Have you ever wondered about the Cost to Develop and Manufacture a New Electronic Hardware Product you are about to begin with? It’s important to understand all of the expenses to effectively get your software product to market, and this guide will help you prepare for them all. You will also discover that simplifying your electronic product is the most cost-effective option.
Most developers greatly underestimate the overall cost of developing, scaling, and manufacturing an electronic hardware product before they begin the development process. This is one of the key reasons so many hardware startups tank. Be sure you don’t make the costly mistake of underestimating costs, or worse, not calculating them at all, because knowing your costs is essential for market success. You’ll either run out of money before the product is market-ready if you don’t know any of the prices, or you’ll end up making a product that can’t be made profitably.
In short, if you want to minimize all your expenses and increase your sales chances, nothing is more necessary than to invest some time in advance to simplify your product. Let us have a walk through the basic cost factors you need to be aware of before you begin the product development process.
Most hardware development costs are categorized into electronics (including programming), plastic and other mechanical components, and retail packaging. The electronics do the magic, the plastic and the mechanical components keep the device together and the product is protected and sold by the retail packaging.
Electronics are typically the most difficult and costly component of a product to produce. Since most devices involve some form of programming, they can normally be divided into two parts: PCB design and programming.
The development of a blank Printed Circuit Board (PCB) and the soldering of all electronic components onto the PCB are the two stages in the prototyping of electronics. Depending on the product, the cost of developing an electronics PCB design and software varies. For the most part, the two are fairly evenly distributed.
We suggest beginning with 3 to 5 boards and gradually increasing the number of boards for each iteration. You may increase the prototype quantity and start exchanging prototypes with investors and future buyers once you have validated features and sorted out most of the big bugs.
Enclosure/Mechanical Development Cost
Unless the product is aimed solely at the DIY/maker market, it would need to be enclosed, which is normally made of plastic. The enclosure’s 3D models are likely to cost at least a few thousand dollars to build. If your product’s aesthetics and ergonomics are important, the cost of creating a 3D model would be higher.
Additional mechanical parts, such as stamped metal components or even moving parts, may be required for certain items. Mechanical engineering and prototyping costs would rise as a result. The most popular method for prototyping a plastic enclosure is to use 3D printing technology. By piling layers of molten plastic, 3D printing creates a custom-shaped part.
Retail Package Development
Many electronics entrepreneurs ignore the significance of developing a retail package. You may have the best product in the world, but it won’t sell if the retail package doesn’t easily communicate this to the buyer. Always have in mind that nothing matters if there are no sales! Clamshells and crates are the two most popular forms of retail packaging for electronic goods. Clamshell packaging is popular for smaller goods, whereas retail boxes are used for larger items.
Clamshells and retail boxes usually have two parts: a custom-shaped plastic piece to carry and cover the package and a piece of cardboard artwork to express the promotional message. The custom-molded plastic portion of the kit, including your product’s enclosure, would necessitate the development of a 3D model. You then need to get some injection molds. An important cost-cutting strategy for clamshells is to use a stock clamshell with a custom-molded blister (the part of the clamshell that custom fits over your product). Molds for a completely customized clamshell would be much more expensive than molds for a fully customized blister.
Finishing the prototypes for your product is a significant achievement, so congrats! But don’t get all worked up. Going from experiments to large-scale manufacturing is a big leap. It’s likely one of the most overlooked aspects of releasing a new hardware device.
Most business owners overlook the cost of getting their goods certified. This is especially true if the commodity is electronic. The cost of certification is determined by the product and, to a great extent, the implementation of its wireless features. It’s important to remember that certification isn’t needed until you’re ready to start selling the product. Small promotional checks can also be performed without the need for certifications.
Governments want to make sure that electrical products don’t mess with RF connectivity because they all emit any electromagnetic radiation. The Federal Communications Commission (FCC) divides licensing into two categories. Since wireless devices radiate radio waves they are known as intentional radiators. Non-intentional radiators are electronic devices that do not intentionally radiate electromagnetic radiation or use pre-certified modules for wireless functionality.
Modules are pre-certified electronic circuits that have been designed to perform a single purpose and can be used in other designs. Intentional radiator devices would cost about ten times as much to certify as non-intentional radiator products. This is why most of the companies that produce wireless devices start with pre-certified modules. If you want to use a personalized USB charger with your product, you’ll need to have it approved first.
Manufacturing Setup Costs
The transition from prototype to mass production is a difficult process that most people overlook. In all likelihood, this transition will take about a year to complete. It’s a long way from producing a completed concept to having a mass-produced product.
While electronics will most likely be the most difficult aspect of product development, plastic will always be the most difficult to set up for mass production. The main reason being the requirement for high-pressure injection molds.
The injection molded parts used for your product (enclosure, retail box, etc.) would almost certainly be one of your most expensive expenses. Injection molds, especially those used for high-volume production, are very costly.
Landed Production Cost
Without a question, the most significant expense is the landed production cost. It shows you how much inventory you will need, how much your product will be sold for, and how much profit your startup can make! And it’s a burden you’ll have to bear for the remainder of the company’s life.
The overall cost of producing and transporting a single unit to your factory is referred to as the landed manufacturing cost. If you are successful, you will have a long and close relationship with this figure. You will still strive to reduce this cost to make more profits in the long run.
For most goods, your proposed selling price should be 3-5 times your landed production rate.
Inventory is always one of the most expensive expenses for hardware firms. Your inventory cost is simply the commodity cost multiplied by the amount. So, to determine the inventory costs, you must first know the cost of your production unit.
Naturally, you must ascertain the landed manufacturing expense as soon as possible. It’s pointless to waste years designing and scaling a product that can never be marketed and priced for a profit.
Electronic devices, PCB manufacturing and assembly, Injection molded plastic parts, and other mechanical parts are a few of the various costs that go into the landed production cost.
The next move is to assemble the individual components to shape your finished product. This step’s expense is almost entirely made up of labor costs. As a result, you will probably need to get the final assembly done in a low-wage region.
When the final product has been assembled, it must be inspected to ensure that it is completely usable and satisfies all standard requirements. Until final assembly, several testing of the electronics can be performed to avoid spending the cost of final assembly on a device that has problems with the electronics. Many entrepreneurs hurry their product to market, but delivering defective units will give the business a poor name, which can easily spread online and in turn degrade their business.
No production process is ever flawless, and certain flawed units are unavoidable. This may be as high as 10% or more at first, but as the production process improves, you should be able to lower this to just 1-3 percent.
The cost of packaging is determined by whether your goods will be sold mainly in department stores or primarily online. Since optimum retail packaging is a key priority for goods marketed in retail stores, packaging prices would be considerably higher. If you just intend to market your goods online, on TV, or to industrial consumers, you can significantly reduce your packaging costs.
Much as you can count on certain defective units that must be scrapped, you can also count on at least a small number of dissatisfied consumers who plan to refund their order. As a result, make sure to factor this into the final production bill.
Return rates, like scrap rates, should reduce as you improve your stock, packaging, and customer service.
Don’t forget the taxes. Both the country of production and the country of import will levy tariffs, which must be accounted for in the final landed cost. Few product types, however, may be excluded from export and/or import taxes.
A Harmonized Tariff Schedule number is assigned to each product classification (or HS code). Once you have decided on the product’s HS code, you can look up the export and import duty rates.
The cost of launching a new electronic device, especially for entrepreneurs and startups, may be intimidating. The first financial hurdle you will have to overcome will be development costs, followed by scaling costs.
The landed manufacturing expense, on the other hand, would undoubtedly be the most critical cost because it decides your profit, purchase price, and inventory cost. You will finally be able to avoid the construction and scaling costs, but you will be stuck with the manufacturing costs forever.
Finally, remember to prioritize simplifying your goods from the beginning so that all of these costs are reduced and you can bring the product to market even faster.