Projects - Approaches

["Brendan" <jbh@xxxxxxx>]

As somewhat of a newcomer  -  (like Pam, I've been an ad hoc List Lurker, due to extensive travel commitments)   -  may I offer some points to ponder on the subject of product production / costs. 

 

A.    If an individual (or group of) develops, tests and proves a product and then makes the design (and, perhaps, some key components) available for self-construction by others, then it seems only fair that those others might make a small 'licence' contrib to the originator by way of a) a just reward for having access to a useful design / product and, b) an incentive to this creative source to engage in further creative activities!

 

B.    If a product is to built by an individual (or group of) for sale into a closed user group of enthusiasts on a purely wysiwig, no promises / warranties basis, then perhaps recovery of BoM costs + a mark-up as a contrib. to the folks who actually undertook the physical manuf / test, would be OK.  To be fair, the mark-up should at the very least cover all other actual costs incurred (easy to forget cost of silly things from solder thru to Jiffy bags, light heat, etc.) and should include some reasonable beer money to make it all seem worthwhile.

 

C.    Once consideration is given to commercial exploitation of a product, the designers / promoters are entering into a whole new ball game which requires a fundamentally different approach.  Once this amateur enthusiast - to - commercial boundary is crossed, you are dealing with 'the Public' with all the attendant potential hassle / liability problems, etc.   In addition many cost-incurring issues arise, for example  -  test,  QA,  packaging,  Approvals (if necess.),  promotion (literature / Website),  ordering,  shipping / distribution,  product liability insurance, warranty repairs / replacements, etc. etc.   

All of this on top of costs of  -  purchasing (not inconsiderable, if effort is expended to achieve best possible vendor pricing),  WiP and post-production stocking costs, manufacturing costs and all the other overheads (staff, heat, light, communications, audit and legal  and so on).

 

The only successful 'half-way house' approaches of which I have personal experience and have seen work for others, is to outsource some or all of the elements of the business.  E.g. from -

 

a)    purchase all BoM  - outsource assembly, manuf and test   -  then bring back in house to package, promo and sell, etc.

thru

b)    outsource manuf and also let the manuf purchase BoM (getting much better volume pricing and possible JiT-supply savings)

to

c)    simply licence an interested third party to take on the product and retain the IPR and design rights, sit back and accept the cheques! 

 

[Sometimes, going down routes a) / b) for a while may improve the chances of converting to c), and achieve better licence fees].

 

In any event, ref comments on the List re costs, etc. and SPs, for anything other than A. or B. above, the general rule of thumb to use in arriving at a product RRP is 250% of the ex-works (BoM + manuf.) cost.  Sounds high ... but when all the other costs and overheads are deducted, you'll be lucky to end up with a retained 15-20% margin for the business.

 

 

I apologise for the long-winded mail but HTH as food for thought ('tho not meant as egg-suck tutorial for the aged !).

 

 

Brendan

 

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