They’re tiny, they’re everywhere and they hurt like hell when you step on them. They’re also pretty goddamn expensive for what they are! But why, exactly? These are, after all, little plastic pieces that snap together and — assuming you followed the instructions correctly — eventually turn into a plane, a boat, a Batmobile. A blocky toy, basically. So why are Legos so expensive?
Alongside David Robertson, a senior lecturer at MIT Sloan School of Management who co-wrote the book on the Lego brand (Brick by Brick: How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry), we learn why Lego sets and minifigures can be so damn expensive.
Come on then, why are Legos so expensive? It’s all just plastic, right? Lego must be making a lot of money.
Well, yes and no — theirs is a complicated business, with a surprisingly fine line between success and failure. Much as Luke Skywalker once said, “You can either profit by this or be destroyed,” and believe it or not, Lego was actually on the verge of bankruptcy nearly 20 years ago.
So on the one hand, you can recoil at the fact that Lego buys ABS plastic at about a dollar a pound and eventually sells it to you and all the kids in your life for about $50 a pound. But between those two events are a ton of labor- and resource-heavy processes. Not to mention some pretty high licensing fees that Lego pays to Disney and other brands for the right to turn the worlds of Star Wars, Marvel, DC, Harry Potter, Minecraft, Super Mario, Jurassic Park and other IP franchises into claw-handed, blocky little Lego universes.
What goes on in between Lego buying the plastic and Lego selling the plastic?
An entire intricate system of quality control, for one thing. Feel your brain slowly explode at the fact that every Lego piece ever made since the bricks were invented in 1958 — every single one! — fits together. That is an insane level of quality.
Robertson explains how this works. Take a two-by-four brick and turn it over: You’ll see several numbers, one of which is “3001,” which is the shape number of a two-by-four brick. The other two numbers are the mold number (say, 274) and the cavity number (we’ll say 34). “Now, if this brick somehow didn’t snap together just right with all the other bricks that have ever been made since 1958, Lego could go back to look at mold number 274, pick out the 34th cavity and figure out exactly what went wrong — why this brick is one one-thousandth of an inch out of spec,” Robertson says. “So that attention to detail and quality is one of the reasons that Lego is expensive.”
As you can imagine, precision is extremely important for a toy brand in which assembly is so integral — the main thing, really. If the pieces don’t fit, the whole thing literally falls apart.
Beyond the quality control, why are Legos so expensive?
It’s because Lego is a fixed-cost business that more closely resembles the software industry, Robertson says. New molds are expensive, and so the cost to make the first brick in a mold is absolutely huge: tens or even hundreds of thousands of dollars, according to Robertson. The second one, of course, costs almost nothing, but the goal is to keep a tight leash on the number of pieces in their inventory and their supply chain complexity. When Lego almost went bankrupt, Robertson found that it was because the number of unique pieces they were making skyrocketed.
This is all to say that when the number of parts go up, the company’s expenses go way up. And so thanks to the high fixed costs involved, the stakes are high for each box of Legos the brand puts out, and they’re priced accordingly. With so much riding on each box, the design of them is crucial: This is another resource-intense area of the company, Robertson says.
They spend a lot of time designing the sets. What’s the story? Who are the characters? What’s the drama? Who’s it targeted toward? They understand that 7-year-old boys largely play differently than 7-year-old girls, and factor this in. Robertson points out as well that Lego makes pretty high-quality instructions (which anyone will notice when they purchase a knockoff-brand brick toy and try to figure out how to assemble the damn thing).
And speaking of what goes into each box of Legos, there’s the astonishingly tedious task of making sure that all 200 pieces that should be in a 200-piece box actually make it inside the box, which Robertson says is another resource-intensive facet of automation and quality control. Oh, and the box design, art design, marketing campaigns and everything else that goes into getting that box on the shelf and making kids and grownups want to pull it off the shelf.
What about the licensing?
Licensing certainly adds to the cost of Legos. Robertson can’t say how much Lego pays out for licenses due to a looming stack of nondisclosure agreements he signed, but it’s fair to assume that it adds up to a lot of money.
How much does it add to the cost of the toys, though? Here’s a good explainer video that took a look at the data and calculated the average cost of a brick in licensed versus unlicensed sets. They found a few things: Firstly, when you average out all the sets — everything licensed and unlicensed — Lego charges roughly the same amount per part (between 10 and 11 cents). Secondly, there are a few sets that stand out: Those include Jurassic Park and Lord of the Rings stuff, but also the Lego City stuff, which is huge, yet unlicensed. The reason these tend to cost more is because they frequently contain large, unique parts (dinosaurs in Jurassic Park’s case; things like boat hulls for the City toys), which, as mentioned earlier, cost more to make. Thirdly, price-per-part ratios on Disney-related themes seem to be about 10 percent higher. So if those Star Wars Lego boxes strike you as more expensive, well, you ain’t crazy.
This may not simply be a matter of paying Disney a king’s (or rather, princess’) ransom for the privilege to, in turn, mark up anything and everything Star Wars-related. Star Wars stuff apparently takes more design labor and time because there are extra review processes required for them all.
Nevertheless, license fees are certainly one big reason Lego puts so much into developing its own intellectual property— Ninjago being one.
Any other reasons why Legos are so expensive?
Yeah — those little goddamn bricks are indestructible by design. Lots of design. This is also expensive to do. “Everybody talks about how painful it is to step on a Lego — it really is — but that’s because they don’t shatter,” Robertson says. “The worst thing would be if some toddler got a brick and chewed on it and it’d break into sharp shards. Well, they test for that. They make sure that every brick can withstand a tremendous amount of force.”
In other words, every time you step on a sharp, little Lego, try to remember that it could be a lot worse if the company didn’t spend so much money making sure it doesn’t end up in sharper, littler pieces inside your foot. A cost, nonetheless, that they have passed on to you.