If you don’t want your backers end up complaining that your campaign is a scam, read this article!
Here we will provide you with how to price your product in order to decide on an appropriate campaign goal and shipping date. If you have these steps down properly, you won’t have to face the problem of angry backers waiting forever for your product.
Before anything, how exactly do you find suppliers and manufacturers?
As mentioned in article #2 on prototyping, you should be contacting manufacturers while you are making the DFM to preparing for mass production. At the same time, what you should be doing is taking note of estimated prices and of how long the production of each component will take.
There are two options on how to find suppliers and manufacturers.
1) Seek professional support from a contract manufacturer (CM) (i.e. BRAIN PORTAL)
Hiring a CM will call for extra costs. However, the tedious task of searching and contacting factories will be taken of taken off your back and you are guaranteed to be introduced to reliable manufacturers. In fact, it may actually save you money in the long run if the CM is able to hook you up with the most cost-efficient manufacturers.
***Make sure to hire a reliable CM, or you can end up as the next Kreyos***
2) Find and directly reach out to suppliers
By choosing this method, you are able to eliminate the cost of hiring a CM.
In this case, you must decide whether to use look locally or abroad.
Check which of these applies to your products the most
- Large order
- Multiple custom parts
- Complex assembly
- Product allows for easy shipment
If these pertain to you, look at manufacturers ABRROAD
- Small order
- Off-the-shelf components
- Product is marketed as high-end product
- Multiple materials used (i.e. wood and plastic)
If these pertain to you, look at LOCAL manufacturers
Once you’ve decided on where, it’s time to reach out to them and request estimations of costs and how much time each component will take to manufacture. With these estimations, you can finally calculate the product price as well as map out your crowdfunding timeline and decide on your campaign goal.
First, let’s decide on your product’s price.
Calculating and deciding on your product’s market price is a crucial process for a startup.
You want people to buy your product, so affordability may seem important now. But it won’t seem important anymore when your startup is forced to go out of business because of a lack of profits. You may have to set the price a bit higher than initially planned but keep in mind: prices can be lowered in the future, but not the opposite! Plus, there will always be early adapters who are willing to pay a little extra for new, revolutionary, and exciting tech products. (Which also means if no one seems interested, it may not be a matter of price but the absence of demand for the product in the first place.)
Before we get into the actual process of pricing, you need to calculate your cost of goods (COGs) and calculate your gross margin.
Cost of goods (COGs) (cost it takes to produce and deliver your product) consists of the cost of the following:
– Shipping and handling
– Warehousing (per unit)
Gross margin is the percentage of the total sales revenue minus the COGs, divided by the the total sales revenue. It recommended to start with a 50% gross margin taking into consideration the low volume and the mistakes that you will most definitely run into.
Now, there are two possible ways of determining the appropriate product price: Top Down and Bottom Up. Here, we will recommend you use Bottom Up pricing.
With Top Down pricing, you start at the “top” or the market prices. You look at similar products in the market to estimate and decide on what you want the price of your product to be. Usually you do more market research and then an online A/B testing to decide on the final price.
Although the top down analysis allows for you to compete against the prices of competitors, in the case of a first time hardware startup, we highly recommend you only use this for reference and that you actually decide on the price using the Bottom Up pricing method.
With Bottom Up pricing, you start at the “bottom” or your direct costs and add whatever amount you need to achieve a gross margin of 50%. Then add credit card and shipping and handling fees to achieve the final market price.
Be aware that the dates given by the manufacturers are only rough estimations.
So multiply the estimates by 2, or even 3 times.
With this set of information, you are ready to set up a detailed timeline of each stage.
It is highly recommended to utilize a Gantt Chart for a visual representation your schedule.
Here is a free template you can use on Excel, or you can download Gantter for Google Drive.
Finally, decide on the delivery date. Don’t forget to add a couple of days for shipping, and another extra day or two for insurance.
It might seem to take a lot more than initially planned because of the excess days put in for insurance. However, remember that this is to prepare for the worst case scenario and if nothing goes wrong, you can always surprise your deliver a little earlier!
Now that you have determined the product price, you can finally decide on your campaign goal!
Now this is relatively easy compared to the other stages. Just add up the costs of the following:
- Videography, photography, marketing for campaign
- Salary of you and your teammates
- Shipping and handling
- COGs × Minimum order quality
Add an extra 25-50% of that amount to cover problems you will run into during manufacturing, and you are all set!
Just make sure you and your manufacturer understand all the deadlines to stay true to your Gantt chart schedule. Notice and analyze if there any mishaps in the schedule to avoid more in the future.
It is also important to stay true to the budget. Since your product pricing and campaign goals are already decided, you have to be careful not to go over the budget. Use a spreadsheet to organize all expenses and refer back to it before you make a purchase of any sort.
Thanks for reading and hope this article helps out in preparing for your campaign!
Watch out for #4, introducing you to the idea of community building before starting your campaign. To read article #2 on prototyping, click here.
This work is licensed under a Creative Commons Attribution 4.0 International License.