staring at the TV. Whether your vice is movies, video games, computers, or smart phones, gadgets are a source of distraction, if not obsession. In fact, some would say that we’re addicted to consumer electronics.

Because we love our toys so very much, I decided it would be interesting to take a look at the cost and profit margins on a few of this year’s hottest gadget gift ideas. It’s always an interesting exercise to learn just how much some of these companies are truly making on their products. Then, when you shop online for these gadgets and electronics this year, you’ll know exactly what kind of bang you’re getting for your buck.

1. iPhone 4 (16GB)

What They Pay
The cost of all the materials in the smallest capacity iPhone 4 is a grand total of $187.51. This is just the cost of materials, so the costs are actually a little higher due to the fact that manufacturing and advertising costs are not included.

What You Pay
With a two-year AT&T plan, this phone can be yours for only $200. While it appears that Apple is taking a loss once other costs are measured,  Apple also receives $18 for each iPhone every month from AT&T when the customer signs up for a plan. So if you want this phone without a new contract, it’s going to cost you. A quick eBay search shows unlocked 16GB iPhones going for $600-$725. A hefty price, indeed.

Margins
If you choose to ignore AT&T’s undisclosed $18/month deal with Apple, the profit margin on the iPhone is only about 6%. This is far less than the margin on most products you purchase. If you read so many awesome iPhone 4 reviews and decide that you must have one, but elect not to sign up for a new contract along with your phone, assuming a $600 purchase price, the margin skyrockets to nearly 69%. To give some perspective, most jewelery stores don’t even have a profit margin that high.

2. iPad (WiFi only, 16GB)

What They Pay
The cost of materials of the highly sought-after iPad come to a grand total of $259.60 for the smallest capacity model without 3G capability. Because there are no contracts to factor in, the numbers here are much easier to figure out. Keep in mind that again, this figure is the cost of components only, so manufacturing and advertising are not included.

What You Pay
This particular model retails for $499. Other models go for up to $699.

Margins
Thus far, Apple has gotten rave reviews for the iPad. And they are doing quite well off of it, too: for each one sold, the profit margin is right around 48%, or nearly $240 on each unit sold.

3. Nintendo Wii

What They Pay
With a materials cost of $158.60, and a market of younger children hungry for the best video game consoles and accessories, Nintendo has done extremely well with the Wii.

What You Pay
When released, the Wii sold for $249. Stores could not keep them on the shelves (it was near the holidays), which opened an opportunity for sellers on eBay to get over $350 for them. Now that the demand has calmed down, Nintendo has dropped the price to $199.

Margin
When first produced, Nintendo raked in about $90 per unit at an impressive profit margin of 36%. Since the price drop, they still are making in the neighborhood of $40 per unit at a 20% margin. Of the major gaming console manufacturers, Nintendo was the only company to profit on the system itself, not relying on games and accessories to make their money. Perhaps surprisingly, the Wii has far outsold both Playstation and Xbox. Not only that, Nintendo still gets their game licensing fees, and the Wii has a much larger and more popular array of accessories. They have easily crushed both of their competitors in two of the three profitability categories. However, with the rise of competition in the Wii’s niche (like the Microsoft Xbox Kinect and its impressive reviews), Nintendo is now being pressured to come up with a new technology.

Final Word

I like to know how things work, and when I buy something, I want to know why it costs what it does. It can never hurt to know what kind of value you are getting for your money. Are you paying a ton of money just for the brand when you could instead be buying a much cheaper alternative?

What electronic gadget do you think gives you the best bang for your buck?

(photo credit: Shutterstock)

Matt Breed
You are looking at Matthew Breed. He is a 30 year old sports nerd who lives in North Florida with his fiancee, Sarah. Originally in school for a Business degree that did not work out due to capricious youth and irresponsibility, he is currently "getting past" his Peter Pan syndrome and attends classes for a degree in Information Technology while working full time. His care for personal finance stems from a modest upbringing with fiscally responsible parents who highly value education and frown upon frivolity.

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