Some Apple Watch pricing math

There’s been a lot of speculation about potential pricing for the highest tiered Apple Watch, the Apple Watch Edition line. John Gruber has been writing about Edition pricing on Daring Fireball. He initially thought that $5,000 was a ceiling for the Edition entry model, then moved his target up to $10,000, even suggesting that $20,000 was not an impossible price.

Personally, I think $5,000 is the right number for the Edition model. The highest end watches tend to start at about $3000 and move up into the stratosphere. The next tier down tends to run from $1,000 up to $8,000. My instinct is that Apple Edition will fit in that latter space, more aligned with Tag Heuer than with Rolex.

There’s no traditional model to draw from, as the Apple Watch is a brand new kind of animal, but my instinct is that the cost to Apple will be between $1,000 and $2,000. Multiply those numbers by a price/cost ratio of 3.44 and you end up with a nicely marked up price of $3,400 to $6,800. Why 3.44? Here’s the math:

The consensus seems to be that the high end iPhone 6 costs about $247 to make, including parts and labor. Without a contract, that same iPhone 6 sells for $849. That’s a price/cost ratio of about 3.44 (the price of the phone is a bit more than 3 times the cost).

Apply that same model to the Apple Watch, and you get a price ranging from $3,400 to $6,800. Obviously, this depends on the actual cost of labor and materials. One estimate on the gold in the highest end Apple Watch places the price of the gold alone at about $800. I can’t imagine the cost of everything else being more than $1200.

  • MrPhotoEd

    “Apple that same model to the Apple Watch” Did you mean “Apple” or “Apply”. Just curious

    • Dave Mark

      Thanks for the catch. Always appreciate those corrections – the typos do get in the way. Thanks, and fixed.

      • MrPhotoEd

        Glad to have assisted. it gave me a good chuckle when I saw it.

  • But what’s the price/cost ratio for gold watches made by Rolex, Omega, etc.? I think that’ll be a better comparison.

    I’ve put my bet in the pool on the top-end price being $15,000.

    Also: Someday soon Apple will begin offering gold iPhones whose cases are actually made of gold!

    • I’m also guessing Apple will offer actual gold iPhones. I suspect the Apple Watch Edition is as much about getting iPhones into high-end boutiques as anything else. The basic logic being, who’s going to pair their gold watch with their aluminum phone?

      • matthewmaurice

        I’ve got a vision problem with that, I just don’t see it. A gold watch is an established thing, almost a cliché (e.g. classic retirement gift). A gold phone is just an ostentatious display of wealth.

        • Well, it’s not the 1950’s anymore and that gold watch retirement gift was rare even back then. A gold watch has always been an ostentatious display of wealth. A gold iPhone will just match it.

          • The difference is a gold watch you keep for a lifetime and pass it on to your kid(s). A gold iPhone is outdated in two years and you are absolutely going to buy a newer model.

        • Janos Sitar

          There’s already an established aftermarket to bling up your iphone with gold and other materials by companies like hautephone. If apple has the gold in their supply chain it doesn’t seem like a stretch to use it as part of the iphone case, especially if it’s an extra hard gold. I’m assuming if you’re a person willing to spend thousands on aftermarket bling you probably won’t bother with a case since you can probably afford a replacement. And in lots of markets including China people want an ostentatious display of wealth and treat Apple products as one already.

    • Patrick Henry,The2nd

      I would highly bet its not going to be $15K. I think $4K is about right.

      • marcintosh

        I guess now you have to highly pay up! B^)

        (me too, I guessed $7,500)

  • Here’s the part most people seem to omit: Do you mean just the watch or the watch + band? Gruber linked to one guy who priced the gold based on watch and buckle, which seems fine except not all bands use the same amount of gold. The modern buckle has a two-part buckle and metal watch connectors. It looks like it uses nearly as much gold as the watch itself (assuming the buckle is solid, not plated). The sport band uses far less metal.

    • Dave Mark

      I was pricing the watch, not the band. The band will be its own SKU with its own pricing. That said, I think you are right, that there could be a band with as much gold as the watch itself.

  • Glaurung-Quena thinks that $800 estimate for the gold content is too low. Plus, they point out Apple won’t be calculating its prices based on the real cost of gold since they have to hedge against the price going up. They also note that you have to factor in much higher security costs for every step from manufacturing (probably not low-wage workers in china) to transportation (bonded couriers) to retail (probably have to hire 24 hour security guards for every Apple store that stocks the gold watch).

    In short, you can’t just take the cost of the sport watch, factor in the market cost of the gold case, and multiply by Apple’s standard markup.

    • Dave Mark

      Excellent points! Not sure how to do that math, but I still don’t think that takes you too far above the $6,800 range. Perhaps $7,500? It’ll be interesting to watch this all unfold.

    • Moe Better 11

      so if the Apple “gold” watch & band is a smash hit – not sure why kind of volume or $$ we are talking but maybe billions – could this drive up the cost/price per of gold???

      Maybe those gold investors can recovery some of their money – after Apple buys all the gold, for their watches

  • marcintosh

    What bothers me about the extreme fluctuation in Apple Watch prices that people are speculation is that all three tiers of watch look essentially the same. If I shell out $8k for a Rolex it’s going to look like a Rolex and people will know right away that I have a fancy watch, but an $8k Apple Watch (or a $15k Apple Watch Edition) is just going to look like a $350 Apple Watch Sport with a slightly different color. I imagine a person wearing an Apple Watch will be asked what model it is because you can’t tell them apart by simply glancing at the face. If I were in the market for one I wouldn’t get anything more than the Sport model for just that reason. I’d buy a separate leather strap if I want to fancy it up.

    • Glaurung-Quena

      Gold watches look like gold. The difference between gold and steel is instantly apparent.

      • marcintosh

        I get that, but the design difference between the steel and gold Apple Watches is essentially just the color. It’s not like the difference between plastic and metal.

        • Glaurung-Quena

          If you don’t care about the difference between a gold watch and a steel watch, then you aren’t the person the gold watch is made for.

          Jewelry always strikes me as a very inefficient way to spend disposable income, which is why I don’t own any. But for other people, having something outrageously expensive they can wear on their wrist is a highly desirable thing.

  • Player_16

    “Each has a watch case crafted from 18-karat gold that our metallurgists have developed to be up to twice as hard as standard gold.” That bit of ‘labour’ is going to lift the price up a bit too.

    Add the crown.

    • marcintosh

      Or will the price go down if the metallurgists figured out a cheaper alloy?

      • matthewmaurice

        18K gold is always going to be 75% pure gold, and somehow I doubt Apple’s metalurgists are going to find that the other metals, and the process, they’ve developed to make it harder will be cheaper than the current alloys used in jewelry. So, I wouldn’t expect an ounce of Apple Watch gold to ever cost less than 3/4 of an ounce .999 fine gold purchased at the same time.

      • marcintosh

        =^o I guess not!

  • matthewmaurice

    It’s important to remember that when comparing an Apple Watch Edition to a gold Rolex, you do so only in terms of the precious metal. The stuff inside the Rolex is essentially an extremely precise, complicated, and tiny mechanical machine with hand-assembled gears, springs, and jewels. While the Apple watch is just a solid-state device. Granted it’s an incredibly advanced device, but once you write the code and build the chip, the cost to reproduce it is, if not negligible, very small. Whereas 2 caliber 3186 movements cost pretty much double what the first one does.

  • “There’s no traditional model to draw from, as the Apple Watch is a brand new kind of animal, “

    The iPhone pricing model might apply to the Sport model of the Apple Watch, but one should probably look to examples in luxury space when speculating about the price of the Edition Apple Watch, where a completely different metric will be used.

  • Sharon Sharalike

    The gold Apple Watch will not be priced in relation to its cost. This a product for the top one percent of iPhone owners. iPhone owners are already (on average) more affluent than the typical customer base, and the top one percent of that buy the best they can buy. The price is not a large part of the equation. In fact, for some, the higher the price the better – it doesn’t matter to them, so a higher price makes it more of an elite subset of iPhone owners.

    Until now, the typical buyer could afford to have every bit as good a phone as the richest people in the world. And now it will no longer be true.

    And with many hundreds of millions of iPhone owners, if 10% of the top 1% buy the gold watch that’s still at least $10B in gold watch sales alone.

  • Geek Life 3.0

    The flaw in your reasoning and math is that you are pulling your pricing model from the iPhone – an item that Apple makes for the personal technology market. This would make sense if the Apple Watch was going to be aimed at or competing with the market that is now occupied by things like the Moto and the Galaxy Gear … but that is that is a market that has absolutely nothing to do with what the Apple Watch is going to be.

    Apple’s strategy for both announcing and displaying the Watch to this point shows that they are firmly targeting the “personal luxury goods” market and more or less* eschewing the “personal technology” market completely. And in the world of personal luxury goods, a 3.5 price/cost ratio is laughable. 10 is much more reasonable (and quite frankly, low-ball for this particular marketplace), and this is probably where the non-sport editions of the Watch are going to fall.

    We know the price of the Sport model. If, as suspected, Apple is targeting traditional luxury timepiece buyers and not the much safer technology market then very conservative prices for the other two models would be $750 – $1000 for the standard model (depending on bracelet option) and $8500 – $20000 for the Edition (once again depending on bracelet, with the fairly safe assumption that there will be a hitherto-unseen gold bracelet revealed on launch day.).

    These are entirely fair prices for the market that Apple is targeting – the selling point (or, if you go with the business-speak, the “disruption”) isn’t going to be price, it’s going to be functionality. These will be priced the same as your average watches from Baume et Mercier (standard) or Omega (edition) because those are the buyers that Apple wants. The difference (and the hook) is going to be what the watches can do.

    *The Sport model is obviously the panacea to the tech market, and kudos to Apple for offering something eminently desirable to their current core market while still having the stones to reach into an untapped (for them) marketplace with much more enticing returns. Once again Apple shows why they are literally not like any other company on the planet.

    Note: $800 for the gold in the edition? Laughable. 1400 minimum. Read the specs again.

  • Atlas

    I say exactly 3000.

    • Cryptogrrl

      Let’s see: There is at least 2400 dollars worth of gold in the body of the Edition. And target market for the Editon are people who invest in watches in the $10000 to $30000 dollar range. So Apple is going to sell the Edition at cost and forego any profit in a marketplace that generally offers a 1000% margin?

      Sorry, but not a chance.

      • marcintosh

        10,000 points to Crytogrrl!

  • lucascott

    A lot of folks thought that the iPad was going to start at $1000, thought there was no way that it could be any less. And then crapped their shorts when they heard $499.

    The watch is going to start at $349. Even if we assume that that is the price for the case only, no strap and the small one it doesn’t equal to them watch going up to several thousand dollars. For all we know the the size bump will be $100 max and each edition will be at most $300 over the step below. So like $1100 max. Straps could start at $100 and hit $500 tops. So whole package at under $2000.

    Remember that selling volume at slightly less is as good if not sometimes better than selling fewer at a higher margin. And it could be worth it if it encourages folks to stay in the ecosystem