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Inventors typically get a good idea of what their product might sell for by checking out competitive products or asking potential customers what they will pay. Also check out this post:http://onestopinventionshop.net/blog/2016/05/simple-market-testing-show-… (40)
What inventors don’t do well is check out if they can make the product for a price that will produce a profit.
Inventors often don’t realize that they need their invention’s manufacturing cost be only 20 to 25% of their projected retail sales price if they hope to make money. o see why take a look at the chart below for a $100 retail sale
Retail Price: $ 100.00
Retailer Discount $ 50.00 this could go up to $60 for a major customer
Manufacturing Cost $ 25.00 includes packaging and shipping
Sales Costs $ 6.00 Sales cost, sales people, rep commissions and order entry
Marketing Costs $ 6.00 Ads, trade show booths, promotional literature, web sites, and social media promotion.
Product $ 3.00 Regulatory approvals and warranty returns
Administration $ 5.00 Interest charges, accounting, executive salaries and so on.
Profit $ 5.00 Ouch, that is not much but 5 to 10% is a typical inventor’s profit
The problem most inventors have before spending large amounts of money is that they have no idea how to estimate what their product will cost in large production. Often they only have quotes for prototypes and small production runs which can be very high. Inventors often don’t know the impact of tooling cost either and how those costs should be incorporated into their final product cost. To get a better understanding of their manufacturing, I recommend inventors can follow these five steps Â to see if their product can make money.
- Find two to three products that are, in your eyes, will have very similar manufacturing costs to your product. If you look at the price of that product, and divide it by five, you will probably be somewhat close to its manufacturing costs. That is a starting point then for the cost of your product.
- Take the products next to the local branch of SCORE, Service Corps of Retired Executives , which you can find at score.org/.Â I have found that most branches have several people with manufacturing experience, or at least know people with manufacturing experience that can help guide you while you figure out the costs of you product. Have the advisor explain if there are any major differences between your product and the ones you have chosen that could result in a higher or lower price for your product.
- If you can’t find a SCORE advisor, you should take the products, along with your idea, to two to three manufacturers who manufacturer your type of product, for example, manufacturers of plastic injection molded parts, and ask them if they feel the cost of your product will be similar to the ones than your product. Again ask for differences that would make the product more of less expensive than yours.
- Estimated the impact of tooling cost. One component of the product costs that can throw you off is that tooling costs are amortized over time and put in the product costs. So if tooling costs for a product is $50,000 and it will make 1 million units, the manufacturer will add about 20 cents to each product produced. You need input from manufacturers and your SCORE contact about what the most cost-effective mold size will be. The cost of the mold depends on how many parts at a time you can make. Look at molds for a variety of cavities, and you can see how costs come down as mold costs go up.
- Multiply your predicted production cost by five and then compare it to what you feel is the perceived value of your product. Â If your perceived value is about the same as production costs by five, or if it is higher, you are in great shape to make money on your invention. If not you may need to go back and redesign your product so it is cheaper to make.
I know this seems like a torturous step to go through. But far too often inventors, with strong salable products, continue on the invention path, spending money at every step, only to end up with a product they can never make money on because product production costs are too high for the product’s perceived value. Early on is the time to discover this. Then you have time to correct, either by adding features or redesigning your product to cut costs.