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EEVblog => EEVblog Specific => Topic started by: EEVblog on June 03, 2016, 04:06:52 pm

Title: EEVblog #887 - The Economics Of Selling Hardware
Post by: EEVblog on June 03, 2016, 04:06:52 pm
In this Fundamental Friday Dave discusses the economics of selling your own hardware. Both directly and through a distributor/reseller.
Everything you need to know about pricing your product for your hardware startup. Cost Multiplier, Gross Margin Percentage, Markup, and Cost Of Goods Sold are all explained.

http://www.youtube.com/watch?v=UwrkfHadeQQ (http://www.youtube.com/watch?v=UwrkfHadeQQ)
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: AndyC_772 on June 03, 2016, 06:13:05 pm
I'd add a couple of important extra costs which need to be factored in if you're looking to sell any significant number of units.

First, unless the thing you're selling is just a component rather than a complete product in its own right, you'll need to CE mark it (or, alternatively, apply whatever other mandatory approvals mark is required by the country into which you're selling). For CE you can self-certify, but it is still a can of worms for the uninitiated, and it is very much a barrier to entry for the small business.

Without approvals in place, at best you risk having your shipments rejected by customs. At worst... don't go there.

The other thing you should have in place before you ship anything, is professional indemnity insurance including product liability. You'll get away without this right up until the point where someone alleges that your product has caused them some kind of damage or injury... whether it actually has or not.

Remember, you're probably going to be selling via the internet.

Read the internet for a while. Work out for yourself the proportion of people who are jerks, who are just plain thick, and who bitch and whine a lot. Multiply those proportions together however you see fit; that tells you the number of units you'll likely need to sell before you've unwittingly sold one to someone who meets all these criteria.

Add 'litigious' into the list, and you'll see why having insurance is a big deal if you expect to sell more than a handful of units. (Hint: many such insurance policies specifically exclude sales into the USA for some reason!)
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: EEVblog on June 03, 2016, 07:02:39 pm
I'd add a couple of important extra costs which need to be factored in if you're looking to sell any significant number of units.

The list could be 5 whiteboards long if you sat down and thought about every possible cost for every possible scenario.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: VK3DRB on June 03, 2016, 07:49:14 pm
Regarding any electronics, it is not so easy for some types of products. For example, very few people can make medical device products due to the strict regulations such as IEC-60601 and IEC-62304 and IEC-13485 to name a few, and their collateral standards. You will not be selling any medical device in most countries unless your product and/or company have full approvals/compliance to these and other standards. You could be shut down, and incur severe penalties from the FDA and other authorities if you don't follow the regulations. These approvals are very expensive. The development process can take five times the development time of developing, for example, a consumer toy.

The costs are very high. Hence why the medical devices cost so much money. In fact, medical device companies are basically documentation companies. Their mandate is not to produce a product, but are required to produce fully traceable and controlled documentation for the product. One of the outputs of the documentation happens to be the device itself. And they can be audited at any time by the TGA, FDA or some other authority - at the medical device company's cost whether they like it or not.

For most other prodcuts we have EMC approvals such as conducted emissions, radiated emissions, drop-outs, surges, radiated susceptibility, ESD etc. You cannot sell any electronics product in most countries unless some or all of these tests have been carried out by a NATA approved test lab and you have the documentation to back it up.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: vk2amv on June 03, 2016, 09:06:36 pm
Does the 2.5x multiplier continue up to more expensive prices?

The example given was with a project that cost's $100 to manufacture so you charge $250 to cover your overheads and make a living.

Does that continue up with items that cost $1,000 to manufacture? $5,000 to manufacture, $10,000 etc?

It would seem to me that you would get to a point that the 2.5x multiplier seems to break down.
Or I could be thinking completely wrong and looking at it the wrong way as I guess on the flip side you would not likely move as many units of the more expensive devices (Depending on what they are).
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: ballanux on June 04, 2016, 12:36:34 am
Great video!

I'm finishing a small project that I would like to try to sell, I'm good on the technical aspect (I work on power electronics) but I had little idea on the resellers and how much they expect to charge. Other part that I'm a little afraid is on the customer support that the product would require... ranging from documentation, technical questions to refunds etc...
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: ECEdesign on June 04, 2016, 01:57:41 am
What's the best way to gauge interest for a product?  I am working on a project (mostly for learning) but I'm not really sure anyone would want to buy it.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: kosine on June 04, 2016, 03:48:53 am
The 2.5x markup is pretty typical, though in my experience it's closer to 2x on average.

As Dave mentions, fast-moving consumer goods (FMCGs) can be much less, slower moving "luxuries" much more. Here's another way of explaining it:

If an item costs $1 to make, and you sell on for $1.50, you're making 50c profit. Sounds good, until you realize that if your costs increase by 10%, you're now down to just 40c profit. That's a 20% hit!!

But if you buy at $1 and sell at $2, then a 10% increase only costs you a 10% hit.

Of course, if you could sell for $3 it's only a 5% hit, but then you leave loads of room for competitors to undercut you.

So natural selection tends to weed out those charging too little or too much, and a 2x markup (or 50% profit margin in business speak) becomes the norm. Cost increases are then manageable: Could be inflation, minimum wage increase, oil prices, exchange rate fluctuations, stock loss/returns, bad debt, etc etc. It happens a lot, and you can't always pass on the increase to the customer. That 2x markup helps you weather the storm.

To use Dave's example: cost of $50, sell at $78, profit $28. A 10% cost increase would wipe out 18% of your profits. Not great, but I've seen worse!

However, I think the 60% distributor markup is a bit on the low side. Everyone in the channel plays the same game, so they tend to double-up as well. (Retailers are even worse - they'll try to squeeze the pips out of it!)

If you're looking to get a product onto the shop shelves, it works out to about 10x the ex-factory cost:

Say it costs you $1 to make, so you'd sell it to a distributor for $2. They'd sell to a retailer for $4, and it'd be on sale for $10 (inc sales tax). It's really that bad, and it also helps explain why there is so much badly made stuff out there. The folks at the bottom of the food chain really have to save every last cent to stop it multiplying up.

A better strategy is to find a niche market. and make what the customer wants. If you're trying to sell something, it'll be hard work. If you've got something people want to buy, you can name your price.

Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: nctnico on June 04, 2016, 09:01:18 am
Good video about doing business in a sensible way!
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: VK3DRB on June 04, 2016, 09:27:42 am
The maths for the cost price versus selling price is fine. But you can have the best product in the world but it you are an idiot, no amount of good design or profit is going to save you.

Many small electronics businesses are not run very well in Australia. Their owners often have few management skills. When money gets tight they start cheating on the employees. Usually its the superannuation payments or supposed bonuses that go first. Valued employees up and leave, so the electronic product or service becomes untenable.

I know a bloke who works for one small business where the owner is the master of false economy. The owner is happy to spend thousands of dollars outsourcing simple modifications to circuit boards rather than buying a decent soldering iron and doing it in house (he has technicians and engineers working for him). I was told he runs an old 7 year old inkjet printer that is gummed up with dried ink - it cannot print properly and has scanning problems. Apparently hundreds of man hours are spent by his employees trying to fix it, but for $250 he can buy a new higher performance which he refuses to do. The same guy turns UP the air conditioner temperature in summer to a hot stuffy environment and turns it DOWN to very cool in winter to save a few dollars on the electricity whilst making the employees uncomfortable. Finally, he turns disconnects the microwave oven every night to save about one cent per year on the digital clock electricity costs. He is a micro-manager too. When it comes to buying test equipment which is rare, he famous phrase is "whatever is cheapest", disregarding technical specs. His main multimeter is an eBay cheapo from China which cannot even turn on an LED. My friend loaned him his monitor four years ago because the owner would not buy one for the employee. Ironically, the owner wonders why he cannot attract and retain employees.

Eventually such businesses languish for years or go out of business altogether and wonder why. It is particularly the case with electronics businesses and with small businesses in Australia. Some people are just not suited to run a business. Despite training, most of the owner's real eccentricities and personality issues come into play. So there is a lot more than just selling a product and making money. Successful businesses are well managed by level-headed intelligent people who can enthuse and retain their employees.

Ever wondered why many big successful businesses got that way? Its not just the product or the profit. It is due to good management and leadership.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: ECEdesign on June 04, 2016, 09:39:03 am
I know a bloke who works for one small business where the owner is the master of false economy. The owner is happy to spend thousands of dollars outsourcing simple modifications to circuit boards rather than buying a decent soldering iron and doing it in house (he has technicians and engineers working for him). I was told he runs an old 7 year old inkjet printer that is gummed up with dried ink - it cannot print properly and has scanning problems. Apparently hundreds of man hours are spent by his employees trying to fix it, but for $250 he can buy a new higher performance which he refuses to do. The same guy turns UP the air conditioner temperature in summer to a hot stuffy environment and turns it DOWN to very cool in winter to save a few dollars on the electricity whilst making the employees uncomfortable. Finally, he turns disconnects the microwave oven every night to save about one cent per year on the digital clock electricity costs. He is a micro-manager too. When it comes to buying test equipment which is rare, he famous phrase is "whatever is cheapest", disregarding technical specs. His main multimeter is an eBay cheapo from China which cannot even turn on an LED. My friend loaned him his monitor four years ago because the owner would not buy one for the employee. Ironically, the owner wonders why he cannot attract and retain employees.


LOL sounds like quite a guy.  I love the part about the mircowave  :-DD
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Tinkerer on June 04, 2016, 10:11:58 am
The maths for the cost price versus selling price is fine. But you can have the best product in the world but it you are an idiot, no amount of good design or profit is going to save you.

Many small electronics businesses are not run very well in Australia. Their owners often have few management skills. When money gets tight they start cheating on the employees. Usually its the superannuation payments or supposed bonuses that go first. Valued employees up and leave, so the electronic product or service becomes untenable.

I know a bloke who works for one small business where the owner is the master of false economy. The owner is happy to spend thousands of dollars outsourcing simple modifications to circuit boards rather than buying a decent soldering iron and doing it in house (he has technicians and engineers working for him). I was told he runs an old 7 year old inkjet printer that is gummed up with dried ink - it cannot print properly and has scanning problems. Apparently hundreds of man hours are spent by his employees trying to fix it, but for $250 he can buy a new higher performance which he refuses to do. The same guy turns UP the air conditioner temperature in summer to a hot stuffy environment and turns it DOWN to very cool in winter to save a few dollars on the electricity whilst making the employees uncomfortable. Finally, he turns disconnects the microwave oven every night to save about one cent per year on the digital clock electricity costs. He is a micro-manager too. When it comes to buying test equipment which is rare, he famous phrase is "whatever is cheapest", disregarding technical specs. His main multimeter is an eBay cheapo from China which cannot even turn on an LED. My friend loaned him his monitor four years ago because the owner would not buy one for the employee. Ironically, the owner wonders why he cannot attract and retain employees.

Eventually such businesses languish for years or go out of business altogether and wonder why. It is particularly the case with electronics businesses and with small businesses in Australia. Some people are just not suited to run a business. Despite training, most of the owner's real eccentricities and personality issues come into play. So there is a lot more than just selling a product and making money. Successful businesses are well managed by level-headed intelligent people who can enthuse and retain their employees.

Ever wondered why many big successful businesses got that way? Its not just the product or the profit. It is due to good management and leadership.
So what exactly is the response when its pointed out that to make a mod in house would cost far less including the price of an iron than to outsource it? If he complains about labor costs, then you could ask why he has his employees spend so much time fixing the printer.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: joeqsmith on June 04, 2016, 11:28:20 am
Actually watched this one with the wife.   Good job.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Brumby on June 04, 2016, 11:31:59 am
So what exactly is the response when its pointed out that to make a mod in house would cost far less including the price of an iron than to outsource it? If he complains about labor costs, then you could ask why he has his employees spend so much time fixing the printer.

I would be concerned about responses from this guy about any questions that, in effect, challenge his competence.  Such people tend to have their own views and priorities and heaven help anyone who challenges them.  Even though the business case for alternate paths - eg, buying a new printer - are clearly unambiguous, it's 'his' company and he'll do things 'his' way thank you very much.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: EEVblog on June 04, 2016, 11:36:34 am
If an item costs $1 to make, and you sell on for $1.50, you're making 50c profit. Sounds good, until you realize that if your costs increase by 10%, you're now down to just 40c profit. That's a 20% hit!!

And for those wondering how costs can magically increase by 10%, just look at currency conversion. That can easily happen in the span of a month.

Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Brumby on June 04, 2016, 12:40:23 pm
Over longer time scales, that exchange rate impact can be much, much greater.

I know someone who purchases their (non-electronics) goods from overseas (US mainly).  Last year they faced an Australian dollar being worth around 72 cents American and some of the products they previously ordered at an exchange rate closer to 94 cents.  This drop happened inside a year and represented a cost increase of over 30%.

... and that's just from that ONE factor.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: VK3DRB on June 04, 2016, 06:27:15 pm
So what exactly is the response when its pointed out that to make a mod in house would cost far less including the price of an iron than to outsource it? If he complains about labor costs, then you could ask why he has his employees spend so much time fixing the printer.

I would be concerned about responses from this guy about any questions that, in effect, challenge his competence.  Such people tend to have their own views and priorities and heaven help anyone who challenges them.  Even though the business case for alternate paths - eg, buying a new printer - are clearly unambiguous, it's 'his' company and he'll do things 'his' way thank you very much.

And that will probably be his downfall. Fools never learn.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: kosine on June 04, 2016, 08:26:23 pm
Corporate psychopaths and narcissists are sadly part of doing business. They're drawn to the power and status. (You get them in politics as well.) Often their only real skill is manipulating people to serve their own agenda, and some of them are very good at it.

They also have a nasty habit of being able to hide their true nature until you're already involved, by which time it's too late. Professional investors (well the successful ones, anyway) learn to spot them early on. A good investor will invest in people, not products. They know a good team can take a mediocre product and make it a success, whereas the best product in the world will fail if in the wrong hands.

The founding of Fairchild Semiconductors might be an appropriate example of what a great team can do once free of poor management. Mutiny is sometimes the only solution.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: coppice on June 04, 2016, 09:57:22 pm
A video about the cost of selling your own products that doesn't devote some reasonable amount of time to the costs, time scales and other hurdles of approvals seems rather lacking. Its a huge part of entering markets, especially when you are doing it  for the first time.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Brumby on June 05, 2016, 12:12:05 am
A video about the cost of selling your own products that doesn't devote some reasonable amount of time to the costs, time scales and other hurdles of approvals seems rather lacking. Its a huge part of entering markets, especially when you are doing it  for the first time.

I would not disagree - but you would have a very long video series if you were to cover even a fraction of the detail in the full cycle from concept to market.  Dave has just done bullet points that cover two basics - the cost multiplier and direct/reseller sales channel comparison.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: jancumps on June 05, 2016, 01:55:54 am
Coincidently, we were discussing the same topic on element14, just before this video was posted.
https://www.element14.com/community/thread/54798/l/psoc-5lp-hat-for-a-raspberry-pi (https://www.element14.com/community/thread/54798/l/psoc-5lp-hat-for-a-raspberry-pi)
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Poe on June 07, 2016, 05:52:56 am
Nice video, but I like to look at that comparison another way:

    $1K to $28k     <to do relatively nothing>
+    $50k            <to earn anywhere between $0 to $50/hour, doing shitty work>
=    $75K

Although I think if you're trying to build a company, not just sell a product or sell the company itself, then there really is no choice. 



Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: edy on June 07, 2016, 11:28:52 am
Awesome video as usual. And I even learned about the turboencabulator, somehow I managed to completely miss the class on this device:

http://www.youtube.com/watch?v=2fjcJp_Nwvk (http://www.youtube.com/watch?v=2fjcJp_Nwvk)
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: EEVblog on June 07, 2016, 11:42:07 am
What's the best way to gauge interest for a product?  I am working on a project (mostly for learning) but I'm not really sure anyone would want to buy it.

Make 20 of them and take a chance. Post it on here.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: EEVblog on June 07, 2016, 11:47:07 am
Nice video, but I like to look at that comparison another way:
    $1K to $28k     <to do relatively nothing>
+    $50k            <to earn anywhere between $0 to $50/hour, doing shitty work>
=    $75K

Some people like to think that working for the man is shitty, and would happily take $75k a year working for themselves doing something they enjoy.
I've had my own side business selling kits and products for 25 years, and it's far from "shitty work".
And who said it takes a full working week to pack and ship and support 1000 units a year? Remember, that's only 2.7 units per day. If you can't pack and ship 50 units a day then you are doing it wrong.
You could be earning $1000 an hour and have oodles of free time to work on other projects or just enjoy life.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: all_repair on June 07, 2016, 12:31:37 pm
Three parts to me: gain trust, provide benefits, and create happiness. 

The weakest point of engineers shall be on the "happiness creation" and the "grey" areas  Say if there is mistake, and not the customer mistake, nor the seller mistake, who is going to absorb the loss?  and make good what the customer got what he wanted.  He wanted the product, not the refund and the product has run out.  What are you going to do? it is too troublesome or too costly just to process one order.  OR some you think could be the customer's mistake, but it was made due to confusing system or instructions, who is going to absorb the loss? That shall determine the tone and recourse one is making to the customer.  At that time, the engineer could be fighting fires on many fronts.  Most engineers I came across shall take this kind of hiccups as irritants and shall react accordingly.

Charge a bit more if it allows you to make the customer happier.  Or you could take the other path, and compete with the drop-shippers.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: hazzer on June 07, 2016, 06:54:20 pm
Hello All

Any insights on the selling of kits vers finished modules?

i.e. boards and hard to find parts, vrs, finished & tested modules.

Does the 2.5 times guidance still hold, or does it need to be higher?

Is selling a kit of parts asking for endless trouble and requests for support?

Thanks

Hazzer
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Wilksey on June 07, 2016, 10:27:18 pm
It all depends who you sell to.
Sell to Joe public and you don't know who will be on the receiving end of your product, if you are a direct seller you may end up spending most of your time with support cases.

In an ideal world a VAR would take your product and employ an FAE to do the donkey work, and only call upon you as a last resort!  However, some of the FAE's can be just as demanding as the general public.

If you go-it-alone, or are bootstrapping then you will find it more challenging, but more rewarding towards the end (if you succeed!), if you are looking at VC or an investor then you might have some restrictions imposed by them, but might have the added advantage of them helping you to sell and realise your market.

In terms of how to enter the market, well, most ideas for a new product come from a problem that you have seen or heard of, be it from an actual person or something you have read in a magazine or on the web, in most cases, you are able to contact said person or "publisher" to see where you could take your idea and move on from there.
If it is a completely new idea, it will relate to one or more markets, i.e. Rail, Transport etc, look at other companies that do similar products or consultancy firms, they might want to haggle like a VAR would but once you are connected the next time *should* be easier!

VAR = Value Added Re-seller
FAE = Field Application Engineer
VC = Venture Capitalist

These are just my views / opinions based on own and acquaintances' experiences.

There is more than one way to skin a cat
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: old gregg on June 08, 2016, 07:32:11 am
how do you scale the redundant number you have to produce to take care of unexpected manufacturing errors, shipping lost or such ?   

Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: biomurph on June 08, 2016, 12:40:47 pm
Love the blog, been watching for a few years, and this is an almost great video.

I have a couple of Open Source Hardware companies, and they are so far sustainable over the course of 5 years for one and 2.5 years for the other. I find a fatal flaw in your calculations Dave. When you say that you will make a thousand things for $50/each, then sell them for $125/each over the course of a year, you definitely do make $75K. For one year. What happens when you need to make another thousand things? where does that money come from? Thin freaking air? No, it comes from your profit, so you're actually making a measly $25K for the year while you capitalize your company so that you can be sustainable over (hopefully many) more years. You never once mention the notion of sustainability in the entire video, and for someone who appreciates the law of thermodynamics (loved the Peltier water bottle take down!) you're creating a system that is just not going to cut it! If someone quits their job based on this information, they will be back for job interviews the following year, scratching their head wondering why they went out of business!

Please, please, take this problem in your formula seriously and post a correction. People ask me 'How come it's so expensive?' for a $25 product, when it costs me about $5 to make (and I have a 50% partner), and incomplete explanations about how to create a sustainable business like this leave me  |O

Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: EEVblog on June 08, 2016, 01:03:19 pm
I have a couple of Open Source Hardware companies, and they are so far sustainable over the course of 5 years for one and 2.5 years for the other. I find a fatal flaw in your calculations Dave. When you say that you will make a thousand things for $50/each, then sell them for $125/each over the course of a year, you definitely do make $75K. For one year. What happens when you need to make another thousand things? where does that money come from? Thin freaking air? No, it comes from your profit, so you're actually making a measly $25K for the year while you capitalize your company so that you can be sustainable over (hopefully many) more years. You never once mention the notion of sustainability in the entire video, and for someone who appreciates the law of thermodynamics (loved the Peltier water bottle take down!) you're creating a system that is just not going to cut it! If someone quits their job based on this information, they will be back for job interviews the following year, scratching their head wondering why they went out of business!

Sure, but I can't cover everything, the video was already long enough, and everyone circumstances, profits, cash flow etc etc are different.

Quote
Please, please, take this problem in your formula seriously and post a correction. People ask me 'How come it's so expensive?' for a $25 product, when it costs me about $5 to make (and I have a 50% partner), and incomplete explanations about how to create a sustainable business like this leave me  |O

No "Correction" needed. It would be wrong of me to post a "correction" and assume variables about someone's business sustainability.
Simple stuff like the timing of when you make your income and have to pay your bills and tax etc can, make a huge difference, it can even make or break your company. The dynamics of business cash flow are something that a simple "correct" calculation can't possibly cover. I think you were expecting way too much from this video.

Worthy of a follow-up video though perhaps, along with half dozen other things that can be just as important.
But I suspect that such a followup video covering those things may cause more confusion than help if not done right.

You mention "If someone quits their job based on this information", well the exact same problem can be said about if I explain and try to calculate a business sustainability model. It could be completely off for them and their circumstances causing them to go out of business if they follow my "advice" and calculations.
This is not nearly as easy as you make it out to be, simply providing a "correction". Such a correction could likely be as "wrong" as me not mentioning it in the first place.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: biomurph on June 08, 2016, 01:16:49 pm
I don't think that quitting your job for a hobby project is a great model. After all, someone had to come up with the $50K to launch the damn thing. Let's say you crowd fund it, well, then great you can spend the year doing shipping and handling while you invent your next Kickstarter campaign...

All right, I'm editing this. I see the mistake I made. You sell for $125, and make your $50 back on the sale while pocketing $75.
I humbly apologize for my knee jerk response.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: saturation on June 09, 2016, 12:59:33 am
A great video, even if folks disagree on the actual ROT, it details what funding is needed to get a project off the ground and what that markup entails, this is fairly common for the consumer market space.  Not so sure what it is these days in T&M.  It should give those wanting to crowd fund projects some pause to ponder.  Direct to consumer selling, aka on-line sales, have changed somewhat the middle man issues like distributors, as it was far worse before the Internet.

E.g. if we assume 2.5 is true, then consider the MRSP $US400 of the  Rigol 1054Z, means it costs ~ $160 for Rigol.

There are other complex side issues and benefits for bare bones pricing for profit to be reduced even more, like the concept of loss leaders or publicity, but Dave demos see how small changes in additional charges can result in drastic profit reduction and the best way to hedge against more profit erosion depends on the money you need to survive, and in 2.5 margin ecosystem, volume selling is key.

Now whether the widget for this year is really better than last years or the makers reduce quality to insure failures after X years, so the seller can sell more to earn more, I leave the moral dilemma to the readers; particularly in the consumer space.
 
You need not play such a game.  As another said, a niche market can be charged what the market will bare.  For aerospace markup is typically >1000x of cost, built to order, have little to no inventory, buyers even pay development costs like 'crowd funding' which is built into the product cost, so there is less capital risk.  In military spending, there is little no competition just government oversight.  An EE would be best to enter such fields as a career and stay away from anything that is civilian or consumer focused.  Devices are often kept and used for decades. Medical devices have price pressure as its mostly for civilian use, more than military but less stressful than consumer.

AFAIK some niche T&M instruments, like the top end DSOs, the 3458a DMM, the Fluke 8508a DMM etc., are built to order and cost what the market will bare.  However, in the HP days of Bill and Dave T&M was like entirely driven by 'market will bear'  scientific instrumentation costs, but these days a portion of catalogs acts like a consumer product due to widespread competition and ease of development: DMM, DSO, clamp meters, etc. 
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Lord of nothing on June 09, 2016, 05:44:19 am
Sorry he forgot something like salary!!!
Depend on your Country even when you are an one men show you must pay: Income tax, Subway Tax, Social Service, Medical Insurance and a lot of other Stuff. So at the End 70% of your salary are gone.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: VanitarNordic on June 09, 2016, 07:40:15 pm
Thanks a lot Dave for this Video. I learned a lot.  :clap:

I really appreciate if you make another one for the software business, such as mobile apps and so on. Thanks.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: josechow on June 09, 2016, 10:36:10 pm
Great video!

I'm finishing a small project that I would like to try to sell, I'm good on the technical aspect (I work on power electronics) but I had little idea on the resellers and how much they expect to charge. Other part that I'm a little afraid is on the customer support that the product would require... ranging from documentation, technical questions to refunds etc...

For the small kickstarter project I did last year, the documentation was horrifically long because I wrote it as I understood it... which is not the case for everyone! So I had to write a supplement document which "dumb-ed" everything down.  Sometimes its hard to sit back and look at a project from the perspective of someone not knowing your product or system.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: josechow on June 09, 2016, 10:42:11 pm


The founding of Fairchild Semiconductors might be an appropriate example of what a great team can do once free of poor management. Mutiny is sometimes the only solution.

I read The Chip, absolutely great read if you're a nerd like me.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: EEVblog on June 10, 2016, 12:45:48 am
I really appreciate if you make another one for the software business, such as mobile apps and so on. Thanks.

I know nothing about that market.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Brumby on June 10, 2016, 11:44:55 am
I really appreciate if you make another one for the software business, such as mobile apps and so on. Thanks.

I know nothing about that market.

.... and that whole market operates on completely different costings.

For example - what's the difference between selling 10 units and 1,000,000 ?

For Dave's BM235, it is astronomical - for an App downloaded from Google Play, it is, essentially, nothing.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: VanitarNordic on June 11, 2016, 08:11:51 pm
Quote

.... and that whole market operates on completely different costings.

For example - what's the difference between selling 10 units and 1,000,000 ?

For Dave's BM235, it is astronomical - for an App downloaded from Google Play, it is, essentially, nothing.

That's the reason why I asked if somebody knows about the software business truly, there are many articles on the internet, but they are written generally because nobody wants to disclose his secrets of selling or entering the market. I was looking for something like Dave showed about hardware business, but this time within the software niche, such as computer software, mobile apps ....
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Brumby on June 12, 2016, 12:55:35 am
I have no credentials in this sphere, other than having been involved in corporate IT application development for a decade or three...

The first and foremost requirement is to have a product that will be in demand.  It need not be a brand new product, but it would need to offer value and preferably possess a clear and desirable element of differentiation in the market.

The next is to develop a product that is robust, reliable and of a quality at least comparable to the competition - but preferably superior in some relevant qualities.

If you get this far with an App, the rest will be a cakewalk.  A physical product is something else, completely.


Just my 2 cents.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: VanitarNordic on June 12, 2016, 01:25:26 am
I have no credentials in this sphere, other than having been involved in corporate IT application development for a decade or three...

The first and foremost requirement is to have a product that will be in demand.  It need not be a brand new product, but it would need to offer value and preferably possess a clear and desirable element of differentiation in the market.

The next is to develop a product that is robust, reliable and of a quality at least comparable to the competition - but preferably superior in some relevant qualities.

If you get this far with an App, the rest will be a cakewalk.  A physical product is something else, completely.


Just my 2 cents.

Thank you in advance. I am totally agree.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: bitseeker on June 12, 2016, 09:34:42 am
That's the reason why I asked if somebody knows about the software business truly, there are many articles on the internet, but they are written generally because nobody wants to disclose his secrets of selling or entering the market.

Articles and books about the software business are written from a general point of view because the circumstances, market, and extraneous forces vary significantly. It's so unpredictable that often timing and luck will make the difference between massive success and failure.

Being first to market, having the best app, possessing massive financial backing, etc. provide no guarantee of success. Businesses fail despite so-called advantages. The statistics vary, but approximately 80% of new businesses fail in the first year or two.

There are no instant success secrets. If such things existed, the people purporting them would be using them to make money rather than selling books, videos, and seminars about their "method".

Learn the fundamentals of operating a business. Surround yourself with experienced, trustworthy people in your space that you can turn to for advice. Work on things that interest you. Make things that solve a problem, unmet need or desire. Then, be flexible to change with the times and the competition. Enjoy the ride!
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: VanitarNordic on June 12, 2016, 05:51:01 pm
Quote

Articles and books about the software business are written from a general point of view because the circumstances, market, and extraneous forces vary significantly. It's so unpredictable that often timing and luck will make the difference between massive success and failure.

Being first to market, having the best app, possessing massive financial backing, etc. provide no guarantee of success. Businesses fail despite so-called advantages. The statistics vary, but approximately 80% of new businesses fail in the first year or two.

There are no instant success secrets. If such things existed, the people purporting them would be using them to make money rather than selling books, videos, and seminars about their "method".

Learn the fundamentals of operating a business. Surround yourself with experienced, trustworthy people in your space that you can turn to for advice. Work on things that interest you. Make things that solve a problem, unmet need or desire. Then, be flexible to change with the times and the competition. Enjoy the ride!

Yes, Sometimes with all precautions and calculations, one product may fail in the market. I think we will never know what will happen before we actually test and act. I am totally agree with your terms specially with people around us. unfortunately when you start a business, you receive many jealousy signals rather than helpful ones.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: AndyC_772 on June 12, 2016, 06:38:24 pm
they are written generally because nobody wants to disclose his secrets of selling or entering the market.

I'm afraid I think that, for as long as you believe in the idea that there are "secrets" being shared by successful people in a business as common and mundane as software development, you're going to struggle.

I owe what business success I've had to:

a) knowing the right people at the right time, and
b) doing a good job for them

...in that order.

(b) is achievable if you have the necessary skills and the will to make it happen. This part is entirely down to you.

(a) is harder. It's not a 'secret', but it is necessary, and it's not something anyone can tell you how to do because the answer will depend on your specific circumstances, and is different for everybody.

This is primarily a technical forum, and most of us are able to put together some code or device which does something cool. What we're not generally so good at - because it's a completely different mind set - is getting that thing into the hands of customers.

How to do it? Your guess is as good as mine, that's why I have customers and business partners for whom I do design work but not sales. Maybe in your product area it's all about social media, or usability, or a really polished looking UI. It's probably not about some super technical feature, even though that's what us nerds tend to focus on.

At risk of starting a war, look at Linux... technically brilliant, but despite having been around for years and years, it's not achieved mass market penetration. Take a long, hard look at why that might be, and you might get some clues as to how to make a software product successful. (Hint: don't just make a product that's 'by nerds, for nerds' if you want to sell a lot of copies).
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: EEVblog on June 12, 2016, 07:32:37 pm
This is primarily a technical forum, and most of us are able to put together some code or device which does something cool. What we're not generally so good at - because it's a completely different mind set - is getting that thing into the hands of customers.

There is also an entirely different mindset in being able to get your widget into the hands of customers, and having the skills (or even have the desire to) turn that into some huge business that keeps on growing and growing. Some people are just very happy with (and good at) having a successful small one-man-band business selling a few different widgets. Not everyone needs to nor wants to grow into an Adafruit or Sparkfun.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: coppice on June 12, 2016, 08:13:36 pm
At risk of starting a war, look at Linux... technically brilliant, but despite having been around for years and years, it's not achieved mass market penetration. Take a long, hard look at why that might be, and you might get some clues as to how to make a software product successful. (Hint: don't just make a product that's 'by nerds, for nerds' if you want to sell a lot of copies).
Linux is the most widely used operating system on the planet. Its struggles in areas where a prior system was already well established - e.g. desktops and some areas of servers. It dominates in most areas that have grown since Linux became available - e.g. routers, switches. phones, tablets. It dominates in most areas where the previous incumbent died - mostly Unix servers and workstations. What you might learn from this is its hard to displace something well established, and much easier to grow with something fresh and new.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: AndyC_772 on June 13, 2016, 04:16:44 am
its hard to displace something well established, and much easier to grow with something fresh and new.

Good point, well made. I completely agree  :-+

If it was a goal to make Linux achieve significant mass adoption then it would need to be standardised.

I agree with this too, and to illustrate the point, I suggest looking in completely the opposite direction: the iPhone.

The iPhone came out of nowhere. People had tried to do 'smart' phones and similar devices before, but the thing Apple chose to do was start the UI all over again from scratch, with an absolute 100% focus on the user experience to the exclusion of all else. Since then, smart phones that look and feel just like the iPhone have become universal, and patent lawyers have got rich off them.

This total focus on usability made for a relatively restricted product in terms of what it was able to do - and a wilfully restricted one at that - but for the 90% of people who wanted the phone to "just work", it was a perfect fit, and that made it a huge success. As for the other 10% of nerds, techies, and people who were offended by the idea of Apple's walled garden... well, commercially speaking, who cares.

I don't mean to suggest that every product needs to be like an iPhone of course, but I think it's important to understand that:

- a product's user is a very, very different animal indeed from its developer, and
- a lot of developers regard themselves as 'above' their users in some way.

The iPhone guys understood this, and IMHO if you want to develop commercially successful software, it's all about the user.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Wilksey on June 13, 2016, 09:01:18 am
Unfortunately most successful company directors will say it was right place right time and who you knew, not what you knew, not what anyone wanting to start out wants to hear!
Some niche products will sell themselves, or it will be easier to enter the market.

So, Andy, as a director of several companies, are you owing all of your success to just who you have acquainted with over the years, I guess the hardest to get going would be the consultancy company, it's one thing selling a product, doing market research etc, but what tips if any would you give for someone looking to become a consultant and finding someone who wants work done?

You almost need a resource like freelancer but without the people willing to do an entire 3 months project for the price of a packet of Quavers!

Bit of a minefield when it comes to "going it alone"!
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Brumby on June 13, 2016, 11:51:08 am
... but what tips if any would you give for someone looking to become a consultant and finding someone who wants work done?

This is where the phrase "It's not what you know, but who you know" is champion.

My 2 cents....

Consultancy is all about reputation - and the perception of that reputation is best presented by people who know people ... and the reasoning is simple.  There is more at stake for each of the members of the 'referral chain' and they already have an established level of credibility with each other.  A public image is helpful, but this personal connection is gold.  As a result, there will be a higher degree of trust as each member along the referral chain will not compromise their credibility (too much), so any recommendations will often go straight to the short list and sometimes they will end up at the top.

It is direct knowledge of a potential consultant's demonstrated abilities and foibles that has power because of the personal delivery system.  A public reputation is not so personal.

Another aspect of this is that if a personal recommendation is offered from one member of the referral chain to the next, it might be taken as a personal affront if it was rejected.



JMHO
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: AndyC_772 on June 13, 2016, 07:10:44 pm
are you owing all of your success to just who you have acquainted with over the years

I like to hope that at least some of it is down to good quality engineering and the support that goes along with it!

Engineering skill alone doesn't automatically create customers, though, and for that you need a well stocked address book. I don't know of any good alternative.

My first customer was a company that had recently taken on someone I used to work with. They needed a part time design engineer, he suggested me, I got an email asking "please could you help us with...", and that was the start.

As soon as it became known that "Andy is doing consultancy work now", my phone started ringing, and it was all from people who had either seen my work before, or knew someone who had. Clearly I had a network of people out there on whom I'd made a good impression, and they put my name forward when requirements came up. Beer has changed hands on multiple occasions.

I also went to a few trade shows, chatted up a people I saw as potential customers or business partners, and got some jobs that way too. They've tended to be one-offs rather than regular work, though I think that's just coincidence. This is probably the best way I've come across to find completely new customers, unconnected to anything I've done previously. At a show, people expect to have business cards shoved into their hands, and it's not annoying or offensive like cold calls or junk mail.

Quote
You almost need a resource like freelancer but without the people willing to do an entire 3 months project for the price of a packet of Quavers!

Bit of a minefield when it comes to "going it alone"!

Too right. I looked at a couple of these sites in the early days, but I view them very much as a race to the bottom, and not good for either customer or engineer.

I think there are two kinds of people who go it alone and try to run their own business.

One is the skilled, capable engineer, probably fed up with working for 'the man'. These people know their stuff and are able to either do a great job, or not take on a job at all. Clues are that they're hard to find, always busy, and won't take on a new project unless it's something they're actually interested in.

At first glance they might look a bit more expensive than you were expecting too, because although to some extent they're probably doing it for the love of technology, they're not directly competing on price either.

(I can't, by the way, over-emphasize the importance of being able to identify jobs that are unlikely to go well, and turn them down on day one. This probably warrants a new thread all of its own.)

The other is the engineer, or wanna-be engineer, who can't get or hold down a good regular job, and who resorts to going it alone as a fall-back. These guys don't have the network of contacts to recommend them by word of mouth - at least, not yet - and so must advertise more widely. Competition drives down prices until, as you say, the going rate for a 3 month project barely covers the snack food budget for the job.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: Wilksey on June 13, 2016, 08:10:40 pm
That's a good call re the trade shows, if you spend 99% of your time working for "the man" and not really getting any customer exposure then you are likely to not know anyone worth knowing that will get you started, that is of course, luck of the draw if you are in a position to have contacts at a personal level.

Personally, I find word of mouth can go a long way, but it doesn't always do you any favours, as people, even though you don't know them, expect "mates rates" because of a personal recommendation, this is my experience, and sometimes the jobs themselves, well, you just have to say no sometimes!

Going back to the trade show suggestion, what kind of trade shows would you typically expect to get a participating audience?  The only ones I have been to in recent years has been the Electronics Design Show, and Southern Manufacturing, all which seem to be more about the people on the stands than getting the chance to people walking about.

So taking one of these as an example, would you just thrust a business card into someones hand as they walk past, or eavesdrop on their convo with the sales guy and sneak in afterwards? I should imagine a stand would be quite pricey for a one man band to have.

Networking is key, and I am always looking for new ways to "network", and I am quite interested in the trade show idea, do you have any other networking tips (anyone else feel free to chime in also!), i'm sure I wouldn't be the only one interested, more for expansion than "going it alone" reasons, but I find it difficult to understand if you essentially come from nowhere without any contacts in the industry where you might start out, people have asked me, even though I am only a small player, and it has been through people who I have met through work etc, and I have no idea outside of that circle how to make new business / like minded acquaintances!

Cheers
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: coppice on June 13, 2016, 08:24:18 pm
Quote
You almost need a resource like freelancer but without the people willing to do an entire 3 months project for the price of a packet of Quavers!

Bit of a minefield when it comes to "going it alone"!

Too right. I looked at a couple of these sites in the early days, but I view them very much as a race to the bottom, and not good for either customer or engineer.
Freelancer seems like an excellent way for people who don't really know what they want, or what its worth, to link up with people who can't really do the work. I find it interesting that no serious system of the freelancer type has appeared.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: AndyC_772 on June 13, 2016, 08:58:41 pm
Going back to the trade show suggestion, what kind of trade shows would you typically expect to get a participating audience?  The only ones I have been to in recent years has been the Electronics Design Show, and Southern Manufacturing, all which seem to be more about the people on the stands than getting the chance to people walking about.

You've got a few options here.

You could hire a stand at, say, Southern Manufacturing. It would be expensive, probably quite bare unless you also put some real effort into getting some promotional materials made, and you'll be the poor sod who sits there for the entire three day show drinking coffee and looking lonely.

Or, you could do exactly what the show's organisers insist you don't do, which is: walk around talking to exhibitors who are contract manufacturers, other design houses, and companies that make some electronic items (but whose primary business isn't necessarily in that area). Also talk to anyone else you see who looks as though they might either need design services themselves, or would have customers of their own for whom electronic design would be a value added service that you could offer together.

This would, of course, carry a risk of getting chucked out of the show by security, because the organisers are very keen to ensure that people seeking customers pay for a stand. So, I couldn't possibly recommend that you do this, regardless of how effective a strategy it might be. (Perhaps if you know anyone who is actually exhibiting, you could ask them if they can provide you with an exhibitor's pass in exchange for a certain quantity of beer?)

Another option is to go to a show which isn't about electronics, but is instead all about some other area for which you'd like to design products. You'll enjoy going round the show a whole lot more anyway, but while you're there, take time to speak to companies making products that you think you can improve on.

There's often senior people available at least some of the time, and if you explain that you're able to offer a service that'll make their product better, you might be able to arrange a meeting the same day. If you have an idea for a product yourself, take along a working prototype and demo it; there's no better way to gain credibility or to plant ideas about what can be achieved.

I'm very much of the opinion that the best products come from people who understand two subject areas well: design engineering, and the target market. If you only know the engineering side, you risk coming up with something that works really well, but doesn't actually do what customers want. Or, if you only know the target market well, then you get a product that would be popular if it weren't for its design deficiencies.

This was one of the biggest hurdles I had to overcome when I set out. I'd been working in quite a niche field for a long time, and it wasn't something for which there's a readily available mass market. That's why I went into 'general' consulting, in the hope that my skills would turn out to be sufficiently transferrable.

I never planned it as such, but I've ended up doing mostly automotive work, which is nothing to do with the job I had before. If I were looking for new customers today, I think I'd be going round car and bike shows rather than electronics shows... if only because, at worst, I get a fun day out.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: coppice on June 13, 2016, 10:20:02 pm
So, Andy, as a director of several companies, are you owing all of your success to just who you have acquainted with over the years.
I think most people who have started anything will agree that two of the biggest problems you face is trying to make contact - contact with potential vendors on one side, and contact with potential customers on the other. Its not so hard to find vendors, but finding good cost effective ones can be a huge deal. Finding good customers is generally hard. The people you already know when you start - at least the ones you didn't piss off along the way - are among your most precious resources.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: george graves on June 14, 2016, 02:44:29 pm
Great video.  Glad you pointed out that it's not 2.5 times BOM - and that you have to factor in all your costs.  Sometimes the BOM cost is practically nothing.

Couple of questions.

- If your doing everything "in house" (aside from maybe a enclosure and PCB) what does one pay ones self for the labor? Do you pay yourself as the job your replacing?  For example, "pack for shipping" - do you pay your more-or-less minimum wage(or what ever a shipper person would get paid)? In other words - yea, putting a product into a mailer and throwing a shipping label on it costs you nothing, but how do you fill in the cost of that line item on your calculations?

- For something like you ucurrents, I know you've sold directly in the past, then switched to re-sellers, and I assume you are back to selling direct. Lets say you have no re-sellers, would you feel like you need to keep the "2.5" multiplier" just encase you you change your mind and have re-sellers again? Or would you adjust the price up and down depending on the situation?

Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: EEVblog on June 14, 2016, 03:02:45 pm
- If your doing everything "in house" (aside from maybe a enclosure and PCB) what does one pay ones self for the labor? Do you pay yourself as the job your replacing?  For example, "pack for shipping" - do you pay your more-or-less minimum wage(or what ever a shipper person would get paid)? In other words - yea, putting a product into a mailer and throwing a shipping label on it costs you nothing, but how do you fill in the cost of that line item on your calculations?

For me specifically?
My situation is more complex than someone just doing this one thing.
But there are two ways to look at it and execute on it, depending upon how you want to structure and look at your company.
e.g. if you are company (Pty Ltd) in Australia, you have to take an actual wage in order to pay your bills privately.
If you are a sole trader then it's just one big slush fund in your name.
You can either chose to take all your profits effectively as a "wage", or you can chose to take part of it etc.
Depends entirely upon how you want to look at it and how much you value your time on other things you want/have to do. e.g. I have to produce a video blog which bring in more money, so using my time to pack and ship is not that smart, that is why I hire someone to do it.

Quote
- For something like you ucurrents, I know you've sold directly in the past, then switched to re-sellers, and I assume you are back to selling direct. Lets say you have no re-sellers, would you feel like you need to keep the "2.5" multiplier" just encase you you change your mind and have re-sellers again? Or would you adjust the price up and down depending on the situation?

In my view it's not good to keep adjusting prices, especially if the product is selling well enough at the current price.
Lowering the price might bring in more volume to compensate for the lower margin, but then again it might not.
I'd recommend keeping your options open and sell at the higher price if you can get away with it.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: sharvard on June 15, 2016, 11:10:14 am
I think there are two kinds of people who go it alone and try to run their own business.

One is the skilled, capable engineer, probably fed up with working for 'the man'. These people know their stuff and are able to either do a great job, or not take on a job at all. Clues are that they're hard to find, always busy, and won't take on a new project unless it's something they're actually interested in.

At first glance they might look a bit more expensive than you were expecting too, because although to some extent they're probably doing it for the love of technology, they're not directly competing on price either.

(I can't, by the way, over-emphasize the importance of being able to identify jobs that are unlikely to go well, and turn them down on day one. This probably warrants a new thread all of its own.)

The other is the engineer, or wanna-be engineer, who can't get or hold down a good regular j
+ Attachments and other options
shortcuts: hit alt+s to submit/post or alt+p to previewob, and who resorts to going it alone as a fall-back. These guys don't have the network of contacts to recommend them by word of mouth - at least, not yet - and so must advertise more widely. Competition drives down prices until, as you say, the going rate for a 3 month project barely covers the snack food budget for the job.

There is at least one more kind of person who will undertake this challenge. I know, because I do not fit into either of the previously mentioned categories. It is also a bit more complex than just being tired of working for the ‘Man’.

In my mailbag note to Dave (sent with the Rocket Kit), when I mentioned having experienced an extremely negative employment experience and being tired of working for the ‘Man’, I did not elaborate on the details as I was trying to keep it brief. This has resulted in some speculation that I simply got tired of working for other people, said screw it, and decided to launch my own company. This is far from the whole truth, so I thought I would take a moment and elaborate on my specific situation. I hope the following will shed some light on my specific situation and possibly help someone to avoid having a similar negative employment experience of their own.

First, a little background information about me. Having a love and aptitude for electronics, and technology in general, studying electronic engineering during my college years was an obvious choice. After college I worked in the Electronic Engineering/Service and Telecommunications industries for a number of years while I was figuring out my long-term career plans. During this time I even owned a successful consumer electronic service storefront for a bit (until the building/property was purchased for a new commercial development). Ultimately, I chose, and switched to Information Technology as a career path. That was the better part of two decades ago. No regrets. I excelled in I.T. and have become an expert in the field. My specialty is helping small-medium sized businesses overcome their legacy/badly-engineered information technology solutions that hinder employee productivity and business growth potential. I will elaborate on this a bit more in the paragraphs below.

My story begins in 2013 while I was deciding my next career/life step. The choice was basically down to two options, continue building my career in I.T. and move on to the next level, or start and build a new business. I spent the next ~6 months interviewing for select positions, thinking about business/product ideas, and finishing the renovations of my house. Ultimately, I decided if the right opportunity came along I would continue my I.T. career. I had already invested >17 years going down this path so it would be a lot to give up to focus on a business. I turned down many positions during this time because they did not meet my criteria. Until one did.

I interviewed with, and accepted employment at a small medical device manufacturer located in Redmond, WA, called Spiration. Beside meeting my criteria, it was also an opportunity to help out a company in desperate need of an I.T miracle. Their entire information technology solution, end-to-end, was a joke. Not a funny joke though. They never had anyone running I.T. for the company who was actually qualified, or even knew what they were doing, and it showed. For example, shortly before I took over, they let the magic smoke out of a UPS that they had severely overloaded, they also had servers spontaneously rebooting due to brownouts related to another overloaded UPS/circuit (all 15Amp 120V std. wall outlets feeding the UPS’s btw). There wired network was a bunch of default config switches routed through one single point of failure. The wireless network was a bunch of OTS consumer wireless routers connected to the DMZ through a 10bT Hub (yes, a hub, from the 1990’s). If you could even connect to the wireless network in the corporate office, you would then have to VPN into the corporate network. ISP connectivity was a 4.5 flex (1.5 for voice, 3.0 for data). Btw, on a wired connection, Internet page loads took 30-45 seconds on average, on a wireless connection, streaming Pandora was hit or miss (throughput rated worse than dialup during my initial testing). They also had a legacy Exchange 2003 environment. They owned a license for 2010 for a few years, but the prior admins could not handle the environment upgrade. Systems, core services, and enterprise applications were a mess as well. For instance, they were out of IP addresses, robbing Peter to pay Paul and such (they just had a flat /24 network) That is just a very brief list. Just about everything needed to be corrected, infrastructure, hardware, software, processes, license management. Most of all, they needed a unified vision for their end-to-end information technology solution.

They, the CEO & Executive Director of Finance, were looking for someone to come in and take over I.T. for the company. Provide a unified vision and direction, manage the I.T. department, and basically correct everything that was wrong with the information technology infrastructure. I excel at this, and I was looking for a Director of I.T. gig. This was a good fit. Of course, I did not have the obligatory five years of experience as a Director of I.T. that every organization wants. It’s the ironic thing where you need to have to already done a certain job for x years before you can get a job doing that certain thing. Long-story-short, I took a chance and entered into an employment agreement with the CEO, and the Executive Director of Finance. Prove my abilities over the next 12 months and get the title and the compensation to match. Goals and milestones were clear, and they were ones I could meet.

Over the course of the next year I overhauled the entire information technology solution at the company (top 10 listed): _1) A new scalable power solution from the ground up (new circuits, UPSs, PDU, all properly engineered). _2) A new converged, seamless, centrally-managed wired/wired network with HA for core/critical systems (collapsed core design, 3850-x stack (StackWise) as core, with integrated WLC, and a stack of 2960-x (FlexStack) switches for the access layer, repurposed existing HP switches for redundant server network backbone, and of course, implemented VLANs for proper segregation of traffic). _3) Redundant ASA 5515’s for FW/security. _4) Migrated to a 50Mbps fiber ISP connection. 5) Upgraded their legacy Exchange environment to 2010 and budgeted for upgrade to 2013 in late 2015. _6) Installed Lync 2013 as the first step towards a unified communication and collaboration solution. _7) Introduced hardware and software standards for client, server, and network hardware. _8) Implemented WDS for centralized image storage, network based client and server imaging, and future automation (once the legacy OS/software issues were out of the picture). _9) Replaced a legacy SFT solution that was costing the company $10k/yr in licensing (new solution was $800/yr). _10) Rectified most of their license tracking and compliance issues by switching to Enterprise licensing model, and migrating to O365 to replace many legacy editions of MS Office. That is just the top ten items. During this time I was also handling the management activities (budget creation/management, I.T. roadmaps, vendor management, project management, etc..) and also 50% of the help desk activities because they failed to hire the FT Help Desk tech (which was part of the original agreement). In the end, to make sure I met all goals/milestones and finished all standard work, I was working mostly 80 hour weeks, and also spending 15 hours a week commuting. In the end it was all going to be worth it, a small sacrifice to get the title and compensation.

Nice little review at the end of the trial year. I met all goals/milestones, had a ton of other achievements during the time, and the IT department was running smoothly (a first for this company). The review went well, and it was confirmed at that time that I would be getting the title and pay at the next HR/year-end cycle.

Then things started to get weird. First sign of trouble, during that same meeting, I was informed that the CEO and Executive Director of Finance now wanted to make the phone system replacement project a priority and get it done by the end of the year, despite the fact that this project was initially scheduled to begin (discovery phase) in Q2of the following year. There was also the fact that this was already a week into November. Getting things done during the holiday season is never an easy task, but running a complete corporate phone system replacement project from start to end in just over a month and a half, during the holiday season, is basically impossible. Especially when you are switching from a legacy digital key system to a HA VOIP system that integrates with Exchange and Lync. There was also the fact that most of the key players in the various business groups would be on vacation at various times. Obtaining the three necessary competing quotes and going through the review cycle would take most of this time by itself. I mad all of this clear and started the project, while setting the proper expectations. I mostly dismissed this odd request as standard corporate agenda and naivety regarding what actually needs to transpire for a project like this to be completed successfully. After all, this is not the first time I had seen decisions made at a high level, that were unrealistic.

By the beginning of February, I had the first quote for the new phone system on the CEO’s and Executive Director of Finance’s desks. By that time I had completed all discovery, business requirement gathering, and engineered a new Cisco-based VOIP system (BE6kHD, critical services in HA, room for planned expansion (e.g. CUCC) – 8800 series endpoints (phones), - CUPS for RCC and presence via lync - Unity for Exchange integration - 4331 ISR for SIP trunk termination (switching to SIP trunking from the legacy T1 PRI) - Barix Instreamer for MOH – etc. ). Took longer to get the two competing quotes. You have to purchase the Cisco equipment through a vendor, and Cisco gives the first vendor to contact them about a certain purchase a sizable discount. Due to this, no other vendor wanted to quote for the hardware. I ended up having to get competing quotes for other non-equitable hardware.

March. Things continue to get weirder week by the week. I get ready to take a vacation for a week in April, but I am informed that I will not be allowed to take a vacation at this time. The reasoning was (from the Executive Director of Finance), that if the CEO finally signs off on quote for the new phone system, and we can get all the equipment in, and all the consultant resources are available on short notice, I need to be onsite for the phone system installation during April. I stated that I would just plan for, and schedule the install for a time after my return (it is only a week after all). There was no rational reply to this, I was just informed that waiting a week was unacceptable and I would not be allowed to take my planned vacation. Btw – it is worth noting that at this point, the phone system quote had been on the CEO’s desk for signature for more than a month, and was still just sitting there. In addition, I am also given excuse after excuse as to why the Help Desk role has not been filled (or even advertised), something I was guaranteed would be taken care of by now. By this point, I have a pretty good idea that I am going to get screwed. I stick it out till the review cycle. In for a penny, in for a pound,….

April. Time for that title and compensation I have worked my ass off to earn. Of course the pressure is still on to install that phone system the moment after the CEO signs off on the project. There is also more than normal pressure to finish a bunch of other smaller projects (this had also been the case most of past few months).  Interestingly, they delay the review cycle for everyone. Then, pretty much everyone has been reviewed except for me. More pressure to get some projects and upgrades done. Lots of other odd behavior as well.

It is now May. Review day finally comes. On the schedule. I’m the last one to get reviewed btw… Well, around noon on that day the other member of the IT department (legacy application support, mostly the legacy applications he coded, and also the other 50% of help desk tasks) announces that his mother is in the hospital (in Ireland) and he has to get on a flight. He will be gone 10 days. I get a scheduling update for my review shortly after; my review has been moved out 10 days. I confront the Executive Director of Finance at this point and get my confirmation. They are screwing me over.

Worse than the fact that they screwed me over, is that they always intended to screw me over. From day one. They needed someone to correct all their I.T. problems so that the company could grow, and so current employees could be productive. To achieve their end goal they lied to me, they deceived me. In those review meetings, in weekly meetings, even casual conversations, they lied to me with a smile on their face. They even conspired to get me to complete as much high-level work as possible before they would have to reveal the truth.

You would think the story ends there, but it does not. I cannot land another Director of I.T. role because A) I do not have 5-10 years in a director role (only 18 months), and B) Spiration is not admitting the amazing work I did for them; in fact, they are doing just the opposite. You see, they are pissed at me for making my situation public, and not just going quietly into the sunset after they screwed me. So, in addition to random passive-aggressive threat here and there, they are giving me bad reviews. I usually just inform potential employers that they cannot contact Spiration, which also looks bad. In addition, it I have heard that the Executive Director of Finance is claiming credit for all my hard work. Keep in mind that this is a guy who once told me he was wholly against any client upgrades to Windows 8 at Spiration because Windows 8 is a “tablet OS” and he and other employees need to be able to use a mouse and keyboard, using a touchscreen was not going to work out. Yes, he actually thought that it was impossible to use a mouse and keyboard with Windows 8. This guy is a serious jackass that just uses people for his own advancement and agenda. 

Initially I did look for other director roles, and even considered a few close by SE roles. After some odd interview cancellations, I did some investigating and learned from a recruiter what the deal was. At this point I have declared my I.T. career dead. Murdered is a more apt term.

So, I am applying my original electronic engineering schooling, years of hobbyist experience, and my other skills to launching Zifnu Electronics LLC. I love electronics and technology in general, always have. This was the business I was thinking of starting in 2013 before I made the mistake of working for Spiration. I was always planning on launching the company eventually, I just did not have the time while I was dedicating 95 hours a week to Spiration.

Am I the most skilled and experienced electronics engineer out there, absolutely not. Do I know enough to keep my projects/products from bursting into flames, yep. Can I offer something that is unique and interesting, I would like to think so. The Zifnu Rocket Kit was something I wanted to bring to market because it is fun, and a bit different. It is a combination of things I loved as a kid, electronics and model building. I was also playing way too much Kerbal Space Program when I had the idea for the Rocket Kit, so that may have influenced me a bit as well,… ;)

Even though the Kickstarter campaign was not successful, I do not consider this a failure. I never intended the Rocket kit to be a huge source of income. My intentions were to have some fun offering a unique product that hopefully inspired a few future electronic engineers, and maybe taught them some basic concepts related to electronics and model building. (Note: the instruction manual I had on the website was just the first draft, I was planning on expanding the content and hopefully getting some better illustrations in there as well.) Secondly, bringing the rocket kit to market was an excellent learning opportunity that allowed me to get all the manufacturing partner relationships in place for the Rocket Kit and future products. While I have done parts of this for other companies in the past, most of it was locally sourced rather than international. So this was definitely a learning experience. For one thing, I learned the regulations for manufacturing a product in China for marketing to kids under the age of 12 in the U.S. is a major hassle for a product you only intend to make 1-10k of. Which is why I chose to only market to 12 and above even though younger audiences would have enjoyed the kit as well.

The economics of it all. I did all the math up front, $50k for ~1000 units was the bare minimum. And at the $50k mark I did not even intend to pay myself a salary since the sum was so small, I would have just reinvested the profit in the company. Besides being a learning experience, it was an opportunity to get Zifnu Electronics established and promote a little brand/company awareness as well. I’ll be the first to admit that it did not draw nearly as much attention as I expected. I mean, really, who doesn’t love rockets?

Zifnu’s next product is something a bit more practical, I believe it will have a larger audience in general. Time will tell.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: invzim on June 27, 2016, 02:00:24 am
One thing missing, is how much of your batch you sell.  I have a niche product that sells at a low steady rate, and typically have 100 pieces made every batch.
While 2.5 x COGS may be a good rule of thumb, remember that the maths presented in this video is not valid until you've sold your WHOLE BATCH.

Sitting on loads of inventory has it's cost, and right-sizing the batches may not be easy.  I calculate how many pieces I have to sell of a batch before the batch is 'break-even', and after that point it's mostly profits.  At 2.5xCOGS, the break-even wold be reached when 40% of the batch is sold.
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: VEGETA on September 05, 2016, 06:13:12 am
well, that is a really good video. However I have some issues.

1- PCB\parts customs\input tax or fee. In my country Jordan, everything is passed through customs and most of the times you must pay. the question is, if they don't know what a PCB is and they think I am a reseller (not a designer) what would I do? I ask this because I think there are many of you who went through the same problem. How much money do you pay for digikey parts when you import them? how many for PCB with or without components? what about a full ready product?

2- Too much initial cost. I mean, I had an idea of a power supply that uses only one Li ion battery and it is small, connected to usb for charging (isolated) and that happened to be like dave's one. now when I searched for parts... I think the minimum I could get is this:


all from digikey...

LCD: I don't know, couldn't find cheap small ones.. so let us say 10$.
DC-DC: 10$.
MCU: 3$
case: 3$
other ICs: 5$.
passives and others: 10$
connectors: don't know, assume 10$.

total = 51$! call it 50$.

this is only components, for pcb, shipping, blah... you can confidently add 20$ to it so it is approx 70$ cost! assuming I will solder\assemble the boards and all! (no PCB assembly).

now, as 2.5 figure... 70 * 2.5 = 175$ << would anyone REALLY buy it in this price?! this is the damn question.

Getting components as large quantities will help but for me and any starter, this is just impossible. so one have to start like this, and it won't really do that marvelous change in price. How much are you really gonna sell your USB supply? what about the original uSupply? uCurrent is cheap to manufacture because it doesn't use expensive parts and it is so small. this was an advantage to you for sure.

3- the idea:

for example if i really liked an idea, will the others do? I have a problem of running ROS (robot operating system) in a cheap platform. All ready-to-use ones costs THOUSANDS... If you want to commit suicide I will show you the quote I got for Jackal robot... So I thought I would solve it my own way! I came up with a very simple board that has motor driver l298 and an IMU module (MPU6050) and it can accept encoder inputs, has smd 2 18650 battery holder and switching supply 5v, 3.3v linear.... the solution in it is a PIC MCU that calculates what we call "Odometry" so it can send it to ROS host (Pi3...) via serial port, and it takes ROS commands for driving the robot and translates it to motor commands.

Finally I am sure it will work.. 100%! and I can make a great board for it in CM. However, it will cost as much as 50$ in total (components alone can reach 30$). I don't think anyone will pay 150$ for it despite it can do MUCH stuff! I can write a simple arduino and ros libraries to control the board via serial port only!

But who will buy it? in that minimal 150$ cost?! I guess you must make a video for these stuff of how to get the product and manufactures it cheaply.

thanks!
Title: Re: EEVblog #887 - The Economics Of Selling Hardware
Post by: pelule on January 06, 2017, 10:09:12 pm
Yes, this thread is quite a time ago, but for sure no "old" story.
Here an interesting presentation of the LabNation's Start-Up story given by "LabNation" founder Riemer Grootjans at Electronica 2016.
Video: https://youtu.be/cycLcmiKwl0
Especialy at 15:30 he starte telling about the "retrun of investment" which fits eexcellent to Daves arguments.
Enjoy.
PeLuLe