EEVblog #887 – The Economics Of Selling Hardware

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.

Forum HERE

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    • Tyler Durden

      I think this discussion should have included talk about sales volumes and price elasticity. In the end you are not necessarily optimizing the profit per unit – but the profit you can make overall from your product (or maybe the profit per hour of time invested).

      Under these circumstances for example a distributor can make more sense – because they can (or at least should) move more volume, or because you are saving time.

      It could also make sense to lower your gross margin, if you for example than you can move much more units – for example because your are moving under the price of a competitor in a price sensitive market.

      Also: The sales volumes influence the gross margin per unit – so the minimum margin you need depends on the assumption of sales volume.

    • Paul E. Schoen

      I have a product called the Ortmaster, basically a high current and time measurement system, that I originally developed in 1994 in conjunction with a distributor who bundled it with his software and he sold them to his customers for $3995. My cost was about $500 and I sold to him for about $1800 – better than your 2.5x markup. However, there were thousands of hours in software development that needed to be accounted for, and were not tracked.

      About 120 of these systems were sold, but they were based on MSDOS and bit-banging of the LPT port, so we had to design a new system for Windows and USB. My distributor and I had disagreements and parted ways, and the existing customers got empty promises from him so contacted me, and I developed a complete system to sell for the same price, but with generous discounts. I have sold about 40 of these new systems, entirely by word-of-mouth, and I could likely sell more by advertising.

      The points are that (1) this is a niche product with limited peak sales, (2) my prompt support for the original product provided customer satisfaction and trust, and (3) I continue to provide lifetime support with flat rate $100 repair and $100 annual calibration. In fact I have a red flag that appears in the software if calibration is overdue.

      Most products probably will have much shorter usable life cycles and also will be subject to market saturation and competition if they are low cost / high volume consumer items.

      • ElPueblo

        Hi Paul,
        Did you have to certificate your product? If not, have you had problems with customs when you send your device?

        I
        am planning on making a device which would be (hopefully) used by
        professional electronic engineers for test, not for the “general
        public”.
        I am a bit of a loss because there are a lot of forums and
        info (not clear enough for me) about required certifications and I have
        seen that a lot of people say that if the device in question is a kit,
        one does not need to have it certified. I think my device would fall
        into this category.
        If no certification is needed, I don not know how big is the risk that the package will be stopped at customs of some countries.
        Thanks

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