Hi Dave, well done. You've explained in roughly 26 minutes what has taken me about 24 years to learn. I'm in the finance industry now and your numbers are spot on (as a minimum!). It's wonderful to see a tech savvy person who is also finance savvy. Keep up the great work.
The 'profit' comparison between direct sales and reseller use would seem more useful if you were to take into account the opportunity cost of doing your own distribution: You may make 47K a years more by doing your own distribution, but if the additional work of doing all the shipping and handling means that you have to spend an extra 1000 hours working on this project, while you could be earning (just to pick a number) $ 60 an hour doing other work, you are actually losing 13K by doing all the work yourself.
This guide is completely wrong. Here are the true economics of selling hardware: 1. Think about something you want in your life 2. Now invent impossible but believable promises and an impossible but believable price 3. Put it up on Indiegogo and Kickstarter 4. Keep posting some promising updates every few weeks until you have all the money you'll ever need in your life
I founded and ran a electronic company in the past (sold it now). IMHO a distributor is worth the mark up. Although in the first moment 60% (sometimes more) does not sound "fair" (=easy money you think you can have yourself), but the most important issues are: Reach far in the market to have huge volumes and do the work that you as an engineer probably dont enjoy: Dealing with stupid, time consuming customer and doing paper work, like single shipping, customs and national regulations in foreign countries etc. I did both, started selling the product myself and afterwards having an exclusive worldwide distributor (to whom I now sold my company). Also keep in mind: You might want to have time to develop further new projects in the future.
Ein Gast You could hire a person to do the customer service. But yeah if the distributor gives you 3 times or more sales and more time to work on improving/inventing new products it is a good deal.
These are exactly my thoughts at this moment. Why spend time slaving with all of that when you could enjoy a better quality of life and even design more products to sell.
Very true - the price is what it is! The realities of production.... It is always a challenge to sell a product that is not built down to a cost, and the higher the quality build, the more labor cost in production, and the volume of production is always reflected in the end price.
An electronics manufacturer in China showed me one of there products a yellow water proof AM / FM radio. It was well built and I was tempted. The cost was US $ 1.72 each with a minimum order of ten thousand units. A year latter I see this unit in Dick Smith for A$ $39.95. Dick Smith went bust but if you look at the prices at other electronics shops they are what the market will bear not cost plus margin. My pet hate is things are 5 cents less than the next dollar value $29.95 $ 49.95 etc.
Great overview and 100% accurate in my experience. It's really best to go for 3x to be comfortable but that 2.5x number is the common minimum. In some small markets such as Pro Audio distributors will get down to 30% markeup, and selling direct to dealers you can even get to 20-25% depending on what the product is. It does stink to think the distributor can make more money than your company - but you have to have massive respect that they are buying/investing in your product at at least 2x cost of what you are! Another reason to go for 3x and above profit percentage is that you want to reinvest into your company - you don't want to rely solely on investors and credit accounts!
Dave, I’m using the same 2.5x rule in the construction business. Usually for stuff I am not sure what to charge for, i mostly work on restoring old houses. Love your vids, keep it up :)
Awesome video Dave. I would add that Economy of Scale is another important factor to consider when calculating the cost/profit of your widget. I've personally seen a >25% cost reduction on a single component/module when manufactured in 5k qty rather than 1k qty. When you get to 10k or 100k quantities things get interesting. In some cases, producing a product in less than 1k qty is not even worth the effort involved. You either get to a product price point that is more than most people would want to pay, or watch your profit margin vanish. Neither scenario ends well...
One thing to keep in mind is that the reseller DOES add a tangible value besides pure profit - he frees up your time so that you can start doing the NEXT profit making enterprise. This is significant IMO. Unless you plan to skate on the same old products for years, as soon as you've got things worked out on one product and it's a proven product with cost reductions done and defects reduced, you should start putting your time into making the next thing instead of wasting your time on fulfillment.
I agree, the effort in boxing customers orders up, and handling queries shouldn't be underestimated. Get someone else to do it, unless your dealing with high value, low volume goods. It's not just the time. You need space to do it, and stock of packaging materials for every eventually.
Great video!! I am working on starting an electronics business. Would love to see more of this! Best of all, I would love to see a video about compliance and certification requirements, and the risks of selling those first few (built at home), perhaps mains powered, electronic device, which you haven't thrown down the $100k for UL certification for (as a sole proprietor).
Many have failed by not even talking to a factory before running the Kickstarter, or they picked the one offer that was 50% below all other offers only to flake at them once the production was supposed to start.
This is awesome. Gonna watch this a few times. I've seen this in my feed several times, finally getting to the point where I might be trying to start a business myself.
The only caveat that I would add to going through a distributor would be if they can dramatically increase the number of units sold. In the example of $28 profit through a distributor vs $75 sold direct, if you can only sell 1000 per year but the distributor can sell 10,000 per year, you'd make $75K direct vs $280k. All this is dependent on the distributor and market size. but it is another factor that wasn't discussed.
I think there's a misuse in terminology a little bit. Dave said "reseller's profit", but of course that doesn't take into account all of their costs. I wouldn't know what their real profit margins are, but it's certainly less than the markup.
Spot on, this holds true for most businesses that manufacturer things. The multipliers might be slightly different but the basic idea is the same everywhere.
Thank you so much, Dave. This has indeed encouraged me to continue on the path of starting my own hardware production company. I used a set of rough calculations based on Limor Fried's (Lady Ada @ Adafruit) suggestions. She says wholesale price = 1.7 x BOM (not GOG, just BOM). Take that x 1.7 again for retail : = wholesale x 1.7. Interestingly that comes out only slightly higher than your thumbnail of 2.5 x COG. And your explainer has practical, real-world details that confirm I'm on the right track. Also, FYI, I do a ton of electronic related research online - EEVBlog is high up on my top 10 of important places to check out frequently. Looking forward to future videos from that land down under :)) - H
Dave a very nice and educational video! Thanks! Its so good to listen to a domain professional talking about selling specific industry products than some Economic / Finalcial weaboo that does not even know what the product is about and how it is made, Thumbs up for the Libreoffice....
This video was insanely helpful. I had my COGS planned out but had no clue what to charge for the product. Now I know. Thanks for another informative video Dave!
Excellently useful - covered a bunch of stuff I happened to be thinking about this very week. Plain "electronics design" videos come ten a penny these days, but Dave has the industry experience to back up a much broader range of subjects, such as this.
Great video. That distributor might be able to sell 10k units instead of the 1k you can sell so even though you only make $28 each now you earn $280k instead of 75k. That number might get even higher because of economies of scale. Or you can use that time you are not packing/shipping products to develop another product and then you have multiple products earning you 28k a year. It all depends on your plans and the benefits the distribution agreement brings.
Hi Dave, could you comment on certification requirements? I'm somewhat confused on whether or not electronic devices require electrical certification before they can be sold (FCC, CE, ROHS, etc.).
For a major reality check, watch the American show "Shark Tank". (I believe there are similar shows in other countries.) It's a show where entrepreneurs try to get venture capital from a panel of seasoned experts in the field. The unknown in using a distributor is whether they can increase your VOLUME enough to compensate for their margin.
Hello Dave, I have a plan to start such a business as a side work and had some rough numbers. You gave the basics of a realistic start in a clear way. Thanks
i used to be a contractor for many years. your "rule of thumb" was very close to mine. any non-standard job that came in that you didnt know from experience how much labor costs it would take, you would just charge 2x the materials cost (or, COGS x 3, as you would put it)
Plus a shady Chinese manufacturer blatantly copying (read: stealing your idea), and flooding the market with a cheap clone, essentially driving you out of business. Nowadays, the scales of economics have put the small time tinkerer at a huge disadvantage, to a point where it's almost not worth it. Just my 2cents.
Great video! Clear and concise. Love it. Quick question though...I have a product I'd like to sell, and running the numbers of my BOM, it will be ~850 dollars (~$2125 with the 2.5 multiplier). My question is: Is the 2.5X multiplier a constant e.g. does NOT change no matter the COGS? Or is there a tapering off at higher COGS?
Awesome video! You really cut through the BS. It's great that you mentioned shipping costs from the manufacturer. I've read horror stories about hidden costs, especially if your shipment happens to be pulled for inspection.
Hello Dave! I recently saw an "usb supercharger" which you will you plug into a usb port of your computer and then you will charge your smartphone from it faster than without the device. I smell bullshit but if you would like to make a video on one of those it will be quite cool to see what's inside. Thumbs up if you think Dave should see this!
There is a modicum of truth to this; USB 2.0 technically provides a maximum of 500ma of current. Some badly designed cheap hubs/devices would break if a device tried to pull more, so phones would only pull 500ma from a vanilla USB port. One of the earlier "standards" for indicating that a port could provide more than 500ma was to simply short the data pins together. Shortly after, people started selling "supercharge" usb cables which connected the power pins and shorted the data pins, meaning phones would pull as much as they wanted (at the risk of killing the horribad cheap usb hubs).
Thanks Dave!!, I was just researching all this information and it just magically appeared on my feed.
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I like videos like this! No one talks about this on Engineering courses. In your opinion, how to give discount? Like, if you buy 100 or 1000 of one product, how to calculate those discount?
16:00 I've worked with at least 100 distributors in the past 25 years, not a single one uses "mark-up" to derive prices, it's an anachronistic street market trader way of pricing. Everyone uses margin as the calculation. The margin they work on varies dramatically depending on the product and price - high value, low quantity (test equipment) can be as low as 20%, many components are 40-70% GPM, and low-cost consumables can easily be 90% GPM. One case I know of for cable ties was set at 99.5% GPM, and the product was still cheaper than their competitors. The distributor wanted to set the price higher but their price system wouldn't let them enter a higher number than 99.5%.
Nice Overview. Here is something to think about. I made a widget that would fit into a standard cast aluminum 4- 1/2" square outdoor electrical box you could buy at any big box hardware store. Pretty slick, I thought, until I found the supplier changed the internal design of the box.
A lot to consider, and it's rather interesting. With a reseller, you'll only make $28 per unit (from your example). But, you should take in mind that you'll probably sell a lot more units. Another thing to consider is also, is there really a market for these things (and is it still at your price you'll have to ask).
If you sell yourself you have to take into account marketing costs, even the cheaper ones such as sending samples to blogger/reviewers will impact on the overall business costs.
Hi Dave, A smal things in your COGS, somethings expensive in time is the Documentations and /or users manual. Depend of the way to ditributed : files of paper prints. :) Regards Phil VR (BE)
Brilliant video Dave thank you. Really outstanding to have it all so clearly summarised. ps my turbo encabulator is for sale if you're interested, still in its packing crates.
Thank you for the detailed video ! Very interesting. You didn't talked about certifications (CE, CEM compliance or whatever), is there nothing to say about it? Can I just sell an electronic product without any certification? Even in Europe where you see the CE marking everywhere?
The negative notion on distributors isn't justified. A developer with less capital can use them to avoid investments into infrastructure. Or if you don't have the money for distribution facilities use a distributor. Another reason to use a distributor could be the focus on new products instead of managing the whole chain.
When comparing the benefit of using a reseller should you not price in the cost difference of your time in handling sales, rather than just the possible volumes of either method?
I guess that work out best because the viewers of these bloggers are inherently educated about the product. So, if the product suits their utility and budget, they don't need a second advertisement for the product.
For the bottom up cost approach I would use a demand schedule. Why not? That's what a movie theater does, just give it out for free and have them fill out a form with different prices. Prices ranging from the cheapest price possible to the highest price possible. If they check off every price but the last two highest prices then using that data you will find/know what price to set the product. For example in a movie theater it might make sense to price the tickets so that you triple your money but only fill 2/3 of the seats rather than filling every seat for the cheapest price possible. This is what we learned in my macro econ class from my local college.
I have yet to watch the entire video but this is exactly what I've been thinking about doing! I'm just not aware about all the FCC regulations and legal stuff I have to jump through to legally sell my "smart" electronic devices. It is exciting to build something and sell it to someone who will use it! Even more awesome if I can make a small fortune off selling my products I have uniquely developed or in the process of developing!
Where did you find those cheap assemblers? I had looked into selling a board once, and the assembly would have cost more than everything else combined.
As for the "lost in shipping" part, I would like to say that you can add shipping insurance, so that if there's a problem, you get your money back, or at least that's what they promise. I'm not sure about the effectivity of this, but it could be interesting.
So helpfull! thank you. also, I heard you say on amp hour today 6/3/2016 that you're not thanked for fundamental Fridays. I have to disagree. I thanked you and saw many other thanks. You are a GREAT teacher. and like you said, there is an endless amount of fundamentals. You said that as if it were a bad thing... But that gives you an endless supply of subjects. I think it would get you more subscribers FOR SURE. anyway, thanks for this video. so helpful!
Maybe obtaining a CE mark would be cost prohibitive for individuals wanting to sell their electronic gizmo in Europe? Oh, but maybe this does not apply to items powered via a power adaptor. have to check though.
Most of the the CE requirements are fairly trivial, one problem for me right now are the EMI/EMC requirements because testing in a lab costs you about 2000€. If you fail it and have to try again it can add up.. You can ask around and maybe get some tests done at a university, a lot of them have EMI/EMC labs. The other thing is WEEE, which is pretty stupid. Every country has its own implementation of WEEE so you basically have to use one of the service providers like take-e-way unless you want to spend an ungodly amount of time reading law books. You can get around all that if you sell your product as a kit and a lot of people do it that way but, depending on the product, that shrinks your market. It's not that much money if you know your product will sell but if you just want to test the waters with a hobby project.. yeah..
Well, there's a bunch of stuff to comply with to use the CE mark. You can omit the low voltage directive if the device is under 60V IIRC but EMI testing is mandatory for almost everything. And that can easily be like 2500 USD per product even if you make it on the first pass.
I've just recently finished prototyping my first hardware product, and one thing that caught me off guard was assembly cost - It ended up being almost as much as my entire BOM Parts cost! It turns out you can buy a whole reel of resistors for under $10, but getting them onto PCBs will cost you over $100!
This and Fran's (from frantone) video on entrepreneurship is all you basically need to start a business. Great video Dave! Well, you do need passion and hustle, but you got that, right? Right?
Can I suggest something to add to the COGS list? The cost of credit, that is 'money tied up in something' has a direct cost, whether you borrow it, or if it's your own money! You could just put your own $ into a term deposit or the stock market and earn a certain - currently small (2%?)- percentage, but if it's tied up in unsold turboencabulators, that's a loss (cost?) that needs to be factored in. Considering the lifecycle of the product is also prudent, making sure you move all the turboencabulator 1s before the Model 2B is released or you may have to move the older models at a much reduced markup :)
Hey there, you mentioned that there are companies that will take designs and handle the rest and you end up with what amounts to a royalties cheque. Would you be able to elaborate on such companies ie: examples of them, how to find them, what sort of criteria they look for, etc?
OK Dave I just gave a thumbs up on this one because I came here from your post bitching about how no one is watching your series on three cent pain in the ass parts. Now, in this context, WTF is one of your viewers going to produce that sells so cheap, in such large volume, that a ten cents difference in price between the micro selection is going to matter in any meaningful way?
Good video, thanks Dave. I have a question about FCC, CE, (Asia), (Australia), ..., certifications. EMC aside, more specifically on electric safety (track isolation distances, fuses (time of reaction in case of failure)...). Is there any documents which defined all the rules you need to follow to be able to meet all a "global certification level" ? In the company I work for, the PCB is designed by "experience". So, most of the time, when we make the certification tests, there is something wrong and we need to make some changes in the PCB design. So this lead to another prototype. Development costs go up and the projet is delayed.
Hi Dave, well done. You've explained in roughly 26 minutes what has taken me about 24 years to learn. I'm in the finance industry now and your numbers are spot on (as a minimum!). It's wonderful to see a tech savvy person who is also finance savvy. Keep up the great work.
Thanks for the confirmation.
The 'profit' comparison between direct sales and reseller use would seem more useful if you were to take into account the opportunity cost of doing your own distribution: You may make 47K a years more by doing your own distribution, but if the additional work of doing all the shipping and handling means that you have to spend an extra 1000 hours working on this project, while you could be earning (just to pick a number) $ 60 an hour doing other work, you are actually losing 13K by doing all the work yourself.
I've been a small scale electronics manufacturer for 10 years and this video is very accurate and appropriate, nicely done Dave.
Thanks.
+DrScientistSounds Wow, great to see that you are an EEVblog fan! Guitarist and pedalboard nerd here.
Been watching Dave for years, big fan!
DrScientistSounds, thumbs up here from Thomas from Dwarfcraft Devices. Awesome that you're an EEVblog fan, as I have been for years too!
Hey Thomas, small world!
This guide is completely wrong. Here are the true economics of selling hardware:
1. Think about something you want in your life
2. Now invent impossible but believable promises and an impossible but believable price
3. Put it up on Indiegogo and Kickstarter
4. Keep posting some promising updates every few weeks until you have all the money you'll ever need in your life
Or that, yeah!
But I read one involving "instant solar water" just went tits up...
Well yeah promising a vaporware is another way... but fraudulent... no thanks!
Exactly! Sadly there are many who choose that path!
Thanks for the video Dave. This will be a good reference point for those who argue a phone that costs $50 to make should be sold for $51.
$50? Sometimes it could be $100-$200. It depends on greed of an owners.
I founded and ran a electronic company in the past (sold it now). IMHO a distributor is worth the mark up. Although in the first moment 60% (sometimes more) does not sound "fair" (=easy money you think you can have yourself), but the most important issues are: Reach far in the market to have huge volumes and do the work that you as an engineer probably dont enjoy: Dealing with stupid, time consuming customer and doing paper work, like single shipping, customs and national regulations in foreign countries etc. I did both, started selling the product myself and afterwards having an exclusive worldwide distributor (to whom I now sold my company). Also keep in mind: You might want to have time to develop further new projects in the future.
Ein Gast You could hire a person to do the customer service. But yeah if the distributor gives you 3 times or more sales and more time to work on improving/inventing new products it is a good deal.
These are exactly my thoughts at this moment. Why spend time slaving with all of that when you could enjoy a better quality of life and even design more products to sell.
Very true - the price is what it is! The realities of production.... It is always a challenge to sell a product that is not built down to a cost, and the higher the quality build, the more labor cost in production, and the volume of production is always reflected in the end price.
An electronics manufacturer in China showed me one of there products a yellow water proof AM / FM radio. It was well built and I was tempted. The cost was US $ 1.72 each with a minimum order of ten thousand units.
A year latter I see this unit in Dick Smith for A$ $39.95.
Dick Smith went bust but if you look at the prices at other electronics shops they are what the market will bear not cost plus margin.
My pet hate is things are 5 cents less than the next dollar value $29.95 $ 49.95 etc.
The 5 cents less is a physiological impact, would you buy something that is 99 cents or 1 dollar?
@@joshcook8586 That's why we hate it
any new video or blog about applying for quality certificate like FCC or UL or CE. this information is badly needed
i feel like that's one hell of a pandora's box
Great overview and 100% accurate in my experience. It's really best to go for 3x to be comfortable but that 2.5x number is the common minimum. In some small markets such as Pro Audio distributors will get down to 30% markeup, and selling direct to dealers you can even get to 20-25% depending on what the product is. It does stink to think the distributor can make more money than your company - but you have to have massive respect that they are buying/investing in your product at at least 2x cost of what you are!
Another reason to go for 3x and above profit percentage is that you want to reinvest into your company - you don't want to rely solely on investors and credit accounts!
Dave, I’m using the same 2.5x rule in the construction business. Usually for stuff I am not sure what to charge for, i mostly work on restoring old houses. Love your vids, keep it up :)
Saw the blog post a while back... This is great info for hardware guys and could save many from shooting themselves in the foot.
11:04 "Don't pay for marketing"
Best advice I've heard in a long time.
Marketeers are frauds.
don't pay for marketing, pay for adveritsing you know will get customers
Awesome video Dave.
I would add that Economy of Scale is another important factor to consider when calculating the cost/profit of your widget. I've personally seen a >25% cost reduction on a single component/module when manufactured in 5k qty rather than 1k qty. When you get to 10k or 100k quantities things get interesting. In some cases, producing a product in less than 1k qty is not even worth the effort involved. You either get to a product price point that is more than most people would want to pay, or watch your profit margin vanish. Neither scenario ends well...
One thing to keep in mind is that the reseller DOES add a tangible value besides pure profit - he frees up your time so that you can start doing the NEXT profit making enterprise. This is significant IMO. Unless you plan to skate on the same old products for years, as soon as you've got things worked out on one product and it's a proven product with cost reductions done and defects reduced, you should start putting your time into making the next thing instead of wasting your time on fulfillment.
I agree, the effort in boxing customers orders up, and handling queries shouldn't be underestimated. Get someone else to do it, unless your dealing with high value, low volume goods. It's not just the time. You need space to do it, and stock of packaging materials for every eventually.
Great video!! I am working on starting an electronics business. Would love to see more of this! Best of all, I would love to see a video about compliance and certification requirements, and the risks of selling those first few (built at home), perhaps mains powered, electronic device, which you haven't thrown down the $100k for UL certification for (as a sole proprietor).
This was a really nice video mate, I wonder how many kickstarters could have succeeded had they known this stuff
Many have failed by not even talking to a factory before running the Kickstarter, or they picked the one offer that was 50% below all other offers only to flake at them once the production was supposed to start.
This is awesome. Gonna watch this a few times. I've seen this in my feed several times, finally getting to the point where I might be trying to start a business myself.
Fundamentals!!!! YES! Thanks Dave. Fundamentals Friday are my favorite type of videos.
Thanks for the info! could you possibly make another on getting a product certified and listed? like how much it could cost ect
The only caveat that I would add to going through a distributor would be if they can dramatically increase the number of units sold. In the example of $28 profit through a distributor vs $75 sold direct, if you can only sell 1000 per year but the distributor can sell 10,000 per year, you'd make $75K direct vs $280k. All this is dependent on the distributor and market size. but it is another factor that wasn't discussed.
So how do I become a reseller. : o D
Raise money and buy tons of products from different manufacturers. way to go!
Pete Ellacott Where's my 60%, thank you!
The first step is to have inherited a lot of wealth and/or connections
I think there's a misuse in terminology a little bit. Dave said "reseller's profit", but of course that doesn't take into account all of their costs. I wouldn't know what their real profit margins are, but it's certainly less than the markup.
I love this video. Always come back to it whenever I need a refresher on the calculations :)
Spot on, this holds true for most businesses that manufacturer things. The multipliers might be slightly different but the basic idea is the same everywhere.
Turbo encabulator's have come down in price!!
Not much demand these days, most newer systems use solid-state nano-encabulators.
Dave, this is such a great video, even today! Thank you for sharing your expert knowledge and experience with the world! YOU ARE A LEGEND! 🙏
Thank you so much, Dave. This has indeed encouraged me to continue on the path of starting my own hardware production company. I used a set of rough calculations based on Limor Fried's (Lady Ada @ Adafruit) suggestions. She says wholesale price = 1.7 x BOM (not GOG, just BOM). Take that x 1.7 again for retail : = wholesale x 1.7. Interestingly that comes out only slightly higher than your thumbnail of 2.5 x COG. And your explainer has practical, real-world details that confirm I'm on the right track. Also, FYI, I do a ton of electronic related research online - EEVBlog is high up on my top 10 of important places to check out frequently. Looking forward to future videos from that land down under :)) - H
Never use just the BOM cost, that's a huge trap.
The 2.5 figure (give or take) is a very common one in the DIY OSHW industry. No surprise Adafruit gave the same figure.
Thanks, understood! When I get ready to put the money down, I'll make sure I use more sophisticated estimates :))
thank you EEVBlog for existing
Dave a very nice and educational video! Thanks! Its so good to listen to a domain professional talking about selling specific industry products than some Economic / Finalcial weaboo that does not even know what the product is about and how it is made, Thumbs up for the Libreoffice....
As a marketing student this is very correct, a little simplified, but the relevant parts are there.
This video was insanely helpful. I had my COGS planned out but had no clue what to charge for the product. Now I know. Thanks for another informative video Dave!
Excellently useful - covered a bunch of stuff I happened to be thinking about this very week. Plain "electronics design" videos come ten a penny these days, but Dave has the industry experience to back up a much broader range of subjects, such as this.
SUPER! A masterclass in taking a hobby and industrialising it. Cheers mate!
Well done Dave! This will help a lot of people understand this part of product development!
Awesome FF video topic Dave!
Thanks.
+EEVblog Thank you for this video, it is invaluable. It's just what I've been trying to find, thank you!!!
Great video. That distributor might be able to sell 10k units instead of the 1k you can sell so even though you only make $28 each now you earn $280k instead of 75k. That number might get even higher because of economies of scale. Or you can use that time you are not packing/shipping products to develop another product and then you have multiple products earning you 28k a year. It all depends on your plans and the benefits the distribution agreement brings.
Hi Dave, could you comment on certification requirements? I'm somewhat confused on whether or not electronic devices require electrical certification before they can be sold (FCC, CE, ROHS, etc.).
I was just considering doing this very thing and living in NorCal, made in California means something to the world. Thanks for the vid.
For a major reality check, watch the American show "Shark Tank". (I believe there are similar shows in other countries.) It's a show where entrepreneurs try to get venture capital from a panel of seasoned experts in the field. The unknown in using a distributor is whether they can increase your VOLUME enough to compensate for their margin.
Hello Dave, I have a plan to start such a business as a side work and had some rough numbers. You gave the basics of a realistic start in a clear way. Thanks
i used to be a contractor for many years. your "rule of thumb" was very close to mine. any non-standard job that came in that you didnt know from experience how much labor costs it would take, you would just charge 2x the materials cost (or, COGS x 3, as you would put it)
If selling directly don't forget payment processing fees and any other costs associated with selling online.
Plus a shady Chinese manufacturer blatantly copying (read: stealing your idea), and flooding the market with a cheap clone, essentially driving you out of business. Nowadays, the scales of economics have put the small time tinkerer at a huge disadvantage, to a point where it's almost not worth it. Just my 2cents.
Great video! Clear and concise. Love it. Quick question though...I have a product I'd like to sell, and running the numbers of my BOM, it will be ~850 dollars (~$2125 with the 2.5 multiplier). My question is: Is the 2.5X multiplier a constant e.g. does NOT change no matter the COGS? Or is there a tapering off at higher COGS?
Would you like to do a video on regulations and such ? What sort of stuff has to have to be CE branded (in Europe) for example
Awesome video! You really cut through the BS. It's great that you mentioned shipping costs from the manufacturer. I've read horror stories about hidden costs, especially if your shipment happens to be pulled for inspection.
8:50 - Dave starts experiencing a bizarre increase in the number of uCurrents "lost in the post"
This guide is priceless. You sir are a legend.
When you can under cost your suppliers, as an OEM, they mostly drop the prices to the public, OR: sue you!.. for whatever reason they can "find"... :)
Great info - thank you for sharing your knowledge.
I have wanted to know this for a long time and you presented in a very concise way - excellent!
This video was really informative for a young guy like me. Thank you for this very nice video, Dave!!
Hello Dave! I recently saw an "usb supercharger" which you will you plug into a usb port of your computer and then you will charge your smartphone from it faster than without the device. I smell bullshit but if you would like to make a video on one of those it will be quite cool to see what's inside. Thumbs up if you think Dave should see this!
Placebo effect maybe (so just a passthrough). People are terrible at scrutinizing things.
There is a modicum of truth to this; USB 2.0 technically provides a maximum of 500ma of current. Some badly designed cheap hubs/devices would break if a device tried to pull more, so phones would only pull 500ma from a vanilla USB port. One of the earlier "standards" for indicating that a port could provide more than 500ma was to simply short the data pins together. Shortly after, people started selling "supercharge" usb cables which connected the power pins and shorted the data pins, meaning phones would pull as much as they wanted (at the risk of killing the horribad cheap usb hubs).
Very usefull and eye-opening material. Thanks Dave.
Wow, what a fantastic video, thanks Dave.
Thanks Dave!!, I was just researching all this information and it just magically appeared on my feed.
I like videos like this! No one talks about this on Engineering courses. In your opinion, how to give discount? Like, if you buy 100 or 1000 of one product, how to calculate those discount?
You generally don't give much, because your COGS will usually be based on that many units anyway.
I would like to know how much money the Batterizer made, while not actually doing anything.
Maybe they will price them at 800% the cost, since most companies only use 20% of the possible markup due to a conservative cutoff.
haha that's great
16:00 I've worked with at least 100 distributors in the past 25 years, not a single one uses "mark-up" to derive prices, it's an anachronistic street market trader way of pricing. Everyone uses margin as the calculation. The margin they work on varies dramatically depending on the product and price - high value, low quantity (test equipment) can be as low as 20%, many components are 40-70% GPM, and low-cost consumables can easily be 90% GPM. One case I know of for cable ties was set at 99.5% GPM, and the product was still cheaper than their competitors. The distributor wanted to set the price higher but their price system wouldn't let them enter a higher number than 99.5%.
Very good, simple and good understanding! implement it in my development. Greetings from Argentina
I love Fundamental Friday. Good work!
Thank you so much, very appropriate.
Nice Overview. Here is something to think about. I made a widget that would fit into a standard cast aluminum 4- 1/2" square outdoor electrical box you could buy at any big box hardware store. Pretty slick, I thought, until I found the supplier changed the internal design of the box.
A lot to consider, and it's rather interesting.
With a reseller, you'll only make $28 per unit (from your example). But, you should take in mind that you'll probably sell a lot more units.
Another thing to consider is also, is there really a market for these things (and is it still at your price you'll have to ask).
If you sell yourself you have to take into account marketing costs, even the cheaper ones such as sending samples to blogger/reviewers will impact on the overall business costs.
Hi Dave,
A smal things in your COGS, somethings expensive in time is the Documentations and /or users manual.
Depend of the way to ditributed : files of paper prints.
:)
Regards Phil VR (BE)
Brilliant video Dave thank you. Really outstanding to have it all so clearly summarised. ps my turbo encabulator is for sale if you're interested, still in its packing crates.
Really good info Dave. Thanks! I needed to learn this just now.
Thank you for the detailed video ! Very interesting. You didn't talked about certifications (CE, CEM compliance or whatever), is there nothing to say about it? Can I just sell an electronic product without any certification? Even in Europe where you see the CE marking everywhere?
Good video for start up, cost of warranty needs to be added up too in COGS.
Pickup needles in the old days had a 30 - 60 x COGS
Very interesting subject, glad to hear more info.
The negative notion on distributors isn't justified. A developer with less capital can use them to avoid investments into infrastructure. Or if you don't have the money for distribution facilities use a distributor. Another reason to use a distributor could be the focus on new products instead of managing the whole chain.
When comparing the benefit of using a reseller should you not price in the cost difference of your time in handling sales, rather than just the possible volumes of either method?
"But definitely send units to bloggers for review etc"
I feel like you're just a little bit biased here dave XD
+shelvacu I turn down most requests
I guess that work out best because the viewers of these bloggers are inherently educated about the product. So, if the product suits their utility and budget, they don't need a second advertisement for the product.
Thanks for the video Dave, very well done.
For the bottom up cost approach I would use a demand schedule. Why not? That's what a movie theater does, just give it out for free and have them fill out a form with different prices. Prices ranging from the cheapest price possible to the highest price possible. If they check off every price but the last two highest prices then using that data you will find/know what price to set the product. For example in a movie theater it might make sense to price the tickets so that you triple your money but only fill 2/3 of the seats rather than filling every seat for the cheapest price possible. This is what we learned in my macro econ class from my local college.
I have yet to watch the entire video but this is exactly what I've been thinking about doing! I'm just not aware about all the FCC regulations and legal stuff I have to jump through to legally sell my "smart" electronic devices. It is exciting to build something and sell it to someone who will use it! Even more awesome if I can make a small fortune off selling my products I have uniquely developed or in the process of developing!
Thank you! I needed this video two years ago. Very usefull!
Great information!!! I'm looking into this process at the moment.
Where did you find those cheap assemblers? I had looked into selling a board once, and the assembly would have cost more than everything else combined.
As for the "lost in shipping" part, I would like to say that you can add shipping insurance, so that if there's a problem, you get your money back, or at least that's what they promise. I'm not sure about the effectivity of this, but it could be interesting.
So helpfull! thank you. also, I heard you say on amp hour today 6/3/2016 that you're not thanked for fundamental Fridays. I have to disagree. I thanked you and saw many other thanks. You are a GREAT teacher. and like you said, there is an endless amount of fundamentals. You said that as if it were a bad thing... But that gives you an endless supply of subjects. I think it would get you more subscribers FOR SURE. anyway, thanks for this video. so helpful!
Maybe obtaining a CE mark would be cost prohibitive for individuals wanting to sell their electronic gizmo in Europe? Oh, but maybe this does not apply to items powered via a power adaptor. have to check though.
Most of the the CE requirements are fairly trivial, one problem for me right now are the EMI/EMC requirements because testing in a lab costs you about 2000€. If you fail it and have to try again it can add up.. You can ask around and maybe get some tests done at a university, a lot of them have EMI/EMC labs.
The other thing is WEEE, which is pretty stupid. Every country has its own implementation of WEEE so you basically have to use one of the service providers like take-e-way unless you want to spend an ungodly amount of time reading law books.
You can get around all that if you sell your product as a kit and a lot of people do it that way but, depending on the product, that shrinks your market.
It's not that much money if you know your product will sell but if you just want to test the waters with a hobby project.. yeah..
Well, there's a bunch of stuff to comply with to use the CE mark. You can omit the low voltage directive if the device is under 60V IIRC but EMI testing is mandatory for almost everything. And that can easily be like 2500 USD per product even if you make it on the first pass.
Economics, Thats what I know about! I don't come here for that.......
Love it!
I've just recently finished prototyping my first hardware product, and one thing that caught me off guard was assembly cost - It ended up being almost as much as my entire BOM Parts cost!
It turns out you can buy a whole reel of resistors for under $10, but getting them onto PCBs will cost you over $100!
This and Fran's (from frantone) video on entrepreneurship is all you basically need to start a business. Great video Dave!
Well, you do need passion and hustle, but you got that, right? Right?
Can I suggest something to add to the COGS list? The cost of credit, that is 'money tied up in something' has a direct cost, whether you borrow it, or if it's your own money! You could just put your own $ into a term deposit or the stock market and earn a certain - currently small (2%?)- percentage, but if it's tied up in unsold turboencabulators, that's a loss (cost?) that needs to be factored in. Considering the lifecycle of the product is also prudent, making sure you move all the turboencabulator 1s before the Model 2B is released or you may have to move the older models at a much reduced markup :)
Hey mam,
Just came across your blogs....
found them useful...
gr8
17:40 "Take for exemple a book store, u know old fashion dead tree" :'D :'D :'D
Very helpful video, thanks!
Hey there, you mentioned that there are companies that will take designs and handle the rest and you end up with what amounts to a royalties cheque.
Would you be able to elaborate on such companies ie: examples of them, how to find them, what sort of criteria they look for, etc?
Thanks Dave. After learning something useful, I had a good laugh at the Turbo Encavulator video.
Very interesting, thank you, excellent information!
OK Dave I just gave a thumbs up on this one because I came here from your post bitching about how no one is watching your series on three cent pain in the ass parts.
Now, in this context, WTF is one of your viewers going to produce that sells so cheap, in such large volume, that a ten cents difference in price between the micro selection is going to matter in any meaningful way?
Good video, thanks Dave.
I have a question about FCC, CE, (Asia), (Australia), ..., certifications. EMC aside, more specifically on electric safety (track isolation distances, fuses (time of reaction in case of failure)...). Is there any documents which defined all the rules you need to follow to be able to meet all a "global certification level" ?
In the company I work for, the PCB is designed by "experience". So, most of the time, when we make the certification tests, there is something wrong and we need to make some changes in the PCB design. So this lead to another prototype. Development costs go up and the projet is delayed.
Yes, compliance is another thing you might need to amortise into your cost. There could be others as well.
That's very interesting, I would probably model the situation as a Linear Program and let a computer optimize if I had to work it out for myself.
Thanks a lot, Dave
Thank you!
Great video Dave!
Dave,
Fantastic video. You made a complicated subject much easier to understand. Were you an instructor in a previous life? :-)
Great video, thank you.