making and selling stuff - how to price? - Page 1
Forum section: electronics / general

author: djacobow
author_rank: Super Contributor
timestamp: June 04, 2019, 04:22:48 pm
content: I've watched Dave's vid, and I know the general rule of thumb: 3x to cover the thing your selling, your R&D, channel costs, advertising, etc.I'm wondering if it makes sense to go under that when getting started, or when you are not sure if your product is viable.I've designed something that I think is neat and fun. It's basically a holiday decoration/toy, for nerds, with a maker/Arduino angle, and some goofy, but entertaining capabilities. If someone messages me, I can describe it more fully, but not in this post.I can get 20 units made (PCBWay) for about $41.50/ea and 200 units for about $25/ea. I'm sure at 2000 units, things would finally get into reasonable territory, but I haven't the gumption to go there. I'm sure I could squeeze the BOM a bit (by throwing out some features), but fundamentally, what is killing me is that this device has ~115 parts on it. I can't reduce that because 2/3 of them are LEDs.I will do a run of the 20 to give to friends and family. The cost there isn't really that important to me.However, I've been thinking of this as building up a catalog for my very small business. This product is a follow-on to a couple of somewhat successful but much simpler items (https://www.southberkeleyelectronics.com/).In one sense, I know I've already screwed up. Though I was always thinking about cost, I should have gotten complete quotes much earlier than after having gone through a few prototypes and spent a lot of time writing code.If I followed the 3x rule I'd have to sell for $75. Actually $98 with Trump's China Tax. I don't think I'd sell (m)any at that price. On the other hand, I could try more aspirational pricing of say, $50. I still think that would be tough, but nerdy folks might shell out for it, and with shipping and channel costs (Amazon), I *might* break even if they all sold.Or maybe it's just time to punt. :-(

author: pylo
author_rank: Regular Contributor
timestamp: June 04, 2019, 08:14:15 pm
content: The 3x-rule is a "start here first and see if it is acceptable" kind of rule. It is certainly not applicable everywhere. It especially breaks down in low-priced products manufactured in small quantities, because the fixed and one-time costs are not in any kind of relation to the target consumer price any more. So don't worry if Dave's advice doesn't seem very practical in your case.There certainly isn't any bulletproof method to follow here, just general guidelines. Mainly because pricing depends on a lot of project-specific factors, like your networking, are you going to sell it as a hobby or as a business, what are your monthly upkeep costs, what is your target audience, how unique is your product, what margin are you personally satisfied with, and more.They way I go about these things personally is I fire up Excel, and create many variations (lots of experiments and multiple scenarios) for *both* bottom-up and top-down pricing. Given a sufficiently detailed list of costs (which should be complete and all part of said Excel tables), I can easily evaluate how much margin I'll have at specific end-user price points, calculate worst cases, or on the contrary, see how much I need to dumb down the product to reach a specific price.In the end though, a lot will depend on your target audience and your product (quality, uniqueness, features etc.), because these will determine how willing they are to pay, and what quantities you can expect to sell in the best case. The hardest part in all the above is to estimate these two things.As a last but equally important factor, there is also "marketing" and bringing in customers, which I learned by experience is just as hard and crucial. You can have the best product that everybody wants, you'll sell none of it if you cannot reach your audience. edit: ... and with sufficient marketing you'll be able to sell any trash.

author: rea5245
author_rank: Frequent Contributor
timestamp: June 04, 2019, 08:22:21 pm
content: I got the impression that Dave's pricing model assumes that you need to support some sort of dealer network. If you don't - e.g. you're selling through eBay and/or word-of-mouth, you might not need a 3x markup.- Bob

author: pylo
author_rank: Regular Contributor
timestamp: June 04, 2019, 08:30:46 pm
content: Quote from: rea5245 on June 04, 2019, 08:22:21 pmYeah, but realistically, he'll always have those costs, even if he doesn't have a dealer. You need a dealer to market your product and find your customers, or you have no dealer but then have to spend money on finding your customers yourself, because a website alone won't be enough, you need to bring in customers. So you either look for a dealer, or you spend money on crowdfunding fees, advertisements, flyers, attending trade shows/events, and sending out spam. For optimal sales, you'll want both a dealer and some of the other things. This all ties in with the last point in my post above: if you don't seem to be able to sell your product, it doesn't necessarily mean you have priced it wrong or that there isn't any demand. Marketing is very important, and it also costs money (and lots of time), in one form or another.

author: sokoloff
author_rank: Super Contributor
timestamp: June 04, 2019, 08:58:29 pm
content: For a landed COGS of $25, I'd much rather sell 50 units at $75 than 100 at $50. (Both yield the same gross profit, of course, but the former has half the support hassles [or less, as I find higher paying customers have fewer support issues per customer, which is counterintuitive].)Every time I've been tempted to lower the price on my low volume side project, I've decided against it. I'm not sure what the volume uptick would be, but it would almost surely be better for me to raise the price rather than lower it.For reference, the product I sell for $75 shipped (in the US) costs me about $22 in COGS and $8 in shipping to the customer. I'm still not sure it's worth the time and effort, but it's for sure not worth the time if I sold it for $55 delivered.

author: djacobow
author_rank: Super Contributor
timestamp: June 04, 2019, 09:29:09 pm
content: Thanks, folks. This is great. There is some food for thought here, for sure. I definitely would like to make some money, but I'll admit that part of this whole effort was just to learn about the process and explore what's possible.My only channels right now are Amazon and Tindie. On my other products sales have been 2/3 Amazon and 1/3 Tindie. Amazon does most of my shipping for me. The pricing is more than USPS but I don't have the hassle of dealing with it myself.So far advertising has been world-of-mouth. I also post on Facebook, and for this season I have created an FB page, and I'll do a few small advertising campaigns on that platform.It's funny, I feel it's a no-brainer for well-financed SV startup to sell at a loss for years, but for a self-financed small business, it's actually harder!

author: spongle
author_rank: Regular Contributor
timestamp: June 04, 2019, 11:23:43 pm
content: Quote from: djacobow on June 04, 2019, 09:29:09 pmNo surprise there, it's always easier to waste someone else's money.

author: djacobow
author_rank: Super Contributor
timestamp: June 05, 2019, 01:51:47 am
content: Quote from: spongle on June 04, 2019, 11:23:43 pmI guess you're right. The poster child right now is Uber. Not profitable. Not obvious it can ever been be profitable. Valued in the billions.

author: sokoloff
author_rank: Super Contributor
timestamp: June 05, 2019, 02:44:38 am
content: Quote from: djacobow on June 05, 2019, 01:51:47 amI think Uber is quite profitable in the core business in cities where it rolled out more than 18 months ago. They lose money in aggregate because they lose money in new cities (to prime the pump of riders and drivers, they variously offer credits to one side or the other) and because they spend a metric pantload on their autonomous vehicle program. While I'm bearish on the prospects of that panning out, they clearly have a large customer base, are providing a service that customer base highly values and continues to use, and if they fell back onto just their boring core business, they'd be very profitable. (Now, whether they're worth their current valuation, I don't think so, but they are clearly worth several billion dollars, perhaps even 20BB, IMO.)

author: djacobow
author_rank: Super Contributor
timestamp: June 05, 2019, 04:12:10 am
content: Quote from: sokoloff on June 05, 2019, 02:44:38 amRespectfully, I disagree. I suppose they are profitable in some cities, but I'm very skeptical that Uber can remain profitable in any city over an extended period. The barrier to entry is nil. The network effects have proven themselves small; riders and drivers can (and do) trivially switch platforms. If Uber tries to pay drivers less, they will lose drivers to other platforms. If they raise prices, they will lose riders to other platforms. They offer what is a completely undifferentiated commodity service. If they succeed in killing off Lyft and other services, they can raise prices, which will earn them some money for awhile, but they will attract new entrants and the race to the bottom will repeat.Their core business is not going to work out. The capital-heavy AV program is, in fact, their Hail Mary play.

author: OwO
author_rank: Super Contributor
timestamp: June 05, 2019, 05:07:41 am
content: Quote from: djacobow on June 04, 2019, 04:22:48 pmIt's up to you to judge the value of the product and guess at what the market is willing to bear. If this is something simple that most people wouldn't pay $75 for, what I would do is spend major effort on cost reduction.Start by looking at the breakdown of the cost, how much of that $41 is parts, how much is setup costs, and how much is the per-board pads cost for PCBA? If parts make up the majority of the cost, start by sorting the BOM by line price (unit cost of each part x quantity per board). If one or two parts account for a big part of the cost, consider re-designing the circuit to not need those parts or find substitutes. If PCBA is the main cost, shop around and see if you can work with the factory to reduce costs (e.g. panelizing the design, reducing BOM lines, etc).Ultimately it's up to you to bring the costs down to a level the market can bear. In the past year or so my company's entire R&D effort was put to engineering new designs of existing products to a far lower price point while maintaining the same performance. It's easy to design something, but far harder to design something cheap that performs the same.

author: djacobow
author_rank: Super Contributor
timestamp: June 05, 2019, 03:34:21 pm
content: Quote from: OwO on June 05, 2019, 05:07:41 amThanks. The BOM, at the 200 unit level is about $14, as the PCBA folks quote it to me. I notice that the prices they quote are not the lowest I can find, even when I send them links to distributors. But overall, I've actually focused most of my effort on the BOM until now. I think it's in good shape. There are a few features of dubious value that have a constellation of parts associated with them that together are worth a few bucks, but I like those features. But sure if customers will care, though.Setup is not that big a deal, and they are definitely panelizing this design. The real killer for me is that the assembly is about the same as the materials. I did not expect that at all. I guess I figured all SMT, single side load would result in pennies per part placement. But in actuality, I'm being offered about $0.15 per part placement for the small prototype batch and $0.10 at qty 200. It sucks to pay $0.15 to have them place a $0.002 passive.That and the tariff are the outliers right now.

author: spongle
author_rank: Regular Contributor
timestamp: June 05, 2019, 04:30:05 pm
content: Where have you looked so far? I just ran a rough guess on PCBWay's calculator (50 unique parts, 300 pads) and got $4.10 @ qty. 200...

author: OwO
author_rank: Super Contributor
timestamp: June 05, 2019, 04:42:56 pm
content: $0.15 per part is a little high. I would shop around. Elecrow quoted me around $0.015/pad before for 50 boards, ~1000 pads per board, and elecrow is considered a more expensive PCBA vendor (you can get much cheaper in China locally). I would aim to reduce PCBA costs to about $5/unit at 100-200pcs.When it comes to pricing there is the concept of price "regions", which are bodies of the market that you would be able to enter once you hit a price point. You have to know what kind of people are likely to buy your product, how many of these kinds of people there are, and how much they are willing to pay. Finally there's the question of competition. How much do similar products on the market sell for (make sure to compare to the best value for money on the market)? I would aim to beat the competition by a factor of 1/2 in price.

author: djacobow
author_rank: Super Contributor
timestamp: June 05, 2019, 05:08:31 pm
content: Quote from: spongle on June 05, 2019, 04:30:05 pmMy best quote right now is from PCBWay. Finalized quotes seem to reliably be higher than this calculator. I don't even see why they would charge by the pad anyway. It seems like placing the part is the real "effort". It's not like they are hand soldering. My design has 14 unique parts, 114 placements.

author: KL27x
author_rank: Super Contributor
timestamp: June 05, 2019, 07:43:06 pm
content: QuoteEven if you do not have the "gumption to go there" you should really request a quote for ridiculous amounts for some idea of where the break points are for different manufacturers for this specific project. If you are thinking 200 is even possible, you should request quote for range up to at least 2000. No harm in learning what you can do.Between 200 and 500, even, you might get a very significant drop in price in either the assembly or the board manufacturing for a given manufacturer for this particular project. So much so that ordering exactly 200 would be insane. The pricing scheme they use may have seemingly arbitrary cutoffs that you won't know if you don't ask. The higher the board and assembly cost vs component cost, the more you stand to gain/lose by buying the right amount.I've wasted thousands of dollars putting in re-orders of X hundred.... then finding out that if I had ordered 1.3X, the price is way lower. In short, you should always request quotes way over what you intend to order, and you should try to never order the highest amount that you were quoted. If that amount is realistic, you didn't request high enough quotes. There might be another significant break in price at a slightly higher amount. Get them to lay their cards on the table before you choose the winning hand. If there is a gigantic difference in per between 200 and 2000, then you can submit another set of quote requests between 200 and 2000. Assembly cost beyond some hundreds seems to be rather linear, IME, but you never know. Board cost, OTOH, there is often a significant drop in price at this region. 400 boards might cost only 25% more than 100.Another thing to be aware of is you are going to be hit with a customs charge if you have boards assembled with microcontrollers in China. This gets assessed by customs when you accept delivery of the boards. You will get an invoice from the shipper, later. I hesitate to make a guess, but it's probably something on the order of (which is to say this is very rough) 10-20% of the cost of the microcontrollers.

author: djacobow
author_rank: Super Contributor
timestamp: June 05, 2019, 10:24:27 pm
content: Quote from: KL27x on June 05, 2019, 07:43:06 pmThanks, this is good advice. I will go back and do just this. It is somewhat annoying that you have to do this. It's to everyone's advantage that you know where their cutpoints are. Ideally, when you ask for a quote they would send you back a curve, rather than you having to reconstruct one by asking them to quote at 5 different levels. In some sense, they just need better tools.Quote from: KL27x on June 05, 2019, 07:43:06 pmSo, last two times I did this I had to pay customs. The first time, I just paid the tariff, which was 10% at the time, I think. The second time I actually spoke with the shipper and I learned something interesting. She said that the appropriate tariff for my PCBs was not the one for a generic PCB, but for the thing it was to be a part of. (There are special cases for PCBs in computers, PCBs in TVs). In my case, this was a holiday ornament. In fact, the board *is* a holiday ornament. US import tariff for holiday ornaments: 0%. So I did not have to pay customers on the second order. Probably, if I took the trouble, I could figure out a way to claw back what I paid on the earlier shipment.But times have changed, and Trump's latest China tariff actually adds Christmas ornaments, because of course. So I will pay on this go round. It looks like it will be 20%:https://hts.usitc.gov/?query=9505.10.25