Part 1 – The Physical Product
If you’re building a HW product, you’ve inevitably wondered:
- How much can I sell it for?
- How much money can I make?
In part-1 of this 5-part series, Alan Povall from Product Nimbus guides us through the sometimes daunting question:
How do manufacturing and testing affect my cost?
Part 1 – The physical product (the stuff you hold in your hands)
Part 2 – Manufacturing and testing (making the stuff)
Part 3 – Packaging and Shipping (sending the stuff)
Part 4 – NREs (hidden costs that can sneak up on you)
Part 5 – Profit (everyone’s favourite!)
Electronics & PCB:
Once you’ve designed your PCB you should have a fairly good idea of what is going into your product, especially at low volume through buying components from distributors like RS, Element14, and Digikey. These low volume costs form the basis of this pricing model.
There are two main points worth noting here:
- 70 – 90% of your product cost will come from 20 – 40% of components. This means that if you haven’t fully finalized your design yet, don’t lose sleep over trying to find a source for every single component (at least not yet), especially for sundry items like resistors and capacitors (that don’t have any special requirements). You will have a handful of core, critical components which need to be carefully chosen to keep cost low and ensure long term supply (e.g. don’t choose something that you know is going to go end of life in a year or two).
- The mark ups that suppliers (such as RS, Element14, Digikey, etc) apply to components is similar to that of contract manufacturers (CM), so the price breaks (discounts at volume) that you receive from both (up until around the 10,000 mark at least) are roughly equivalent.
From my experience the price breaks you can expect relative to one-off pricing for electronic components are:
- 100 off (15 – 25% discount from one-off pricing)
- 1,000 off (30 – 50% discount from one-off pricing)
Once you get to 10,000 units or more of a specific component, you get into quote territory. The actual price breaks over one-off volume vary considerably dependent on the component type and are really dependent on how well integrated a contract manufacturer’s supply chain is with its own suppliers.
Whether you are able to use a contract manufacturer’s preferred parts also makes a considerable difference to your final BOM price (hence why it’s important to get talking to your CM as soon as you’ve settled on a first pass design, as they’ll make some recommendations for changes which will need to be reflected in your design).
The next item to consider is the per-unit cost of the enclosure. Enclosure costs vary significantly based on a number of factors, such as:
- Whether it is an off-the-shelf or custom designed enclosure
- Manufacturing technique (3D printing, injection moulding, rotational moulding, etc)
- Base material (aluminium, ABS plastic, etc)
- Material additives (UV stabilisers, pigments, anodising, etc)
- Enclosure complexity (physical design as well as number of parts to be assembled)
- Production volume
Given the large number of variables it is difficult to point to exact price breaks, except saying that they can be significant (e.g. a small, 10 off ABS injection moulded cases could be $3 – $5 each, whereas at volumes of 40,000 could be as cheap as 17c each).
Alan Povall is the Founder of Product Nimbus, which provides business resources for hardware tech start ups. Alan’s been involved with heavily in product development for over 7 years as part of an international HW design consultancy. He now works with aspiring entrepreneurs, start ups and even the odd charity to get their product ideas off paper and into the wild.