Why smartphone giants need to follow Fairphone’s price transparency example

There’s a chance you might not have heard of Fairphone, but we’ll give you the benefit of the doubt. After all, there’s hardly any visibility for new brands in the smartphone market that’s flooded with Galaxies, Canvases and Xperias. But the Dutch company is doing more than one thing right when it comes to its first smartphone, the eponymously-named Fairphone.

What is the Fairphone? Here’s a quick reminder of its specs, but it’s essentially a phone produced from conflict-free minerals and materials sourced through a transparent and ethical supply chain. Considering the specs, the Fairphone is well-priced and will retail for 325 euros. But it’s not only hardware that’s ‘different’. Fairphone teamed up with software developer Kwame to produce some unique features for the phone. It supposedly trims down the software to remove clunky elements and make usability a key factor.

Simple and clean design

Fairphone has spent considerable resources in reducing e-waste and making sure the device is recycle-friendly. 25,000 of these phones will be produced in the initial run, of which over 15,000 will be shipped to customers in Europe, the only market for the Fairphone yet. But more than these numbers, what’s enlightening and worth emulating is Fairphone’s revelation of the production cost of the handset. And we are not just talking about one number. The detail is worthy of an ovation.

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On their official website, the company has broken down the entire cost even down to how much they paid for ‘intervention’ i.e. towards making sure the supply chain is kept transparent, there aren’t any conflict minerals used in the production, and labour working on the phone in the factory in China are being paid the correct wages. It also includes contributions to various charities and funds which help workers in countries where conflict minerals are mined, especially DR Congo. A total of 22 euros are paid towards these interventions. Bear in mind that the phone costs 325 euros in all.

Fairphone also shows us what the other production costs are. Design, engineering, components, manufacturing and assembly costs added up to 129.75 euros, a big chunk of the 185 euro product cost. Operations i.e. project development, prototyping, office costs, events and hosting websites cost the company 45 euros per Fairphone, while the initial operating cost was 5 euros. All this adds up to 235 euros, while the phone’s average sales price is 257.50 euros. That’s a margin of 22.50 euros per Fairphone. The final cost of the phone includes taxes, reseller margin, which drive it up to 325 euros.

Each block represents one euro

The company further states that it is in talks with the manufacturer to give an even more detailed breakdown of how much each component costs and the labour costs involved in the production. “We are currently discussing with Changhong the possibility of publishing the Bill of Materials (BoM) for the phone, so those of you who fancy calculating the components costs would be able to do so.” This is a really refreshing attitude especially at a time when smartphones are getting more expensive by the year.

Fairphone will come with a custom UI based on Android

Of course, not all companies can be as transparent as Fairphone though. As the company size and stature increases, the costs add up. So while we aren’t expecting Samsung or HTC or Sony or Apple to reveal how much expense is incurred per phone during each stage of production, we think it’s not unfair to expect that they tell us what the total production cost of a Galaxy S4 or an iPhone 5c is. As things stand, it is left to news outlets to dig out these details after the phone has launched. And that’s only going to be a rough estimate of the actual cost at best.

When phones like the Galaxy Note 3 and the Sony Xperia Z Ultra are already making smartphones more expensive than ever, wouldn’t it be in the interest of the consumer for companies to reveal what the actual cost is and how much of it is the margin. All of this could turn out to be for nothing and smartphone makers might never cede such information through official channels. In fact the low production volume of Fairphone could work against the company’s mission to spread word about conflict minerals and the likes. But theirs is an example worth following and one we hope bigger name smartphone makers emulate.