Manufacturing hardware products is not an easy job, especially if you plan to launch something new in the market, as it will require several steps in between, alongside a sufficiently large budget to accommodate mistakes and missteps that often accompany the whole process. Therefore, it is important to get an actual and practical idea of what you are stepping into before you step in. On that note, here are a few of the most important factors you need to consider while going through the many hoops that lie in between the conception of the idea and mass production.
Simplify and Streamline the Manufacturing Process
One cannot stress enough the need for simplifying and streamlining the manufacturing process because that’s where you will be able to reduce that BOM, which will ultimately boost your ability to offer quality hardware at affordable prices to your consumers and/or retailers.
If your business involves plastic injection molding Thailand, consult with Molder Enterprise to learn exactly how you can simplify and streamline the mold making and casting process to reduce manufacturing costs and time, without sacrificing on the quality of the final products.
Make the All-Important BOM
BOM or Bill of Materials is a term in manufacturing that indicates a list of all the costs associated with creating and setting up a single production unit of the hardware. Creating an accurate BOM generally includes the following factors, but more categories will likely need to be added, depending on the product and manufacturing process in question.
- Cost of every single part
- Cost of Assembly
- Cost of labor
- Cost of shipping
- Taxes and fees
The BOM is generally created after finishing a successful prototype, so the final costs will vary, depending on how accurate your estimates regarding supplier quotes were and, of course, how accurate the prototype is.
Setting the Retail Price
Now that we have discussed how to set the BOM, it is time to determine the COGS and your gross margin. COGS stands for Cost Of Goods Sold (per unit), which should be the total of the BOM, the additional labor costs and shipping costs associated with setting up each unit for sale. The final retail price or the sales price would be the combination of the COGS and your gross margin.
Keep in mind that although the gross margin is calculated after excluding the COGS, it is still not your net profit margin, but it can be used to calculate the revenue generation on each unit. Manufacturers that sell to the end users directly via the internet can have a good profit margin, even with just a 50% – 60% gross margin, due to the absence of the middleman.
The labor costs and shipping costs are cheap in Thailand, which is why manufacturers generally find it easier to set up new production units in the country. Nevertheless, to go from a prototype to a production unit is a long race to run in any country and unless you get your basics right, profiting from it can become very tricky.