How to Price your HW Product (2/5)

Part 2 – Manufacturing, Testing, & Yield! Oh My!

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If you’re building a HW product, you’ve inevitably wondered:

  1. How much can I sell it for?
  2. How much money can I make?

In part-2 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!)

Assembly & Functional Testing:

Assembly and functional testing cost is largely dependent on the assembly complexity of the product, how well DFM (design for manufacturing) principles have been applied.  The type of testing is impactful as well: automated testing equipment (ATE, more on this below) or manual labour testing. If you haven’t had a chance to talk to a CM yet and got a quote, a rough rule of thumb of 4 – 8% of hardware cost can be used to estimate this,

Pre-programming:

Does your product have a flash memory, EEPROM, or some other programmable device that needs to be pre-programmed?  Be sure to include the costs of this.  Major parts distributors offer programming services and can take care of this for you and the part can just be soldered onto the PCB during assembly.  Otherwise your CM will have to program the part (either before or after assembly) and you’ll have to help with the details.

Highly Accelerated Stress Screening (HASS):

HASS is essentially a post assembly stress testing method designed to incite infant mortality failure of components, through all-axis vibration and rapid thermal cycling. HASS testing is carried out so that failures happen in the manufacturing environment (where they can be fixed), instead of in the field where either a recall, replacement, or in-field repair would be necessary.

The investment to implement HASS testing varies from product to product, but is generally a function of complexity (and therefore cost), so it’s best to check with your CM (also to make sure they offer it – if they don’t, you can also do it yourself, but you’ll have to put a test regime in place). A useful rule of thumb is to allocate 2 – 4% of your total hardware costs.

Manufacturing Yield:

Manufacturing is not a perfect process and you’ll always get a small number of product which don’t work when coming off of the production line. Tombstoning, insufficient wetting, bridging (especially if doing reflow soldering), poor manufacturing practices and more can cause issues. Sometimes the heat profiles of automated soldering equipment induce infant mortality in components, even prior to HASS tests.

In reality yield failure can run anywhere from 0.5% through to 5% (even up to 10% in extreme cases), and depends on a variety of factors such as:

  • Quality of components
  • Number of components placed
  • Footprint complexity of components placed (BGA vs. SOIC8 vs. 0802 resistors)
  • Solder quality and type (lead vs lead free)
  • Quality of manufacturing processes & systems in place

A good manufacturing process should provide a high yield rate (e.g. a low failure rate), but this can vary significantly from CM to CM. As a rule of thumb, I’ve found 2 – 3% of hardware cost to be a reasonable estimate. As your own processes mature, this number should drop to ≤1%.

Reliability / In-Field Failure Rates:

No product will be without failures, regardless of how well-designed or test process. Strong reliability engineering practices during design phases and HASS during production can greatly decrease the probability of in-field failures, but never completely eliminate them.

As such it’s important to factor the probability of failure into the pricing model, but it can be difficult to do so as, again, there are a great number of variables affecting reliability. As a general rule of thumb a failure rate of 2 – 5% for electronics would be doing fairly well and therefore 2 – 5% of HW costs is a good range to allocate to your final unit pricing until you have empirical data to make a more informed decision.

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.

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