It is official: you have designed a marketable item that you are sure will take off in popularity. You have a business name, a clever product name and logo, and you cannot wait to start selling it to the general public.
Of course, in order to make that first sale, you have to actually produce the item first. And this step has you admittedly feeling a tad stumped. You know that as a product-based entrepreneur, the next step after coming up with the product to sell is to figure out the cost of mass production, but you are not sure how to calculate this.
Fortunately, this does not have to be an overwhelming process. If you break the product down piece by piece and go step by step, you can determine this important estimate.
Identify what parts you need
Let’s say you have invented an innovative type of machinery that can be used in a number of industries. In order to get a production estimate, note every single part that goes into making one piece, and please do not overlook the tiniest of components. For example, your machine may include larger external parts like covers and doors, as well as small inner pieces like o-rings—which you can buy from a reputable company like Apple Rubber. Apple Rubber offers the seal industry’s largest inventory of o-rings, including every standard size and a number of non-standard options. They also have an o-ring sizing guide, which can help you to determine which pieces you need. Determining a base price for each piece that goes into the final product will get you off to a great start.
Determine fixed versus variable costs
As the Houston Chronicle notes, business owners have to take into account both fixed and variable costs when determining how much it will take to manufacture their products. For instance, variable costs could include some of the parts you need for your machine — as you are creating your list of prices, you may find that if you buy in bulk, you can save money on certain parts. Another variable cost may be how much it will cost to pay people to make the product — if you are placing a small order with an outsourcing company, it may cost more per item for them to manufacture your product, as opposed to ordering a large quantity at one time. On the flip side, fixed costs will include any parts that are priced the same no matter how many you buy. You may also have one-time or once-in-awhile costs like mold-making fees — you may need to pay upfront for a mold that you can use for thousands of products, but will only need to be replaced every couple of years.
Look into the cost of a patent
Some of the costs related to launching a new product have nothing to do with the materials. A patent is a classic example; if you feel like you want to pursue this route and obtain a patent for your brilliant product concept, by all means, you should do so. As Legal Zoom notes, while there is a cost to apply for a patent as well as related fees, you can do much of the research and work on your own before you ever hire a lawyer to help you. Start with an online visit to the United States Patent and Trademark Office to see if someone has already come up with a similar idea or product, and then go from there.
You put your heart and soul into designing and creating your new product. Now, by going step by step and determining fixed versus variable costs, along with identifying each and every part that goes into your product, you will soon be up and running, selling your product to willing buyers.