The Economics of LEGO Production

Why do these sets all cost so much?

The Economics of LEGO Production
After you learn the deal behind the economics of LEGO production, be sure to check out the current best LEGO sales.

LEGO sets are, of course, known for their high quality and durability. But how much does it actually cost to produce a LEGO set? And what kind of margins does LEGO make on its products?

The Production Process

First up, it's important to understand how LEGO bricks are made since the production process itself represents a significant portion of the actual cost. If you're a LEGO fan, you probably already know that the bricks are produced using injection molding. In simple terms, injection molding is a manufacturing process that uses heat and pressure to force molten plastic into a mold. The mold is made of two parts, the top and the bottom, which are held together by screws. The molten plastic is injected into the mold through a small hole, and the pressure forces the plastic to fill the mold cavity. Once the plastic has cooled and hardened, the mold is opened and the part is ejected.

Here's a great video from LEGO themselves that walks through the actual production process.

While the cost of producing a LEGO set varies depending on the complexity of the set and the number of pieces it contains, the most significant portion is the cost of injection molding the plastic bricks. The process can become very expensive, but it is also very precise, which is why it is ideal for producing LEGO bricks. It's easy to look at a LEGO brick and wonder how this little piece of plastic could cost so much, but the material itself is only part of the production cost.

Before you can actually produce anything using injection molding, you first need the mold itself. Molds can cost hundreds of thousands of dollars and they wear down over time, requiring a costly replacement every so often. At scale, this gets very expensive. If we taken into account the material, labor, and MRO costs of production, each brick costs roughly 2 to 3 cents to make.

Additional Costs

In addition to the cost of manufacturing, there are other costs that must be accounted for. We have to consider every part of the LEGO supply chain - things like:

  • Packaging
  • Shipping
  • Marketing
  • Research & Development
  • Administration

Still, though, the cost of injection molding the bricks themselves represents the single biggest cost.

Profit

Before we get down to the numbers, let's take a brief detour into the world of corporate accounting. When a company talks about profit, it generates that number by taking the total amount it spends to do business and subtracting it from the total amount of money it received. This is referred to as margin.

There are two types of margin that you'll see cited:

  • Gross Margin (sometimes called operating margin) includes all of the company's operating costs, such as the cost of salaries, marketing, and research and development. These amounts are subtracted from the money made selling the goods, resulting in the gross margin.
  • Net Margin, on the other hand, only includes the company's profits after it has paid all of its operating costs and taxes. This is, at the end of the day, the actual money made.

So how much profit does LEGO make on its products? According to a 2022 report by Statista, the LEGO Group's net profit margin was 24.0% in 2021. This means that for every $100 in revenue that LEGO generates, it keeps $24 in profit. If we look only at gross margins, LEGO ran a gross margin of 69.6% in 2021.

It's important to keep in mind that this profit margin varies depending on the specific product. For example, LEGO sets with a lot of expensive licensed characters, such as LEGO Star Wars or LEGO Harry Potter, tend to have lower profit margins than more generic sets. However, the 24.0% average net profit margin across all sets is still very impressive, and it shows that LEGO is a very profitable company.

So there you have it, a brief overview of the economics of LEGO production. As you can see, the cost of injection molding is a major factor in the cost of producing a LEGO set. However, LEGO is able to maintain high profit margins by selling its products at a premium. That's why we exist - to provide a simple, clean, easy to use LEGO price checker that allows you to get the best deals on your favorite LEGO sets.

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