You’ve just created a perfect idea for your new electronic products. That’s great because I understand what it feels when you get a positive inspiration to achieve something. However, before you start spending so much on getting this idea developed, I advise that you focus much effort in estimating the cost required for the development of this product.
More importantly, there’s a need to estimate the amount it costs for the mass production of these products. Don’t make the great mistake of having an underestimate of the costs or not having an estimate at all. This is because to succeed in the market, you have to know the necessary costs upfront.
Costs involved in Developing an Electronic Product
The cost for development for the majority of hardware is usually broken into three main categories. These include plastic with other mechanical components, electronics (which includes programming), as well as retail package. The mechanical parts help in holding the products together, while retail package aid in the protection and selling of the product.
Software and Electronics
Usually, electronics are the most expensive and complex part of a product to create and develop. This is composed of two main parts. These include the design of the PCB and the programming because the majority of products need some programming.
The prototyping of these electronics can be divided in two steps. These include producing the blank PCB, as well as the soldering of the entire electronic components to the PCB. Furthermore, the PCB can be regarded as what holds together and connects each electronic component.
The amount of development cost for the PCB design of electronics compared to the software usually varies. This depends on whatever product you are working with. Also, for the majority of products, the split between both is equal.
However, the majority of products could swing towards becoming more software-complex or hardware-complex. The required costs follow accordingly. Most times I recommend beginning with 3 – 5 boards, after which for every iteration, you can increase the quantity.
Immediately you have confirmed the functionality, as well as calculated the majority of major bugs, then the quantity of the prototype can be increased and then the samples can now be shared between potential customers and investors.
Mechanical Parts and Enclosure
Some type of plastic enclosure will be required unless the product would be strictly marketed by a DIY/maker market. Expect that you’ll have to spend a minimum of some thousand dollars to create 3D models for this enclosure. When the ergonomics and appearance are important for the products, then the 3D model design costs will be more.
Some products might need extra mechanical parts like stamped metal parts, as well as moving parts. It will include extra costs for prototyping and mechanical engineering. Plastic enclosure prototyping can be achieved making use of 3D printing tech. This 3D printing creates a part that is custom shaped through the stacking of layers of the molten plastic.
This 3D printing popularity has really assisted in bringing down the creation cost of the plastic prototypes. Buying a personal 3D printer might be a very cost-effective strategy for several startups. For some products, there is a technology referred to as CNC machining, which might be the preferred option compared to 3D printing. In contrast to 3D printing that is viewed as an additive process, the process of CNC machining can be viewed as a subtractive process.
Rather than stack layers, just like 3D printing, the CNC machining is just like sculpting. This process begins with the removal of a block of material and plastic to create a final shape. CNC machining has the major benefit of allowing the utilization of manufacturing injection-molded plastics whereby, 3D printing utilizes unique prototyping plastics, which might have a unique strength, feel, look, in contrast to the injection molded or production plastic, which would be used ultimately.
Development of the Retail Package
Majority of the hardware entrepreneurs don’t pay importance to the development of the retail package. Note that this oversight is a major one that comes with grave consequences. Furthermore, unless you want to sell this product online, this retail package shares a similar significance as the product. At times, it is more important.
If the retail package of the product isn’t conveying the right message to the customers, even if it is the best product globally, it will never sell. Take note that, without sales, nothing matters. Generally, two retail package types are utilized for the electronic products. These include boxes and clamshells. The smaller products are usually packaged into clamshells, whereby larger products usually favor the retail boxes.
Retail boxes and clamshells are usually composed of two main pieces. This is a plastic piece (custom-shaped) that protects and holds the product, as well as a piece of cardboard artwork that conveys the sales message.
Just like the enclosure of the product, the package’s custom-shaped plastic part will need you to develop a 3D model. After this, an injection mold would have to be bought.
What is the Cost of Electronic Manufacturing Production?
This cost of landed production is the eventual cost of the product when it lands in your warehouse. For sure, the cost of landed production is the most significant cost. This discloses the cost of inventory, the amount your products can be sold, as well as the amount of profit this startup will make.
In addition, in contrast to the scaling and development costs, this cost is one you will continue to face so far the company exists. This landed cost of production explains the whole cost required for the production and transportation of one unit to the warehouse. Below are some of the things to consider when asking the question: “what is the cost to manufacture a new product?”
Electronic Components
The cost of electronic components would be the hardest to properly determine when dealing with an electronic hardware product. This is due to the fact that considerable work on engineering design is important to know the components that are needed for the product.
Also, determining the needed electronic components for new products need considerable efforts in engineering. Many startups usually wait till the product has been completely prototypes and designed before determining the cost of their component and then finally the cost of production. Now, this is wrong, because there is a need to get your cost estimate ready before spending money developing your product.
Printed Circuit Board
Like your prototypes, manufacturing electronics takes two steps. First of all, the bare PCB is manufactured, then all electronic components would be soldered to the circuit board. Cost of the bare PCB is usually determined by the size as well as the routing layers. Two layers of routing (the bottom and top) at least are required.
Moreover, majority of design would need between four to six layers. Designs that are more complex might need at least eight layers. Raising the number of layers in general would allow the reduction of the printed circuit board’s overall size.
The cost required for assembling the PCB is mainly determined by the least pin pitch, number of parts or components, the utilization of the leadless packages like BGA or QFN, as well as if the soldering of the components is done on the two sides of the printed circuit board.
PCB assembly is usually done through automatic placement machines. Take note that the cost involved in the production of the assembled printed circuit boards in volume will be much cheaper compared to the cost of each prototype (unit cost). Majority of this cost is seen in the initial setup; therefore as there is an increase in volume, the cost of the setup becomes minimal.
Plastic Parts (Custom)
The cost paid for every unit of production for the plastic pieces can be mainly determined by the mold time, size, weight, and plastic type used. Each piece’s weight and size depends on the design, therefore you can do very little to control the variables for making a smaller product and less durable.
Eventually, you may raise the speed of production and reduce the cost of the parts by making use of many cavity molds. The injection mold (multi-cavity) allows the manufacturing of multiple copies of parts having single plastic injection. However, having several cavities would increase the cost of the mold significantly.
Now, don’t just start buying many cavity molds till you have been able to work through all changes or tweaks to the initial molds. Also, before upgrading into many cavity molds, it is advisable to run some thousand units. Increasing the mold cavities is the most reliable option for reducing the cost of the plastic parts since the plastic type, weight, and cost impacts the end products directly.
Other mechanical components
Several products will need different components like metal pieces that are stamped (for the internal shields), screws, gears, springs, motors, etc. In so many scenarios, the stock components are useful which would get rid of all scaling costs.
Product Assembly
Immediately you have the individual components ready, assemble them so as to form the final product. This step’s cost is completely labor costs. What this means is that you will have to complete the assembly at locations having low wages like Asia. The final assembly cost of the product is majorly labor costs.
Testing of the Product Quality
Immediately after assembling your final product, then there is a need to test it so as to confirm that it is very functional and meets quality specifications. In addition, there are some electronics testing that must be conducted before the completion of the final assembly.
Not testing properly, or shipping of bad units is a well-known error, which could being death for any startup. A good number of entrepreneurs usually rush their newly-created products to the customers, however shipping of bad units would give your company a bad name right from the beginning.
Manufacturing Scrap
There is no perfect manufacturing process and you can be sure to have faulty units. At first, it might be at least 10%; however, with time, you can optimize the process of manufacturing. With this, you can reduce the number to just one to three percent.
Shipping and Retail Packaging
Costs of packaging have to do with if your product would be selling primarily online or at the retail stores. For products that are sold to retail outlets, then it is very important to have the best retail packaging. This will make the costs of packaging significantly higher.
Also, the cost of packaging could be highly reduced if you decide to sell your products strictly online through industrial customers or TV. The high end type of retail packaging could be very expensive, with every package costing around five to ten dollars. This is why it is advisable to begin with a simple packaging to help reduce your costs. It is one of the main reasons why focusing on online sales initially is best.
Also, remember to add the master carton’s costs used for shipping the packaged product. In addition, the cost of the master carton is usually low but still it has to be included in the cost calculations. When the product needs a stand for the retail display then that would be able to include a different cost to the cost calculations of your package.
Product Returns
The same way you are sure of having some units that are faulty and which you must scrape, you are also sure to have some unhappy customers who wish to request a return. Therefore, ensure that you include this in the final cost of production.
Just like scrap rate, the return rate has to decrease when you optimize the product, customer service, and packaging.
Logistics and Shipping
Majority of products are produced in Asia. What this means is that the completed product will have to be transported from your factory to a local seaport. After this, it would be loaded onto the cargo boat to be shipped to the country of choice.
Immediately this boat gets to your country you have to truck it to the warehouse. You can also send it directly to the customer.
Container Boat
Majority of products that come from Asia are usually shipped through the sea on large container boats. There are rare cases where you might wish to ship through air cargo; however, the cost would be much higher. For truck shipping, the weight determines the cost of shipping, while for boat shipping, the volume plays a major role in determining the cost.
Tariffs, Duties, and Taxes
Remember the taxes. The manufacturing company and the importing country would charge duties that have to be added into the eventual landed cost. Though, some categories of products might be exempted from the import and/or export taxes.
Every classification of a product comes with a HS code. Immediately you are done determining your product’s HS code, then you may consider the import and export duty rates.
What Factors affect the Cost of Electronic Manufacturing Production?
Costs of labor
Costs of labor usually vary according to the region’s socio-economic costs where the work has been performed. The customer usually wants the costs of labor to be very low, and at times this could be achieved without affecting the quality of the product.
This is the case when the process is very automated or whenever you are performing basic tasks. For such cases, you don’t require great skill; therefore you don’t have to pay for this. Moreover, searching for the lowest costs of labor alone isn’t a good investment during new product development.
Raw Materials
The first moves that the product developers have to make is the type of materials to make use of. Sure, you have thousands of metal alloys and plastic resins to select from. All of them come with their own physical properties. They also come at different points in price.
The great news here is that the expense is the easiest to control and predict. This is due to the fact that commodities and raw materials are traded widely on the global market. This cost, with a few exceptions, has to do with the volume of the material consumed and won’t vary a big deal no matter the place manufacturing takes place.
In addition, finding the commodities’ price tables on the net comes easy and they are usually updated therefore the developer can account for it beforehand. Though we don’t advise the use of substandard materials, we advise that the developers of the product work with materials that adhere to the functional requirements and needs.
Part Complexity
Remember that the complexity does not usually improve the performance or look of the product. In fact, the very complex designs could hinder the performance and utility of a product coupled with its expensive nature.
Also, take note that measuring the complex feature could be extremely time consuming too. It might also need special gauges or fixtures to measure the complex shapes, which adds to the overall cost as well. Generally, it’s advisable to design the part to become complicated the way it should be.
Tooling
Processes requiring specialty tooling involve high-pressure die casting, plastic injection molding, as well as polyurethane vacuum casting. The preparation of these tools could take weeks, and this might represent a huge initial investment.
This is why much care has to go into the design. Three major inputs are responsible for the cost of these tools. These inputs include the materials from which these tools are manufactured from, if they need special treatments such as photo etching, surface coatings, or heat treatment, and their complexity.
Volume
A tool’s price can’t be avoided because of its importance. Moreover, if it has a high volume, this tool cost would become negligible since producing each part comes at a less expensive price. This is one reason why we advise investment in reliable tooling materials when there are large expected volumes.
Tools that are more expensive could be cycled faster, hold tolerances that are tighter, become more durable, and create less scrap parts. Don’t choose cheap tooling if the investment is justified by the volume.
Also, another consideration here is that the suppliers of the raw materials can at times provide discounts when a bulk purchase is made. You have to consider this for the lifetime of the product, and not just one production order.
Precision
This is a term usually confused with accuracy. However in the manufacturing world, both concepts have a slightly different meaning. Accuracy deals with the closeness of a feature’s measurement to the true values one strives to achieve. Also, this could be a micron, meter or an inch, since accuracy is usually indifferent to the measurement’s system being utilized. Whatever this nominal value is, when you are closer to create a feature for the value, then you have become more accurate.
Precision means that you are accurate at all times. This has to do with repeatability with different acceptable tolerances, which are away from its nominal value. Numerous product developers do not realize that higher accuracy and precision degrees require investing more effort and time. This additional work needed increases exponentially as the tolerances become more refined.
This is due to the fact that all the raw materials can be affected by humidity, temperature, as well as several environmental conditions. Also, they deflect and move under pressure of the clamping forces and cutting tools. These facts are fundamental and cant be avoided. Considering the larger scale, they are imperceptible movements and can be accepted easily.
Conclusion
The necessary cost for launching new electronic products could be overwhelming, most especially for startups and entrepreneurs. The costs of development would be an obstacle to avoid, and the costs of scaling would become the highest cost. Moreover, the cost of landed production would be the most significant cost because it tells the inventory cost, sales price, as well as the profit.
You will then move beyond all scaling and development costs. However, you will need to accept the cost of production indefinitely.
