For a little over a year now, it has been fashionable to lament the rising costs of supplies to justify a global increase in prices. When we saw our own suppliers start to raise their prices, we decided to absorb those increases until we could see more clearly. So this week, we took the time to do a bit of scientific analysis to see if a direct spread of increases was necessary and/or warranted.
To begin with, you should know that supplies represent about a third of the final price of a Yoctopuce module. The rest of the price covers mainly labor costs - that is salaries, unchanged for years, as well as the other operating costs of the company, which have not yet increased significantly due to the economic environment.
So, if we were to literally carry forward the increase in supply costs, pro-rata, to our prices, we would have to divide the increase by at least a factor of 3 to reflect the real impact on our costs.
But to be honest, we can't just take into account the last year, where prices have increased on average. We have to go all the way back to when the product was priced, based on production costs. Let's look in detail at how component costs have changed for some of the best-selling products.
Let's start with the Yocto-Light-V3, one of our bestsellers sold since 2015. The chart below shows the % price variation for each of the components used to manufacture it. For clarity, low-cost components with little influence on the price are shown in very light green, while more expensive components are shown in blue, purple and red. The thick gray line shows the variation in the total price of the components.
Evolution (in %) of Yocto-Light-V3 component prices
First observation: although there is a 9% increase in supply costs for this product in 2022 compared to the initial price, we can see that we have benefited from several periods where supply costs were lower than those used for pricing. So we are currently still in a catch-up period compared to past periods that were more favorable to us, and there is currently no objective reason to raise prices as we have not lowered them before.
For those who are curious to know which are the main contributors of the cost variations: in purple, there is the cost of the light sensor (BH1751FVI) that has decreased, due to the increased quantities ordered. And in red, there is the cost of Microchip processors (PIC24FJ64GB002-I/ML) that went up a first time by 10% in 2016, and then again in 2021 and 2022.
Let's take another product: the Micro-USB-Hub-V2. The current component cost is 6.5% higher than at the time of its pricing. But it was also 11% higher in 2019, and 4.5% lower at the end of 2020, without us changing the prices for all that.
Evolution (in %) of Micro-USB-Hub-V2 component prices
So again, we prefer to focus on price stability.
Influence of exchange rates on supplies
On some very simple products such as the Yocto-WatchdogDC, the price increase imposed on us by Microchip effectively dominates the cost variation:
Evolution (in %) of Yocto-Watchdog-DC component prices
But if we look closely at other fairly simple products such as the Yocto-Temperature, we see an interesting phenomenon:
Evolution (in %) of Yocto-Temperature component prices
The total variation of component prices follows a light blue line quite closely, which corresponds to the flash memory (IS25LP064A-JKLE-TR). Now, the purchase price in USD of these flash memories has never changed since 2017: the price variations are only due to the variations of the dollar rate. So we can deduce that the variations of the total price of the components are strongly correlated with the variations of the dollar, which is quite logical. Is this a justification for raising our prices because the dollar is strong? It could be justified, but then we would have to be honest about it and be ready to lower our prices if the dollar loses value again.
Influence of exchange rates on selling prices
While we're on the subject of exchange rates, note that we can't of course set our prices in all the currencies simultaneously, since they evolve differently. As at least two thirds of our expenses are in Swiss Francs (CHF), we set the price of our products in this currency, and we try to keep it unchanged. If you buy in EUR or USD on our shop, the proposed price corresponds to the direct application of the exchange rate published by the ECB the day before. So, there are indeed variations on the prices in foreign currencies, but they are not arbitrary: they follow the official exchange rates from day to day, both up and down. You can also choose to place your order in CHF if you prefer that the amounts remain the same from one order to another. But even without that, you can check yourself the stability of the prices in CHF, because our invoices always show in grey the total equivalent amount in CHF.
Each case is different
To conclude, here are two examples which show that the situation really varies from product to product, and that the linear increase so generally practiced is not very scrupulous:
On the Yocto-Meteo-V2, for which the sensors represent the largest part of the component costs, the price decrease obtained through quantity purchases provided us with enough leeway to exclude any price increase today:
Evolution (in %) of Yocto-Meteo-V2 component prices
On the other hand, on the Yocto-Volt, the most expensive component is the DC/DC isolator, of which the price has increased significantly. But as we had to diversify our supply of analog/digital converter due to the shortage of components, we took the opportunity to use a variant of the same converter with a single input channel, less expensive, to compensate substantially the price increase of the isolator...
Evolution (in %) of Yocto-Volt component prices
This brief analysis exercise allowed us to check that in any case a uniform and generalized price increase would have no real justification. This would only be opportunism, to which some have given in to defend their own short-term profitability. We prefer to rely on stability and are therefore not planning any price increase for the time being. If we are forced to increase prices in the future, it will be on a one-off basis and only on products for which component purchase costs are disrupting the profitability of the product in the long run.