Will It Sell?TM
|Marketing help for inventors and small businesses.||James E. White & Assoc.|
"I found the 'tell it like it is' style very refreshing compared with most 'inventor' books."
STEP 3—What will it cost to produce (approximately)?
Patent considerations for this step: Get non-disclosure agreements signed by anyone you present your product design or parts to for estimates.
Yes, you must get a solid idea of what it will cost to produce your product before you do final product development but it is not as hard as it looks. First, assume you will NOT be buying equipment or building a factory to make the product. You will be subcontracting to have an existing manufacturer make your product. Of course that will cut your profit margin significantly. But it will dramatically reduce your start-up costs and will eliminate significant risk. It will also save you a lot of time and possibly provide you with a terrific source of expertise that you probably don't already have.
"Costs" From the Store Shelf
First, find a bunch of products that already exist on store shelves that are similar in content and complexity to yours (you don't need to buy them but try to dress as a respectable person the day you go looking). These products do not need to be products that compete with yours. They do not even have to be for use in the same field. They need only be comparable from a manufacturing standpoint. Exclude the ones that have external reasons for high or low prices and the ones that closer examination shows to not be as similar to yours "manufacturing wise" as they first appeared. Hopefully you have at least 5 or so products left. Sum their prices and divide by the number of products to get the average price. (If your invention is not clearly unique or a solution to a costly problem, this average price might also be about the "comparison price" a reasonable individual buying your product would assume it should sell for—so keep that in mind.).
Now divide your number by 10. Assume that is approximately the DIRECT MANUFACTURING cost of producing the items. Man, are you being ripped off by those greedy company people! Wrong. Remember that the manufacturer must cover overhead and make a profit, the distributors must also, and so must the retailer that is watching you ogle their merchandise without any evidence that you might buy something! So now you know about what it will cost your subcontractor to manufacture each item when thousands are being manufactured. How much will a subcontractor manufacturer charge you? When they are cranking out thousands it will probably be about 2 times their cost. On the shorter runs that you order when you first start selling it will probably be 3 to 10 times their direct cost. The more complex the product the higher the multiplier for short runs. Make your best guess and be realistic about it.
Should You Bother a Manufacturer?
So far it hasn't cost you anything to figure out the possible cost to you as the manufacturer of record. But is your guess on manufacturing costs even close? IF your cost still looks acceptable relative to your competitors, now MIGHT be the time to get some expert estimates. If your cost does not look acceptable, it is probably time to go on to your next idea. If your cost does not look acceptable and you proceed with the next few paragraphs anyway to get some "real" manufacturing prices, you should be aware that you are doing a grave disservice to all your fellow individual inventors out there. Manufacturers "waste" enough time submitting unsuccessful bids for producing goods for companies that do get their product manufactured. Submitting bids on invention, perhaps yours, that NEVER get manufactured is really a waste of money and effort.
I would suggest you get quotes only if all three of the following are met: 1) your product is fairly simple (i.e. easy and cheap to estimate), 2) there are no material or manufacturability "kinks" you foresee possibly having to be worked out during development, and 3) you are not very confident of your "similar products" cost analysis. If your product is quite complex, you foresee some potential "gotchas", and/or you have absolute confidence in your cost analysis, then I suggest that you hold off on getting manufacturing quotes until later when your design is near final and you have good prototypes or models.
Quotes & Bids
DO NOT request a detailed, fixed in concrete and good for 2 years, quote. You may ask for estimates on 2 different run sizes though, say 5,000 and 25,000 or whatever might be appropriate for your product and initial realistic sales expectations. Be thinking in terms of first PRODUCTION runs and excluding tooling charges, not PROTOTYPE runs which you will probably also have to pay for but are not anywhere near ready for yet.
Now we have some information to analyze, including: competing products, BFH solution, snicker test results, a marketers evaluation report (hopefully with a suggested selling price and long term volume estimate), one or more production cost numbers, and a buyer comparison expectation price. If you got manufacturer quotes then I would suggest you start to sort it out by taking the highest production cost estimate from a manufacturer that you believe to be reliable and multiplying that by 5. If that is considerably higher than your marketer's suggested selling price and/or the buyer comparison price you determined, it may be time to stop and start on your next idea. Such an "overpriced" product can only likely work where you will be able to get patent protection and where you will be catering to a market whose problem costs, or lack of competing solutions, make your product attractive at a higher sales price.
Suppose the price check comes up near or below the proposed prices? Next look at competing products. Is one or more of them likely to be just as effective as yours but at a substantially lower cost? (If that is the case then STOP, you will NOT be rewarded for YOUR cleverness—the buyers vote with their dollars in the way that best maximizes their VALUE from the solution.) Is a BFH solution workable in most real-life situations? Will consumers probably perceive your product as being more beneficial, in their terms, to them than competitors products? Tough questions to be sure. What do the results of the snicker test, weighting the expert responses most heavily, have to say about these questions?
Quick & Dirty Business Plan
If everything still looks like a GO at this point you should do one more "little" analysis exercise. Do some careful thinking and do a quick and dirty projection of numbers for a (possible future) business plan. Using projected volumes, conservative market penetration rates, the cost of any loans you may need (or the percent of profit you must give up to your financiers), marketing costs you project (based on your average competitors marketing costs times 5, or 15% if you have no evidence for a different number), shipping/warehousing costs, the subcontractor-manufacturer's price to you, packaging costs, liability and insurance costs, and all the other costs, see what your projected profits will be each year for 3 to 5 years. (See Chapter 8 Marketing 101 for help on finding numbers.)
Now, after seeing realistic profit projections for at least 3 years out, make a decision based on how willing you are to keep your "day" job and work your new inventor/manufacturer "job" for as long as it takes.
Success Stands a Chance
Congratulations, by now you have winnowed your first hundred ideas down to one that you feel you are willing to risk some serious time and money on just to get it to the marketplace in hopes that it will be the one out of the estimated twenty simultaneously newly introduced products that actually succeeds. The first hard part is over and you can proceed to the fun part of inventing with renewed vigor and confidence. You might have a winner.
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