I've read varying opinions in different threads about the retail price of Omegas and what it actually costs Omega to make them. I've read posters say that they think Omega can make a SMP-C for a couple hundred dollars, or $500.....which I think are both ridiculous estimates. There may be no way to calculate Omega's cost to make an SMP-C for someone not working at Omega, but it sure is fun to argue about.
The cost to make a watch includes R&D, admin support, materials, salaries/benefits, selling expenses, property costs, machine costs, and I'm sure other things. Its so much more than the labor and materials for one watch.
I would define Omega's cost of making a watch as this:
If Omega is wholeselling its watches to dealers at a price that allows Omega to cover all of its operating expenses (but not making any profit), then that wholesale price is what it costs Omega to make the watch. If Omega can sustain itself as a company and pay all its salaries and expenses, but not add any money to its bank account, then its making watches for simply what it costs Omega to make them. (The only large cost that I included in "operating expenses" that I might take out for purposes of calculating Omega's cost of making the watch is advertising expenses.)
So, here are the numbers I came up with.
SMP-C retail is $4400
SMP-C wholesale is $2640 (60% of retail)
Swatch Group made 18% in profits last year. Since Omega seemed to have a very good year, lets say Omega profits were 20%.
If Omega is selling the watch at a 20% profit, then it costs Omega $2200 to make the watch that they sell to dealers for $2640 ($2200 x 1.2 = $2640).
Omega's possible cost to make an SMP-C (including advert costs): $2200.
I know some people will think that's high based on the cost of the movement, COSC certification, and labor to put the watch together. But there is so much more to running a company than those costs. If you think you can make an Omega-quality watch for less than $2000, then go for it.
Earlier in my post I said that Omega's advertising expenses could be questioned as to whether they should be part of any calculation of Omega's cost to make a watch. Let's say that Omega spends 10% of their operating expenses on advertising. So, the $2200 cost for Omega to make the watch might be hiding $220 in advertising expenses. So if you remove the $220 in advertising expenses, Omega's cost to make the watch is $1980.
Cost for Omega to bring an SMP-C to a dealer (without advert costs): $1980.
I don't mind paying $3000 for something that costs a company $2000 to make.
The bottom line is, Swatch Group is making 20% profit. Omega is NOT making an SMP-C for a couple hundred dollars (including all company expenses) and selling it for $2640 to dealers--making more than $2000 per watch. Anyone who thinks that is drunk.
No doubt, there are some people saying, so Omega only makes several hundred dollars a watch? While the dealer buys at $2640 and sells for $4400? A $1760 profit? NO. The store has to pay rent, salaries, interest costs on inventory, etc., etc. Most of the store's markup is lost to operating expenses. If it was easy to run a watch store and make so much money, then more people would do it. (Don't get me wrong, many independent watch dealers do VERY well.)
And, there it is........so challenge numbers, refine my thesis, and let's come up with a good answer. This is just the starting point.