How is the price of a drone determined?

The price of a drone is formed according to the formula specified in Resolution No. 256 - it is according to it that the Defense Procurement Agency (DPA) is currently purchasing drones for the armed forces.

According to the resolution, the price of a drone is its cost (components, labor, administrative and operating expenses) + 20% value-added tax + company profit (up to 25% of the cost).

As "Oborontsi" told AOZ, the company puts a percentage of profit into its products on its own, offering a price. Accordingly, when there is competition in the tender, the manufacturer has an incentive to reduce the size of its own profit, bringing down the total price

Is there room in this formula for corrupt price gouging? Of course.  For example, a company may lie about the cost of components, and the Agency may miss this or simply be afraid to cancel the contract, because in this case it will be responsible for the failure to deliver drones to the Defense Forces.

Previously, Oboronka wrote that one of the bomber manufacturers tripled the prices for engines and deducted the difference through a Polish gasket company. According to several Oboronka interlocutors from the arms industry, this practice still exists in the market.

But the difference in prices for drones of different models does not necessarily mean that a company lied about the cost or stole money.

First, the price may be higher due to a small series of the product, when the company has not yet had time to achieve "economy of scale" and reduce its price by optimizing labor costs and bulk orders for components.

 Secondly, a drone may be more expensive due to a poor concept – engineers simply could not figure out how to make it cheaper, and use more expensive materials and components to perform tasks that a cheaper product can perform.

Thirdly, some companies may simply lack the entrepreneurial flair, experience or connections to knock out the best prices for components or optimize other costs.

Fourthly, drone prices may differ simply due to different characteristics or equipment. Sometimes the difference between products is obvious, and sometimes not. Often the same drone can have 5-10 different versions, which are assembled as a designer, and they all differ in price.

The more variants of the same UAVs there are, the easier it is to get confused or manipulate the issue of price. Moreover, manipulation can go both ways.  Someone compares the prices of drones of different classes, and someone issues a drone with an obviously inflated price for an exclusive product for specialized tasks.

Another popular myth is that the cost of a drone must necessarily decrease after the launch of its mass production.

The effect of scale, optimization of work and wholesale orders of components really allow you to significantly save money on production and reduce the cost price. On the other hand, manufacturers must technologically develop the product, install increasingly expensive components and take into account inflation.

That is, the product really becomes cheaper and scale helps in this. But on the other hand, it becomes more expensive due to the increasing complexity of technologies. That is why you can often see a picture on the market when the product of the same model almost does not change in price for many years.

Drone "Fever" with missiles under the wings

Defense

In order not to drown in this, first you need to understand what "middle strikes" are and how different tasks they can perform.  Because just behind the roughly generalized word "middlestrike", which no one really gives an exact definition, there are a couple of dozen different products with different characteristics, each of which is effective for its task.

What are middlestrikes anyway?

To destroy fuel tankers, the Russians use small and relatively cheap drones - such as Hornet or Darts. They fly hundreds of km and can carry from 0.5 to 8 kg of warheads. Their small size and electric motors make them harder to detect. Moreover, in this segment there are also drones like RAM-2X or "Bulava", which are many times more expensive, but more technologically advanced, and are suitable for special tasks

Hornet UAV

Photo from open sources

For strikes on important targets at operational depth, in particular on radars, air defense and other infrastructure, "medium" drones "Morrigan" or "Ha-Ki S" are used. They are equipped with internal combustion engines, which allow them to fly up to 300 km with a warhead from 8 to 15 kg.

Slightly heavier drones "Zozulya", "Anubis" and "Behemoth" are used against military infrastructure, locomotives and other targets, the destruction of which requires greater impact power. They are larger than all the models mentioned above, carry a warhead from 30 kg and are able to fly 300+ km.

UAV "Zozulya"

Defense

And the FP-2 drone, thanks to a powerful warhead of up to 200 kg, is capable of destroying buildings, warehouses and even ships.  This drone is not suitable for all purposes and is not used in all units of the Defense Forces.

FP-2 Drone

Defense

The weight of the warhead is a rather rough generalization, because the warheads also differ in type, they are selected for each specific task: high-explosive fragmentation, thermobaric, cumulative or with a shock core.

"Middlestrikes" differ not only in the warhead and flight range. There are a bunch of other parameters that are fundamentally important for performing certain tasks.

For example, the type of communication is Starlink or radio communication. Some drones use repeaters to control them, while others work in a MESH system, which allows you to transmit a signal over a network between drones.

A day or thermal imaging camera can be installed on the drone, depending on the time of day of the mission.

 The level of autonomy also varies: some drones fly without communication and return to the operator's control only at the end of the route, others are able to independently capture the target at the pilot's instructions. And some have a very high proportion of operator work.

Drones also differ from each other in body materials. For those with electric motors, simple and cheap materials are suitable. For larger ones, stronger carbon or fiberglass are needed, since they are equipped with an internal combustion engine, a heavier warhead and fuel tanks.

There is also a difference in the method of launch. Small drones are launched from a hand or catapult, while large ones require rocket boosters to gain the necessary speed.

Drones (especially deep strikes) often have a CRPA antenna installed, which protects the GPS signal from enemy electronic warfare. The antennas themselves can have a different number of channels, depending on the required level of protection.

A separate category of drones are empty "decoys", which are deliberately cheapened as much as possible, and their only task is to divert enemy fire.

Ukrainian H20 Falsa target drone

Oboronka

This entire array of characteristics is taken into account when calculating the price.

What affects the cost of a drone?

The cost of a drone is determined by its characteristics and equipment. The latter is especially important, because due to the equipment, the cost of a drone of one model can increase from 5% to 100%.

In general, the manufacturers of "middle strikes" surveyed by "Oboronka" name the following factors that most affect the price:

The weight of the warhead;

 Type of warhead (some of them are quite expensive and are used for special operations);

Flight range;

Take-off method (catapult, hand-held, chassis or rocket booster);

Type of communication and availability of backup systems;

Type of navigation (inertial, GPS, visual);

Level of autonomy of the product (some technological models allow one operator to control several boards simultaneously);

Automatic targeting modules;

Level of protection of the GPS signal (number of channels on the CRPA antenna);

Characteristics and type of camera;

Type of engine (internal combustion engine, electric, jet).

Perhaps the most important factor affecting the price is the communication system. Currently, the vast majority of "middlestrikes" use Starlink for control. Compared to Starlink, which costs several hundred dollars in total, radio communication is much more expensive.  A high-quality radio modem can cost several thousand dollars, and MESH systems for controlling a group of drones can cost even more.

The situation is similar with CRPA antennas for navigating "dipstrikes". In Ukraine, only a few manufacturers have learned to manufacture them on their own. The rest of the manufacturers are forced to order antennas abroad, where their cost often reaches 20-25 thousand dollars.

The price also includes related services: software for control and guidance, maintenance and crew training. Companies provide very different levels of service, which affects prices.

For example, Fire Point "Oborontsi" said that the company takes on all tasks for delivering the boards to the launch site. In fact, it has taken on the task of building a large logistics ecosystem for the purchase, maintenance, repair of mobile launchers and even refueling the boards.

After all, price is not the only criterion for choosing a board by the military.  It happens that units give preference to drones on which their crews have already been trained, or in the development of which they participated. This is how a certain number of non-public drones appeared on the market, the users of which are limited to one unit.

Often, the military chooses more expensive drones that are needed for their specific tasks or when it is necessary to maximize the chance of reaching the target. Despite the spread of the "Hornet" with a warhead of about 5 kg and a secondary guidance system, soldiers continue to use the "Bulava" and RAM-2X with similar characteristics, but at a price many times higher.

Strike drone "Bulava"

Defense

All because these two drones have proven themselves as a "scalpel". They are used in missions where autonomy, high maneuverability, speed and the ability to conduct additional reconnaissance after the strike are critical.  In many cases, the military's choice falls not on the cheapest drone, but on the one that is more likely to reach the target and complete the task.

And only after analyzing all these mentioned characteristics can one begin to analyze and compare prices