Where Does My Money Go To When Buying a LEGO Set?

[Brickstarrunner]

I was recently browsing a local LEGO store in my area and, in the end bought two small sets while there. I got the sets 40054: Summer Scene and 850449: (Beach Scene) Minifigure Accessory Pack. I got the former for around $4.99 and the latter for $14.99, which in total was roughly $20. While I was happy with what I got and it wasn't that expensive when compared to other sets/some vendors selling them online, $20 is still a bit much for roughly 109 pieces (Extra pieces included)(Or at least it seems expensive in my opinion). And looking on Bricklink, if one looks in the right places, one can build both of the same sets for an almost dirt cheap price with a very low shipping and handling cost added into the bunch as well. So if I can just rebuild the set myself for a fraction of the price of a real LEGO set, I have to wonder, when I purchase a set from a LEGO Store (Physical or online), where does a majority of my money go? Does it go into the packaging and box art? Advertisement of the set and other sets? The production of bricks? The funds to build more LEGO sets? Straight into the bank account of the LEGO Corp? Sent straight into space for the heck of it? I just want to know where a majority of my money goes when I buy a LEGO set from an official LEGO retailer.

PS: Fun fact: Did you know these two sets will mark the first time I've ever owned a LEGO bucket, crab, clam, banana, turkey/chicken leg, banana, surfboard, and maraca pieces? Yeah, quite happy to own them now.

[Dat Lego]

In general I think all the money goes straight to TLG (unless they're donating money to charity), which in turn gets distributed to other factors like packaging and box art, advertising, production of the bricks, funds to build more sets, etc. It's that simple really.

[Spitfire2865]

In general I think all the money goes straight to TLG (unless they're donating money to charity), which in turn gets distributed to other factors like packaging and box art, advertising, production of the bricks, funds to build more sets, etc. It's that simple really.

I think he meant more of a figuratively, what is the money spent on. Like why a set is so much more than just the cost of the parts at resale.

I think its really mostly going to the image of the product. It says Lego on the box, which almost all over the world is a symbol of quality. Yet on the secondary market, such as bricklink, its already assumed its Lego, so the image is sorta not there.

[Andy D]

You really asked two questions. The first was where does the money you use go? The second was what are you paying for?

I believe the most important is the first... Where does the money go? Where it goes is mostly to benefit the local economy where you purchsed the set... Salries, retail space rent, and taxes to benefit the local area.

I do a lot of online shopping, but I also like to support local merchants as it in turn supports the local economy in many ways.

I'm sure someone else will answer your other questiom.

Andy D

[coffeeandcake]

production costs (building moulds, raw materials, printing etc.), packaging costs (materials for boxes, bags), manpower (designers, operators, packagers), logistics (space, power, transportation) costs, taxes, and markup to make the set profitable...

of course i am assuming.

[AndyC]

Another thing to bear in mind is that prices on Bricklink are more based upon a parts perceived value than necessarily what it costs to produce, so some reasonably common pieces may actually be selling at below what their real cost price would be. As long as Bricklink sellers are obtaining these from sets with particularly desirable pieces, such as rare minifigs, they can still make an overall profit.

[Aanchir]

Another thing to bear in mind is that prices on Bricklink are more based upon a parts perceived value than necessarily what it costs to produce, so some reasonably common pieces may actually be selling at below what their real cost price would be. As long as Bricklink sellers are obtaining these from sets with particularly desirable pieces, such as rare minifigs, they can still make an overall profit.

This is very true. I've found that Ninjago spinners (the spinners themselves, not the complete sets) often sell for surprisingly little on Bricklink. Being complex, pre-assembled, printed parts with a metal weight ring inside, I have no doubt that the spinners themselves make up a significant part of the cost of a $10 spinner set. But on Bricklink, what matters is AFOL demand, and what most AFOLs value most in the spinner sets are the minifigures and possibly the accessories. The spinners are just "leftovers" that not as many buyers want without the matching minifigure, and many end up selling for $1–2.

As far as the sets you purchased are concerned, the "beach scene" includes minifigures that would have cost you about $8.00 total when they were new; $9.00 if they were all priced according to collectible minifigure prices at the time of the beach scene's release. It's got 46 additional pieces, which even by a conservative estimate would likely add $4.00 to the cost. And unlike an average set, which would come in a relatively inexpensive cardboard box, this set comes in a clear plastic box with a specialized blister-pack insert to display the minifigures. This adds even more to the price. So that set's price may be a little excessive (LEGO prices, like Bricklink prices, often factor in perceived value), but not as excessive as the price-per-piece might suggest at a glance.

The summer scene, likewise, is not priced too unfairly. The minifigure, despite using relatively common parts, is presumably more expensive than any other four parts you might choose by virtue of using both pre-assembled parts and printed parts. But because he's not that unique, let's estimate his cost at $1.50 rather than the $3.00 that is closer to the price minifigures tend to carry in dedicated minifigure packs (such as the CMFs or Build-A-Mini stations). That still leaves 36 parts in the set, which at the AFOL ideal of 10 cents per piece still accounts for the other $3.50.

Here's something that you might not consider about LEGO as much as about other consumer products: it pays to buy in bulk. In LEGO, the reasoning can be a bit different than with other products, though. If you're interested in acquiring minifigures, buying larger sets can end up being more economical because those minifigures' cost is "padded out" by the substantial brick content of the sets (unless, of course, the remainder of the sets' parts consists of several large elements which carry a hefty price on their own). Thus, if you're buying smaller sets to get minifigures, you're usually getting less for your money than if you were buying larger sets.

This doesn't apply so much to these two purchases, since there aren't really any other sets with these minifigure parts that are currently on store shelves. But I found it quite baffling how many Ninjago fans were using the spinner sets as a "cheap" way to collect Ninjago minifigures. Yes, you're probably paying less than you might to get playsets containing the same minifigures, but unless you actually value the spinners themselves (whether for play value, building potential, or as collector's items), you're probably not getting your money's worth. Ninjago spinner sets have blister packaging (albeit not as specialized as the blister packaging of minifig packs, since the same style of package was generally uniform across the entire wave of spinner sets), a high ratio of minifigures per piece, and printed, pre-assembled spinners with costly metal weight rings. Throw on top of that the possibility of a premium due to perceived value and it should be perfectly clear why the price-per-piece of these sets is so poor, and why a person who doesn't intend to use or collect the spinners themselves might be better off saving up for the more expensive playsets.

In 2011, by the way, there was even less justification for getting the spinner sets, since unless you were very particular about which spinners you wanted, many of the retailer-exclusive playsets had them. This is how my twin brother and I obtained most of our spinners that year. In 2012 we bought more actual spinner sets, but only a handful: Samurai X, who my twin brother got to experiment with the newer and more versatile style of spinner, and the four sets containing the NRG Ninja, which had great, exclusive minifigure designs, great accessories, and spinners which were genuinely very classy-looking. We had plenty of fun playing with the spinners, and I used one in my winning Ultimate Battle contest entry, so I feel like we got our money's worth. But on the whole we tried to buy playsets to get that year's minifigures whenever possible, because all things considered, you only need so many spinners, and more bricks generally equates to more value in my book.

[eldiano]

This is very true. I've found that Ninjago spinners (the spinners themselves, not the complete sets) often sell for surprisingly little on Bricklink. Being complex, pre-assembled, printed parts with a metal weight ring inside, I have no doubt that the spinners themselves make up a significant part of the cost of a $10 spinner set. But on Bricklink, what matters is AFOL demand, and what most AFOLs value most in the spinner sets are the minifigures and possibly the accessories. The spinners are just "leftovers" that not as many buyers want without the matching minifigure, and many end up selling for $1–2.

As far as the sets you purchased are concerned, the "beach scene" includes minifigures that would have cost you about $8.00 total when they were new; $9.00 if they were all priced according to collectible minifigure prices at the time of the beach scene's release. It's got 46 additional pieces, which even by a conservative estimate would likely add $4.00 to the cost. And unlike an average set, which would come in a relatively inexpensive cardboard box, this set comes in a clear plastic box with a specialized blister-pack insert to display the minifigures. This adds even more to the price. So that set's price may be a little excessive (LEGO prices, like Bricklink prices, often factor in perceived value), but not as excessive as the price-per-piece might suggest at a glance.

The summer scene, likewise, is not priced too unfairly. The minifigure, despite using relatively common parts, is presumably more expensive than any other four parts you might choose by virtue of using both pre-assembled parts and printed parts. But because he's not that unique, let's estimate his cost at $1.50 rather than the $3.00 that is closer to the price minifigures tend to carry in dedicated minifigure packs (such as the CMFs or Build-A-Mini stations). That still leaves 36 parts in the set, which at the AFOL ideal of 10 cents per piece still accounts for the other $3.50.

Here's something that you might not consider about LEGO as much as about other consumer products: it pays to buy in bulk. In LEGO, the reasoning can be a bit different than with other products, though. If you're interested in acquiring minifigures, buying larger sets can end up being more economical because those minifigures' cost is "padded out" by the substantial brick content of the sets (unless, of course, the remainder of the sets' parts consists of several large elements which carry a hefty price on their own). Thus, if you're buying smaller sets to get minifigures, you're usually getting less for your money than if you were buying larger sets.

This doesn't apply so much to these two purchases, since there aren't really any other sets with these minifigure parts that are currently on store shelves. But I found it quite baffling how many Ninjago fans were using the spinner sets as a "cheap" way to collect Ninjago minifigures. Yes, you're probably paying less than you might to get playsets containing the same minifigures, but unless you actually value the spinners themselves (whether for play value, building potential, or as collector's items), you're probably not getting your money's worth. Ninjago spinner sets have blister packaging (albeit not as specialized as the blister packaging of minifig packs, since the same style of package was generally uniform across the entire wave of spinner sets), a high ratio of minifigures per piece, and printed, pre-assembled spinners with costly metal weight rings. Throw on top of that the possibility of a premium due to perceived value and it should be perfectly clear why the price-per-piece of these sets is so poor, and why a person who doesn't intend to use or collect the spinners themselves might be better off saving up for the more expensive playsets.

In 2011, by the way, there was even less justification for getting the spinner sets, since unless you were very particular about which spinners you wanted, many of the retailer-exclusive playsets had them. This is how my twin brother and I obtained most of our spinners that year. In 2012 we bought more actual spinner sets, but only a handful: Samurai X, who my twin brother got to experiment with the newer and more versatile style of spinner, and the four sets containing the NRG Ninja, which had great, exclusive minifigure designs, great accessories, and spinners which were genuinely very classy-looking. We had plenty of fun playing with the spinners, and I used one in my winning Ultimate Battle contest entry, so I feel like we got our money's worth. But on the whole we tried to buy playsets to get that year's minifigures whenever possible, because all things considered, you only need so many spinners, and more bricks generally equates to more value in my book.

It depends, I went to a comic con last week, and found out they were booths of "brickLink" store fronts, I was like cool, extra lego pieces, then I turned around and saw their minifigs, and instantly realized how much they had and the quantity. For example I want to buy the Lego LOTR weather top set just for the black riders, but didn't want to fork over 49.99 for two, and I saw they had like 8 of them for 8.00 and was like score! I wasn't that much familiar with bricklink and how it worked, but my most important task was to get the four ninja turtles at affordable price and on ebay getting all four would have ranged from 50-100usd plus, I noticed the seller had all four for 11.50, but even then he gave me a discount and ended up paying 35 for all four, now that's a bargain, but they didn't come with weapons, even then he gave me directions to their actual store and walking in was like a dream come true, walls and walls of lego parts, I went crazy, nonetheless I managed to get their weapons for cheap. Plus he had the manuals for the extra sets so I could get their serial numbers of the manuals and tell Lego I am missing the alternate heads. I collect the Super Heroes line and have all the sets, but it can get expensive just to get one minifigure, sometimes the price of one figure outweighs the price of the set and that is crazy.

Overall it's worth it, and sometimes you got to do what you got to do to find the cheapest way to get minifigures...

[fred67]

• The retailer
  
• The shipper
  
• Hidden taxes (yes, even in the U.S.)
  
• Non-hidden (import) taxes
  
• packaging (including instructions and box art)
  
• The actual plastic (and other) used to manufacture the parts
  
• R&D and set design, including focus groups and market analysis
  
• Licensing fees, if applicable.
  
• TLG Profit
  
• ...and I'm sure I missed something along the way.
  

So there's no "majority of the money," but the largest chunk, at this time, out of that pie goes to TLG's profit. I haven't seen the latest company statement, but in the past I estimated their profit margins rose to well over 20%, even 25% or more. It's hard to complain, though - this year's profit is next year's R&D, I suppose. This is also not a complaint; I have no problem with capitalism.

The price per part ratio is also a terrible metric, but it's hard to analyze in other ways - I do think you should pull out certain parts, like minifigures, from the equation. If a minifigure is worth $3.00, and a set comes with 3 minifigures (let's say the minifigure Halloween set), then subtract $9 and maybe 12-15 pieces from the piece count, then look at the price per part ratio. Even then it's not a great metric, but I think it's better.

[tafkatb]

• Stimulants and growth hormone inhibitors for the Gagne Child
  

[TheLegoDr]

eldiano - you get the serial numbers to tell TLG that you are "missing" the other heads. I don't know how much more unethical you could be. You are lying to Lego to get free pieces. Not cool.

[Darth Dino]

Hi

fred67 had shown a very long list, but as he already said, not a complete one. In some cases such a complete list is impossible to generate.

Fot example VW (Volkswagen, german car manufacturer) is still not able to calculate the full costs of a Golf (this car 30 million times sold since '70). VW is just able to estimate the cars costs because the whole thing is that complex. So their only way is to call out a listprice and see what will the the leftover (margin).

For sure a Lego set is much more simple but the whole selling/developing/marketing/producing... is still a complex process. Do it is very hard to say exactle where what value of money goes.

Dino

[rriggs]

It makes a big difference whether you buy from a retailer or buy direct from TLG as to how much TLG make. Retailers buy from TLG at wholesale prices and then add their own markup to get to TLG RRP (or more). In retail, the wholesale price is typically 50% of RRP the difference then has to pay the retailer's rent, staff wages, etc. Buying from TLG direct means TLG get all the markup. TLG make more money per set if you buy direct but volumes are higher through retailers.

Cheers

Rog

Edited June 30, 2013 by rriggs

[The_Chosen_1]

^ With Lego sets, though, I wouldn't be at all surprised if the wholesale price to retailers is above 50%. TLG knows full well that their product moves off the shelves; they can (and should) drive a higher margin than 50%.

[Vindicare]

I think he meant more of a figuratively, what is the money spent on. Like why a set is so much more than just the cost of the parts at resale.

I think its really mostly going to the image of the product. It says Lego on the box, which almost all over the world is a symbol of quality. Yet on the secondary market, such as bricklink, its already assumed its Lego, so the image is sorta not there.

This. It's just like with any other well known brand, you're kind of just paying for a name.

Plus he had the manuals for the extra sets so I could get their serial numbers of the manuals and tell Lego I am missing the alternate heads.

Shame...

[Rick]

Plus he had the manuals for the extra sets so I could get their serial numbers of the manuals and tell Lego I am missing the alternate heads. I collect the Super Heroes line and have all the sets, but it can get expensive just to get one minifigure, sometimes the price of one figure outweighs the price of the set and that is crazy.

Overall it's worth it, and sometimes you got to do what you got to do to find the cheapest way to get minifigures...

In my experience, TLG offers exceptional customer service, but it's a shame to read that some people are taking advantage of it. We don't allow topics and posts about stealing LEGO and in the same way we don't want to see people post about abusing TLG's customer service.

[AndyC]

eldiano - you get the serial numbers to tell TLG that you are "missing" the other heads. I don't know how much more unethical you could be. You are lying to Lego to get free pieces. Not cool.

Sadly this is where some of the money you spend on sets goes, paying for parts that other people obtain through deceitful methods.

I think its really mostly going to the image of the product. It says Lego on the box, which almost all over the world is a symbol of quality. Yet on the secondary market, such as bricklink, its already assumed its Lego, so the image is sorta not there.

I'm not really sure that's entirely true. A seller on bricklink has already paid that "brand tax" that when they obtained the parts in the first place, so it's inevitably incorporated into their costs too.

[nayrsllim]

it goes to fund lego land and pay for other stuff

[Fugazi]

it goes to fund lego land and pay for other stuff

Welcome to EB, nayrsllim. As per the guidelines you have agreed to by signing up (see link in my signature) and out of respect for all our members, please use proper punctuation and capitalisation when posting. Thanks!

[Creatorman]

Goes to a lot of things, printing, parts especially minifigs and new parts, box art, wages to the workers, instructions, printing, pretty much everything to the last drop of ABS plastic oil.

[LEGO Historian]

Well after retailers, suppliers, and employees of TLG have been paid... the profit of TLG goes to KIRKBI/AS, the parent holding company of TLG. KIRKBI/AS is fully owned by Kjeld Kirk Kristiansen, his sister Gunhild Christiansen Johansen, all of their children, and also their elderly mother Edith Christiansen (widow of Godtfred Kirk Christiansen).

The family (last time I checked) was worth $6.5 billion, richest in Denmark, and included in their investment holdings... a 50,000 acre horse farm in Scotland, and extensive Russian natural gas leases.

[jluck]

eldiano - you get the serial numbers to tell TLG that you are "missing" the other heads. I don't know how much more unethical you could be. You are lying to Lego to get free pieces. Not cool.

Agreed, a real shame. Lego had been good to us, we shouldn't take advantage of them despite any perceived flaws. As for the cost, you naturally pay for a name and the accompanying quality. You won't find that with say mega blocks. I would think the money really filters down, from the local economy all the way back to the family.

[ShaydDeGrai]

Getting back to the original question(s) of where does the money go, there are really two different economic models in play; a product based one, and a collectables based one.

Now I make no claim to to anything about the specifics of TLG's operation, but in the generic case, a product-based price point is driven by amortization of risks and overhead. That is to say that, when you buy, say a 2x4 brick, you aren't just paying for the raw material that went into it - in fact the actual cost of the ABS might not even be the lion's share of the cost of the part - you're paying a tiny fraction of ALL of the overhead incurred to get that part out of someone's imagination and into your hand.

There are hidden (and not so hidden) costs at every step of the way. Designers need to be paid. Let's say a designer cost TLG $100K a year (completely arbitrary number to make the math easier) in salary and benefits and spends, on average two and half months prototyping and refining a set before it gets signed off on for production. That's an average of 5 sets per year or $20k worth of the designer's time that needs to be factored into the asking price of the finished set. You might say, "well if they make a million sets, that's only an extra 2 cents per set..." which is true, but the amortized expense doesn't stop there. The designer's management and support staff also have to get paid. The art department that designs the box and instruction manual have to get paid. The reviewers that tell the art department they did it wrong or that the designer's prototype needs to go back to the drawing board need to get paid. The market researchers and legal team need their expense covered. Pretty soon, two cents here, two cents there starts to add up and there isn't even a product to sell yet, it's just an idea and a prototype.

In fact, it's possible that the entire idea might get scrapped at this stage for one reason or another and all of the expenses incurred developing it will need to get folded into the expense of a (potentially unrelated) more successful venture in the future.

Then there's the question of the individual parts. Not only do you have amortization of the design and legal overhead of the parts themselves, now you have to factor in the overhead of the molds and molding machines that _make_ the parts. They have to be designed too. The molds wear out. The injection presses need to be maintained. The whole factory needs to be climate controlled, protected from the elements, etc. Even in a highly automated factory (like the one's owned by TLG) the robots themselves need to be maintained and that means more personnel costs, spare parts, redundant equipment, insurance, etc. It may be hard to look at a Lego brick and think that part of its cost is driven by the cost of hydraulic fluid in Mexico (and it's probably fractions of a cent) but it's in there.

Even things like the size of the individual part can impact things. Obviously a 2x10 brick uses more material than a 1x1 plate, but it's more complicated than that. Industrial injection molds rarely make only one of something at a time (particularly if the part is small). Let's say it costs $100k to make a mold (again, an arbitrary number, I've heard of complex (non-Lego) molds costing 5 to 10 times that) and that mold can be used a million times before it needs to be replaced. The size of the mold allows it to make 5, 2x10 bricks at once. This means that in the life of the mold it should produce 5 million parts and factored into the cost of each part is 2 cents ($100k / 5 Mil) to cover the cost of the mold. Now a mold with the same form factor might be able to produce 100 1x1 studs at a time or 100 million parts over the life of the mold. Assuming the milling costs and useful lifetime for this mold were comparable to the first, the 1x1 stud is only incurring a tenth of a cent overhead per part to pay for the mold.

Just as when you talk about design, you need to factor in the cost of failed designs; in manufacturing you need to cover the cost of non-salable product by raising the cost of every salable one. Parts that fail quality control (misprints, molding defects, color issues, etc.) still need to be paid for. The good news is that ABS plastic is easy to recycle (as a material), the bad news is that recycling it into a new part is a different process than making a part from "virgin" pellets and dye additives. The failed parts need to be detected, sequestered, checked for color and substance contamination, fragged back into pellets, etc. Corporation wide, recycling can be a cost savings compared to just throwing out the defective bits, but it isn't "free", there are costs - and where there are costs, end market prices go up.

So now we have a design and the parts to build it; now we need to assemble things into kits. This means filling stations on an assembly line. More personnel and computer costs to figure out the optimum "fit" for which parts should go into which bags. We need to minimize the likelihood that bags will be missing parts (customer service request raise the price of EVERYBODY's set, not just the one that was missing something) while at the same time not going overboard on giving away free extras (sure, it builds good will, but good will alone doesn't pay the electric bill..). Here you're paying to configure the line, maintain the robots, paying for packaging that most of us just throw out, quality control, quality control rejects, more energy costs, maintenance costs, storage, real estate, taxes, etc.

It turns out you've paid a tiny fraction of major operating expenses just to get the kit in a box, and you _still_ haven't managed to get the box to market. Here's where everyone who touches the box drives up the price; from loading and shrink-wrapping shipping palettes, moving those palettes from rail to boat to plane to truck, to crossing political borders, to breaking palettes and loading hand carts to stocking shelves. All along the way you've got personnel costs, fuels costs, taxes, tariffs, etc. In the course of shipping, some things will get damaged (crushed, torn, water damage, peed on by drug sniffing dog at customs, whatever) the manufacturer needs to anticipate a certain amount of loss in the distribution channel and price the surviving product accordingly.

By distributing the product in advance of actual sales, you are also incurring another level of risk as well. Let's say you send equal amounts of a given product to Germany and Japan for distribution of local stores. Then after the fact you find that demand in Germany is much higher than anticipated while demand in Japan is almost non-existent. In Japan, you're paying to store kits that are just collecting dust and in Germany, you're potentially losing sales to competing products because the kits people want to buy are on the wrong side of the planet and Johann's birthday is tomorrow so they buy something else. Now you're dealing with lost sales and the question of whether to redistribute the unsold kits from Japan or to make more kits to send to Germany pay to store the kits in Japan until someone decides they want them.

People often comment on how relative cheap LEGO is in the US - or conversely, how ridiculously expensive it is elsewhere (Hi Australia, I'm thinking of you in particular). They mistakenly think that the rest of the world is subsidizing the US market. I strongly suspect that the truth is closer to the fact that, in the US, considerable state and federal tax dollars are spent each year to keep transportation costs low, specifically to make it easy for manufacturers to bring goods to market cheaply. Fuel is cheap (by global standards), air freight is subsidized, the rail system is optimized for cargo rather than people, interstate borders are open with few inspections and no tariffs, 98% of the population lives within 15 miles of a major highway and if the post office doesn't go where you live, chances are pretty good your nearest neighbor is either a scorpion or a bear. While regional tastes vary, the country is big enough and diverse enough that you can sustain a market selling just about anything if the price is right. Still, even with these advantages, even people in the US have to pay _something_ for the cost of shipping from producer to retailer (and probably again from retailer to consumer in some cases, but that's usually a separate line item).

Finally, you can start to talk about margin and mark-up - this is where all the costs of failed ideas, damaged products, licensing fees, poor investments, infrastructure, production, distribution, taxes, personnel, etc. have been met and people actually want to make a profit. In general, manufacturers, distributors, wholesalers, retailers, etc. all want a slice of the pie and the MSRP needs to be high enough to keep everyone happy while low enough to entice the consumer. I have no idea what margins TLG shoots for or how they split it with major retailers like Walmart Target and Amazon. Obviously, they get to keep more of the profit if you buy directly from S@H or a Lego Store, but those operations have costs too so it's not like TLG is laughing all the way to the bank every time you buy directly from them (it's probably more of a polite chuckle when no one is looking...)

Even with all this logic behind a MSRP, it's not carved in stone. The retailer's themselves may entirely ignore it to suit their own purposes. A store might price gouge if it realizes that there's little competition in the area and that it's typical customer isn't internet savvy. Conversely a store might price bait, deliberately selling a particular product at a lost, gambling that once you're in the store you'll buy other items than more than make up for what they lost on the advertised item. Sometimes it just comes down to liquidity. Boxes gathering dust on a shelf or in a warehouse are a liability, cash on a balance sheet is an asset. Retailers often need to get product that isn't selling out of the way to get the capital and space to acquire product that _will_ sell and MSRP (and often the real, original cost) goes out the window in favor of a more liquid position.

I'm sure this long missive has probably bored most to tears by now, (sorry, used to be a professor - I have a bad habit of running over at the keyboard...) but it really only scratches the surface of what _really_ is going on behind the scenes when you take a hard look at the workings (and expenses) of a major corporation turing ideas into products with realistic MSRPs and how that plays out to consumers in a product-based market.

In the after-market case, as Aanchir and others have pointed out, the collectables market is quite simpler, particularly with LEGO. It's much more of a supply and demand abstraction. As far as I know, most Bricklink "stores" and eBay "vendors" aren't the primary occupation of the proprietors. Perhaps some of the larger ones are, but (anecdotally) it seems that most are run out of basements and garages (i.e. spaces that are already paid for by _something else_) and run by people part-time (i.e. their primary income, health insurance and retirement comes from _something else_) and they amortize their costs/risks by being part of a larger network (BrickLink, eBay, etc.) so they don't need to spend thousands of dollars in advertising just to get noticed (unless they want to). The whole complex mess of amortizing design costs, manufacturing costs, defects, etc. gets distilled down into one simple factor - supply; and the consumers' collective taste dictates the demand. This means that an individual piece might actually sell for less than it's original cost to TLG, while others, particularly mini-figures, might sell for much more.

In the collectables market, the distribution chain is much shorter - one doesn't pre-position inventory in dozens of markets hoping for a random sale as Lego does stocking the shelves of Target with a variety of products across the country. Consumers in the collectables market typically know what they want, are actively looking for a specific thing and have a pretty good idea of where to look for it. The expense of getting the product to the consumer isn't an issue until the sale is already on the table, the channel is direct, the risk is less and the price reflects that.

Certainly, there are expenses involved in buying and selling (any) collectables and risks that demand for X will fall off or, as a part-time vendor, you'll need capital quickly for something else and be forced to liquidate things as less than true market value, etc. but I've found that, at least with Lego, the collectables market is more about passion than the hard economics of the consumer product market. People often sell off excess inventory to subsidize their personal hobby rather than make a genuine profit. Sure, there are plenty of profiteers out there - you'll find that with any collectable from beanie babies to baseball cards - but I think the majority of BL vendors are actually consumers as well and being part of the the community, rather than standing outside of it trying to feed off of it, helps keep aftermarket prices reasonable for everyone.

[Herky]

I think a lot of folks gave you great info...I would only add to that to say the price per piece is probably very minimal, such as maybe 2 cents per brick. A good rule of thumb in manufacturing is that the original cost of anything you buy is likely only 25% of the purchase price...so it cost TLG 25 cents of every dollar to actually make the set, 25% goes to salaries, manufacturing maintenance, etc., 25% goes to licensing, shipping, etc and 25% is usually their profit margin. Just a guess but take a look at shoes...there is an even greater margin there, Nike makes usually 50% on every shoe that is purchased. Soda as well is even worse, you go to a store like McDonald's and get a coke for $2...the syrup and tank and straws and such...amount to 15 cents per glass, the rest is profit.