Relationship between Retail price and BOM cost? - Page 1
Forum section: electronics / projects

author: eecook
author_rank: Regular Contributor
timestamp: March 16, 2017, 03:55:20 pm
content: Hi all,This question is pretty straight forward but I have failed to found anything on google so I guess this is the right place to ask. I am working on a product design with a partner and we basically have an idea (comparing to related products) of what the retail price should be, but, before moving forward with the design I need to know what my BOM cost should be, as we are running on a very tight schedule. The product has a fair amount of electronics, obviously, but also, a fair amount of mechanical stuff, the most similar thing, I would say, is a very small controlled atmosphere chamber.On the side, any other advice on ballpark retail price breakdown percentages will be much appreciated. There seems to be a fair amount of info for civil engineering construction projects, but this is a completely different ball game.Any thoughts?Thanx,Simon.

author: grumpydoc
author_rank: Super Contributor
timestamp: March 16, 2017, 04:01:39 pm
content: It will depend on "some stuff" such as target market, volume, distribution channel cost, warranty support costs etc but I would suggest that your whole manufacturing cost should not be more than about 1/3 the retail price. How much of the manufacturing cost should be eaten by the BOM will depend on how much labour needs to go into the production. I suppose 33-50% would be in the ball park.Maybe you should find someone with experience of manufacturing to advise you.

author: @rt
author_rank: Super Contributor
timestamp: March 16, 2017, 04:04:03 pm
content: Experience in most aspects of retail, as in buying from wholesale, 33% markup before the product is worth carrying.That doesn’t relate the retail to the BOM cost, just the middle man warehouse cost.

author: BrianHG
author_rank: Super Contributor
timestamp: March 16, 2017, 04:13:58 pm
content: The final retail price is usually 5x the BOM cost. This is for consumer gadgets. There is less markup on electronic components, computers & cheap Chinese gadgets.

author: wraper
author_rank: Unknown
timestamp: March 16, 2017, 04:24:03 pm
content: IMO all you should care is there is enough margin so you don't not sell too cheap and have a healthy profit. Don't do < 2.5x retail/BOM ratio, unless it is sold in huge amounts. Regarding for how much it will be sold, you should figure out for how much it will sell, not based on how much it costs to make.

author: CatalinaWOW
author_rank: Super Contributor
timestamp: March 16, 2017, 04:25:45 pm
content: Another way of looking at it is how many steps are there in your distribution chain. Manufacturer-definitely. Importer? Distributer? Retailer?Different markets support different chains and different markups, but each step in the chain will want 30-100%. If you are in a high volume competitive market you will get forced lower than this.Finally, don't forget to include all of your costs-not just BOM and assembly. You will have some product support and warranty costs no matter what. You may have product liability issues. Taxes, insurance, pensions......

author: rstofer
author_rank: Super Contributor
timestamp: March 16, 2017, 05:13:55 pm
content: Dave did a video:

author: eecook
author_rank: Regular Contributor
timestamp: April 06, 2017, 02:49:30 pm
content: Quote from: BrianHG on March 16, 2017, 04:13:58 pmInteresting! This is the BOM per unit at the target units to be manufactured right?

author: westfw
author_rank: Super Contributor
timestamp: April 07, 2017, 06:52:55 am
content: QuoteThat's the same number I heard batted around for high-end, high-margin, OEM gear... It allows for "typical" manufacturing costs, a tier or two of distribution, reasonable support, and reasonable-to-good bottom lines. (mass-market consumer gear is cheaper overall, but the distribution tier pricing becomes more important, so the multiplier stays similar (?))A $25 Arduino is thus approximately "reasonably priced"...(I have no freaking idea how the Chinese can sell a <$5 Arduino clone! :-( )

author: BrianHG
author_rank: Super Contributor
timestamp: April 07, 2017, 07:57:53 am
content: Quote from: eecook on April 06, 2017, 02:49:30 pmYes, this would generally be that. Now if you are the manufacturer and you retail directly to your consumers you may go lower, but, without knowing about how many rejects you will receive in the field, and adding all the other expenses just to operate, this is the figure I use until I'm comfortably selling quantity for a good year to see if I can safely shrink this figure to ''improve'' profit. Never shrink this figure just to make your sale price less when it actually may not improve sales beyond what you are currently making for the long term. Otherwise, a temporary short sales burst may mean less profit in the long run.Cutting things too close on a startup usually spells disaster unless you have clear experience with the product you are selling and know exactly what all the hidden costs will be before you begin sales.

author: dimkasta
author_rank: Regular Contributor
timestamp: April 07, 2017, 08:03:56 am
content: Don't forget to check for any standards that you might have to comply to. These might dictate a certain quality for certain parts.

author: BrianHG
author_rank: Super Contributor
timestamp: April 07, 2017, 08:05:14 am
content: Quote from: dimkasta on April 07, 2017, 08:03:56 amAnd you might need to get approvals like FCC & UL....

author: b_force
author_rank: Super Contributor
timestamp: April 07, 2017, 09:53:00 am
content: The relationship between BOM and actual retail price is mostly based on marketing.I have been in the field now for many years and in my opinion some companies just make up things that I think are just to much.400-500 bucks for just a fancy looking board kit.It's insane... (and unaccaptable imo, this is how certain companies simply destroy the market)Of course you have to cover your overal total costs, and it all depends on prouction quantity, but an average board (100x100mm) goes for somewhere around 20-100 bucks.

author: Kilrah
author_rank: Unknown
timestamp: April 07, 2017, 10:31:10 am
content: Rule #1 in marketing tells you that retail price is what your target customers are ready to pay, which is in no way related to your actual costs... You just work backwards from that price, and work out whether the product is viable or interesting given your costs.

author: james_s
author_rank: Super Contributor
timestamp: April 07, 2017, 05:14:07 pm
content: It depends a lot on the product. Also typically initial versions have a much slimmer profit margin, then once the product starts selling in volume the design is refined and cost reduced. A company I used to work for made a popular computer mouse that sold for around $60 IIRC, they got the BOM cost down under $4.

author: rx8pilot
author_rank: Super Contributor
timestamp: April 07, 2017, 05:27:13 pm
content: I have no care in the world about a relationship from BOM cost to retail price. I only care about margin and volume. The margin is an all-inclusive metric that backs out all costs associated with the product with an estimate of R&D built in. I multiply that times the worst case and best case volumes to see if the product is worth a pursuit. I also design and sell a lot of products that the exclusivity determines the final price and has nothing to do with BOM and any other manufacturing cost. That lasts for a bit until someone copies it or at least makes something similar for a lower cost.In the end - there are no real rules or guidelines that are all that helpful. Each product and market are different and dynamic. Some manufacturers (like me) do a lot of direct sales. Some (like consumer products) go through long, complex, and expensive sales chains to get to the end user. I have to plan the sales channels before I even start designing a product since it can go from 2x COGS to 5-6x COGS real fast. There is a little bit of science and a lot of intuition on this topic IMHO.

author: IanJ
author_rank: Unknown
timestamp: April 07, 2017, 07:32:57 pm
content: Quote from: rx8pilot on April 07, 2017, 05:27:13 pmSpot on.Ian.

author: westfw
author_rank: Super Contributor
timestamp: April 07, 2017, 11:10:12 pm
content: QuoteThe point is that the 5x multiplier gives you a rough estimate on whether you'll have "sufficient margin" long before you have enough data to calculate all the incidental costs that lead up to your actual margin...If no one will buy your gadget for 5x BOM, then it may not be worth the effort of manufacturing. Sure, there are lots of other paths (like being explicitly paid for your NRE costs - ie "consulting"), but ... *manufacturing* is its own thing.