Apple math is a real thing but not all of the math regarding Apple gets public consideration. For example, we all know that Macs are priced higher than comparable Windows PCs. That results in a higher average selling price, which results in higher gross margins, which begets more profits.
Even the iPhone gets into the average selling price game (the ASP), and it’s a number that Wall Street follows closely. ASP goes up and down for a variety of reasons, but the average for an iPhone dwarfs that of competitors, including Samsung. That means greater revenue and profits for Apple. But there’s an ASP that doesn’t get talked about much.
ASP vs. ASP
Allow me to use the iPhone as the example but this so-called ASP vs. ASP applies to Mac, iPad, and even Watch. Apple noted that the iPHone’s average selling price in the past quarter was $595. That’s a huge drop from the past couple of years when iPhone’s ASP flirted with $700.
The last time Apple’s iPhone saw an ASP under $600 was a few years ago when the iPhone 5s was en vogue. Since then, Apple launched the iPhone 6, iPhone 6s, but more importantly the iPhone 6 Plus and 6s Plus– both of which boosted the ASP. Earlier this year Apple introduced the less expensive iPhone 6SE– starting at $399– which helped to drop the average selling price.
Those are the numbers Wall Street follows. What isn’t followed is the add-on market– accessories– which also helps to increase the revenue gained from each product Apple sells. Nearly every new iPhone that goes out the door is accompanied with a case. Ditto for iPads. Those cases run from $40 and more, and added to screen protectors, and other accessories, raise the real ASP even higher.
No competitor has an accessory add-on market like Apple.
Even Apple Watch benefits from this real ASP vs. what analysts call the standard ASP. Watch starts at $299 and $349 respectively, but that’s not anywhere near the real ASP. Upgrade from aluminum to stainless steel and then additional Watch bands which sell from $49 to $149, and the real ASP for Watch could jump from $400 to $500 in a blink. And it’s likely that Apple’s gross margins on add-on accessories is even greater than on the original product.
Here’s an example. Apple sells the new nylon Watch bands for $49. I like it better than the fluoroelastomer bands that come with Watch. Similar bands sell on Amazon for just over $20 so there is plenty of profit in Apple’s Watch accessories. As a side note, I wanted to buy the Milanese Loop Watch band for $149 but found one on Amazon for $12. That’s throwaway money. Apple’s Milanese Loop Watch band might have better construction to justify the price tag, but it’s hard to tell the difference from the $12 version from China. Apple makes a boatload of money on accessories which isn’t calculated into the standard ASP.
Apple’s Services division accounts for iTunes and App Store revenue so I won’t count app purchases as part of the real ASP, but it’s easy to see why and where Apple makes so much money. The add-on market is huge for all Apple products, sometimes at gross margins that are gross vs. Mac, iPad, iPhone, and Watch, but it all helps to keep the company in profits that embarrass competitors.