How to price your product - Page 1
Forum section: electronics / general

author: aruna1
author_rank: Regular Contributor
timestamp: March 06, 2017, 11:37:43 am
content: Hi Guys,I recently started working on some projects and thought making some products out of them?Now I'm stuck with this question."How to price your product?"I've gone through dave's tutorial and according to him price should be (2.5 x cost)But my brain scratching question is , what is the cost?lets say it cost me $X to make one unit, if I make 50 units and $Y if I make 100 units & $Z if I make 500 unitsso $X > $Y > $Znow what is the cost should I consider?is it X, Y or Z?if I choose $X as the cost, my product price will be high (which will cause less selling), but in later stage if I increase manufacturing quantity, my profit will go up as the cost go down with the quantityif I choose $Z as the cost, I will be at loss if I do a pilot run with smaller batch to see how the item will sell.so in the end I'm stuck with "How should I price it?"If someone can shed some light on it would be a great helpThanks in advance

author: mcinque
author_rank: Unknown
timestamp: March 06, 2017, 12:21:10 pm
content: You should consider the cost of the entire batch of components and services you're purchasing to produce N units.If you are going to produce 50 units, you will have X costs.If you are going to produce 500 units, you will have Y costs and not X*10, because individual parts and services will have a better price due to quantity you're purchasing.More you purchase, better purchase price you have, so the costs will go down.So if you produce "only" 50 units, your final price will be less competitive on the market in respect to the sell price you can obtain producing 500 units.

author: pix3l
author_rank: Regular Contributor
timestamp: March 06, 2017, 12:51:09 pm
content: I'd say price your product at 2.5x for a low volume (10 - 25 pcs or so). The money you then save when you make a larger series then becomes a nice bonus (or in some cases a safety buffer if something goes wrong in the production process / sourcing of parts / design flaw that unveils itself when you make larger series).

author: AndyC_772
author_rank: Super Contributor
timestamp: March 06, 2017, 01:24:24 pm
content: The starting point should be what the product will sell for, not what it costs you to make it. Figure out what your volume and margin would need to be, then work backwards.If your product will sell to 75% of potential customers at, say, $1000, then it doesn't really matter whether it costs you $50 or $100 or $200 to make it.It may sell to 95% of potential customers if you priced it at $500, but the extra sales don't make up for the reduced margin. In that case, it still doesn't matter whether it's $50 or $200 to build.Maybe, though, the optimum price point for your product is $100. In that case you need to decide how many you'd have to sell to make the effort worthwhile, and then (and only then) work out whether it can be made economically in that volume.For example, if you think it's worthwhile selling 100 units at $100, then perhaps you need to build, test, pack and ship it for $50, making you a total profit (before tax) of $5000. If it'll cost $75 to do those things in that quantity, then you're only making $2500 on a turnover of $10000, which personally I wouldn't do.If you can sell 1000 units, though, then maybe it's OK to just make $25 on each one - but it's still risky, and you'll need to be sure your supply chain is efficient and your yield is high. If you think your volume might be this high, then it could be a good idea to start by selling 100 units just to iron the bugs out of the manufacturing process. You might not make anything on these 100 units, but the remaining 900 are much more likely to turn a profit.

author: fubar.gr
author_rank: Unknown
timestamp: March 06, 2017, 01:36:29 pm
content: Are there any similar products on the market and if yes, at what price are they sold?It is not uncommon for low volume, highly specialized electronics to sell at 5, 20 or 50 times the production cost. It doesn't make sense to sell at 2.5x while your competitors sell at 10x for the same product.And the opposite is true too. High volume consumer products have razor thin margins. Selling at 2.5x means that your product will be twice as expensive as your competitors.

author: Dielectric
author_rank: Regular Contributor
timestamp: March 06, 2017, 02:04:02 pm
content: I saw this a while ago and thought it was an interesting take:Now, the argument becomes, do you consider yourself a "crafts person" on this venture? I'm not sure the 2.5X multiplier applies on low-volume stuff where the bulk of the value is derived from knowledge vs parts cost.

author: kosine
author_rank: Regular Contributor
timestamp: March 06, 2017, 03:31:31 pm
content: As a general rule of thumb, prices double every time a product changes hands. If you're only ever going to sell direct to customers, then 2x (or 2.5x) your total production cost (including your labour) is OK.But if you're expecting someone else to sell them on, then you need to factor in their 2x markup as well. (So now you're at 4x cost for the end-user price.)To answer your question, you need to know $X, $Y and $Z and put together a discount structure for different levels of distribution.It can be a tricky exercise and you need to consider all possibilities. 4x $Y per unit would be a good starting point. You'd offer distributors/retailers 2x $Y or 2x $Z if (and only if) they order in sufficient volumes.4x $Y may seem too high for your target market, but remember that it's much easier to reduce your prices than to increase them. If it takes off and you can sell through a third-party, the increased volume will drive your costs down and allow a lower retail price. If it doesn't sell, then you can start lowering the price as a last resort.An option to consider is a "two-for-one" introductory offer if your product lends itself to that approach. DON'T offer 50% off - you need to get the volumes up, not the prices down!Be brave! Price high! Sell the benefits! And go read some sales & marketing books if you're still unsure!

author: hayatepilot
author_rank: Frequent Contributor
timestamp: March 06, 2017, 03:43:23 pm
content: https://www.eevblog.com/2014/05/28/the-economics-of-selling-your-hardware-project/Start with the high price. You can always cut the prices but increasing is difficult...Greetings

author: aruna1
author_rank: Regular Contributor
timestamp: March 06, 2017, 04:22:41 pm
content: Thanks all for you valuable inputs.Since this is a new product for very narrow focus group, I'm afraid that I will end up selling zero units if the price is high.But yet I'll have to try