Developing a new electronic product that can be sold in volume is not simple or cheap. Underestimating all of the costs involved is one of the most critical mistakes made by those wanting to bring a new hardware product to market.
If you want to create a new hardware product, development costs will be your first major financial obstacle (assuming you do not immediately patent your product). Roughly 60-80% of the development cost will consist of engineering fees. The remaining 20-40% comprises the prototyping expenses. Development costs for most hardware products can be broken down into three categories: the electronics, the enclosure, and the retail package.
The Electronics
For most hardware products, the electronics are the most complicated and costly piece to develop.
Hire an Independent Engineer
Since engineering fees are usually the largest chunk of the development costs, your best strategy to minimize the required capital is to reduce the amount of engineering required. If you are experienced with designing electronics then you can save yourself a lot of money. If you are not, you may want to consider bringing on a co-founder with the necessary experience. However, for most startups, the best option is to hire an independent engineer to design the electronics.
One suggestion to lower both your development cost and risk is to hire a second independent engineer to review the work of your primary engineer. This strategy will reduce the likelihood of any design errors, which ultimately means fewer prototype iterations and lower engineering fees.
Save Money
At Predictable Designs, not only do we offer design review services, but we also always have other engineers review our designs before prototyping. It is just a smart step that will not cost you that much extra, and may save you thousands of dollars.
Getting design reviews also makes it more realistic to hire lower cost Asian engineers to develop your product. Normally this is not recommended unless you have the necessary skills and experience to judge their work. However, if you had the necessary design skills to review their work, you would likely just develop the product yourself. So in most cases the best option is to hire another independent engineer that you have already established some trust with to review the work. This trick can potentially cut your development costs in half or more.
Tip: Find a manufacturer willing to help you offset some of the development costs. Many factories have an engineering department that may have extra time available. If you can find a factory that is not at manufacturing capacity, they will be more likely to help you. That being said, from my experience you need to have at least a first level prototype and/or some interest from a retailer to get a manufacturer willing to invest.
Prototype Your Electronics
Prototyping the electronics is split into two steps. The first step is to produce the Printed Circuit Board (PCB). The second step is to solder on all of the electronic components. I have found that, for most products, making the boards themselves will be about a third of the cost and soldering on the components will be the remaining two-thirds.
I usually recommend starting off with around five boards. Once you have verified functionality and fixed any major problems, then ramp up the quantity for future prototype runs.
The Enclosure
Your product will almost surely require some kind of enclosure. In most cases this enclosure will be plastic. Expect to spend a few thousand dollars to develop the enclosure. If appearance is really important for your product then the enclosure development cost will be significantly higher.
3D Printing
Prototyping the enclosure is usually done with 3D printing. 3D printers create a custom shape by stacking thin layers of hot plastic. 3D printers have become quite popular which has pushed down the cost of producing plastic prototypes.
For many entrepreneurs the most cost effective option may be to purchase their own 3D printer. This is especially true if they know it will take multiple prototype iterations to get the enclosure ready for mass production and market.
CNC Machining
CNC machining may be a better prototyping technology than 3D printing for some products. 3D printing is an additive process, which means parts are created by adding up the stacked layers. On the other hand, CNC machining is a subtractive process. So instead of stacking layers, CNC machining is more like sculpting. The CNC process begins with a solid block of plastic. Material is then carved away to create the final shape.
The primary advantage of CNC machining is it allows you to use production plastics. This means you can use the same plastic for prototypes that will be used during manufacturing. Specialized 3D printer plastics may have different characteristics (strength, appearance, and feel) than the plastic that will ultimately be used in production. This difference can be critical for some products.
Caution: What can be prototyped cannot necessarily be manufactured. There are very few limitations on the shapes that can be created with 3D printing (and to a lesser extent CNC machining). However, there are complex limitations on what can be produced with injection molding technology.
Be sure to hire an enclosure designer knowledgeable about the complexities of injection molding technology. Otherwise you will likely end up with a prototype that cannot be mass produced without a major redesign.
The Retail Package
Many hardware startups forget about the importance of the retail package. Neglecting the retail package is a huge mistake with major consequences. If your product will be sold in a retail store then the retail packaging is as critical as the product itself. Many times it is even more critical.
Tip: Start off selling your product via your website. Doing so eliminates the initial need for any costly retail packaging. Your profit margins will also be much higher if you sell directly to consumers.
There are two styles of retail package commonly used for electronic gadgets: clamshells or boxes. Smaller products typically use clamshells, and larger products that may have lots of parts tend to use retail boxes.
As with your product enclosure, your custom shaped plastic packaging requires the creation of a 3D model and an injection mold. The best way to reduce or eliminate these package development costs is to use stock packages when possible. At the very least, try to initially keep the retail package as simple as possible.
Conclusion
Development and prototype costs will likely be your first major financial obstacle, but not necessarily the largest. For many products, the cost to scale from prototype to mass manufacturing is the most expensive step. Just remember, the most important cost you need to know is the production cost for your product. Unless you know how much each unit will cost to produce you will not know your sales price or profit margin.
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