Startups · Smart home

How can I do a cost analysis for a product that hasn't been tested nor invented yet?

Elise Krentzel

May 4th, 2016

I'm researching the viability of a smart home decor product which has no patents nor competitors. Since the firmware and software are not issues, the manufacturing of the elements needed to make it work must be tested. The manufacturing of such product has no precedence. How can I price production costs when I have no clue. 

Philip Miller Founder at Hempies™ Paper Inc.

May 4th, 2016

Not sure what the product is made of or where you will manufacture BUT we had great success finding out what a product would cost by hiring a manufacturing engineer/quality control expert who had credentials with large corporations like Dish Network, and he was able to talk with factories in China and the US to see what the cost of runs would be.  Add shipping, import duties, insurance, R&D costs and 33% WTF margin of error and you should get very close to a cost per unit for an initial run...

Syed Hosain Founder, SVP Engineering and CTO at Aeris Communications, Inc.

May 4th, 2016

This is what good product designers ought to be able to do - their knowledge and experience with product design (in similar or related product lines) should give them the chops to do a good estimate of production costs, etc.

So, some thoughts:
  • Hire the internal expertise you need to make this happen.
  • After signing an NDA with a competent design-house/manufacturer, get them to provide the details - this is their business! Expect to pay fees for this.
  • Look at a similar [type of] product to get a "reasonably close" estimate. Take it apart and see what is inside or what it might take to get it produced in the quantities you want - get pricing for the components from possible suppliers.
  • Make one unit yourself - buy the components and materials from potential suppliers - and see what your cost turns out to be. The low volume means that you will have a high estimate, but ... should give you guidance.
Remember to have a good set of requirements for the person or firm estimator - typically, cost over-runs occur due to inadequate specification of all the requirements up-front, or changes after you make the prototype, etc. Make sure the design house understand the product features and requirements you have in mind - in full detail.

And, of course, plan for errors in the estimate if you decide to go to production. Build in a fudge factor - using your judgement of the competency of the person or design house making the production cost estimate.

Finally, remember that creating a decent estimate for a bill of materials and manufacturing costs, will strongly depend on the volume. Here is where a competent manufacturing company will to provide a range of estimates based on how many you think you will produce.

There will usually be some minimums. So, a "one-off" product (or prototype) is likely to be incredibly expensive - the design time, cost of components, etc., - are not a good gauge of what it will cost in higher volume.

Good luck!

Saravjit Singh Independent Consultant and Trainer

May 4th, 2016

I would go about the issue in reverse.
1. Estimate the value of the product to your target customers and then decide on a price you could charge for it.
2. Estimate the approximate sale of this product over the next three years.
3. Make or get made a mockup of the product you have conceptualized.
4. Get a costing engineer to work out the expected cost based on your estimated sales of the product
5. I suggest you consider buying out all the components and only assemble the product yourself -- to start with. The advantages of doing this are many:
  • Faster to market - since design and set up times are minimized
  • Minimum investment
  • Minimized risk of failures since you get ready made tried and tested, reliable, components.


Matthew Stroul IT Business Analyst & Support Engineer helping people, processes and tools be more awesome versions of themselves.

May 4th, 2016

What an OUTSTANDING riddle to solve!

To begin, the 4th wave of innovation is ALL about unique combinations of problems that have already been solved but not servicing your exact need you are facilitating in your unknown yet exciting product. This is a setup to the paradigm I will share with you below. 

All you need to proceed is to break down your functionality by classes and that requires a simple description of your user interactions, and problems you are solving for the users of the product. Here is a framework method you can apply to ANY product design:

  • UX / User Experience action: State the action the user would use a feature of the product
  • Break down the individual elements needed to execute the action by class
  • Google Patent Search the tech needed to execute
  • Compose the elements in a document
  • Shop the elements on say Alibaba or hire your CTO to do so

Example: Remotely Programmable Doorbell (an invention I nearly brought to market)
  • User Action: Upload a custom holiday ringtone to a wireless doorbell
  • Required abilities: button triggers the preferred action, play MP3 as preferred action, connect to the device wirelessly, set options via an app, ability to upload a file from a paired device
  • Desired outcome (user story): during set hours when the doorbell is pressed a particular holiday song is played once through while pressing the doorbell multiple times rapidly should not restart the uploaded file

Now simply break down each ability's need:

Ability to connect wirelessly
  • Bluetooth transceiver
  • ASIC / Chip controller for the Bluetooth
  • ASIC / Chip to host the core application to negotiate trusted users and core functions
  • Power

Rinse and repeat until every feature and function are mapped and documented. 

Then you can shop for existing tech to integrate. ALL of the manufacturers will have patents on the tech anyway. SO many people have already solved your problems for you. The HARD part is mapping the entirety of the experience with the use, manufacture and support of your product. 

Many positive thoughts I am sending your way!

Good luck!
Mateo

David Austin

May 5th, 2016

Technological innovations / inventions can require a lot of legwork to get an accurate estimate.  How much are you willing to invest just to find out if the return is worth the risk, or if the market is as ripe for the product as you anticipate?  Those 3 metrics (risk, return, ripeness) need an accurate estimate and each one (not just manufacturing cost, which is only part of the risk estimate) is expensive just to get an accurate estimate for each.

This is the process that product development companies, like quirky, do.  If you're up for extending a similar investment independently just to decide whether it's worth doing on your own then let's talk, otherwise you might want to get some ownership of the idea with a provisional patent application ($65 through patent office) and lease / assign ownership to someone in that space who will do all that legwork.  There are quite a few who will, to whom  I can help point you (or show you how to find them yourself).

NDAs are good too (in fact offer stronger protection with those who sign it), but many won't sign it, it's more work for you if you want to approach many potential partners, and offers no protection if the idea somehow escapes your exclusive circle, which it will once manufacturing bidding happens ... Which it should.

Byron Druss VP Business Development at InVizion LLC | Tech Startup Advisor | Evesham Environmental Commissioner

May 4th, 2016

A product design engineer or product manager that's worked on a similarly sized, or fairly similar for the number and general type of components, can price it out in qty's so you know with economies of scale, initially and at some critical mass or large sale. Btw-Which can't your designer do the research? Byron

John Butler Founder and President at Quantumcyte, Inc, Director of Process Development at Stanford University School of Medicine

May 5th, 2016

It is possible to come up with a cost estimate. Start with a detailed process flow diagram and go from there. You will need to make assumptions for capital, labor, space and material costs. You should work with someone that understands manufacturing in the space.

Vipul Jindal

May 5th, 2016

Assuming the design of product will be new, the manufacturer will have to procure a custom mold for making your product. Estimating the number of units you can order to the manufacturer for at least 15 days when you are doing good business, ask present manufacturers for quotations. I can help you more but the information I have presently from you is too less. Do get in touch if you feel like it. Vipul Jindal Sent with Mixmax

Elise Krentzel

May 16th, 2016

Thank you all for your most insightful comments and answers. 

Christine Danning

May 16th, 2016

I've done IP consulting now for several years and it's an area of consulting I love and that I'm very good at...many who have ideas don't realize that with a little work, the idea could have several market areas over and above what they originally thought.

An idea is just that... an idea.  It's not and invention yet.  Any idea has to be developed into an invention and find a place in the market instead of the inventors garage shelf.  That takes investment of time and a good consultant  BEFORE you spend money on patents and prototypes.  I've saved inventors a lot of money because their idea might be great, but the market won't support it so they would be out a lot of money.