Customer w/ unrealistic expectations - What would you have charged for this job?

[Corporate666]

If the guy had the money to order 100, he wouldn't be ordering 10 and trying to squeeze you on the price.  He either doesn't have the money, or he feels that you are screwing him on the price.  Either way, it's not likely that he's going to be ordering 100 of these things on an ongoing and regular basis.

By pushing off your profit to the production phase, you've essentially financed the NRE costs for him, which if you couldn't afford not to take the job was the worst thing you could have done. 

It also seems pretty clear he's looking to end the relationship and go somewhere else (by asking for the original files).  I wouldn't be surprised if one of the first units he gets/got from you goes out for bid to others to replicate it.  And with over 30% markup on parts, it's likely someone will undercut you, especially since they won't have near the same NRE costs.

The fact that he balked at paying NRE fees when he was willing to pay NRE fees for an injection mold indicates a failure of the sales process.  If he had balked at the $5-10k NRE fee from an injection molding company, would they have just made the mold on the promise of future huge orders?  Of course not... you shouldn't have either.

Also, designing and making an injection mold is "a few hours of programming a CNC machine and a couple of days to manufacture" just as your project was "connecting a few wires and spending a couple of hours ordering parts".  There is a lot more to it than that.

[Starlord]

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[SirNick]

It's all about expectations.  Maybe this guy has done prior work with materials manufacturers, but hasn't had to order custom electronics before.  Next time around, he'll have an idea what it costs and it won't be such a shock to budget for it.

Remember when you first learned that a diode had a voltage drop when conducting?  Can't speak for all of us, but I kept thinking, "man that's unconscionable to drop half a volt or more!  There's gotta be something I'm missing."  Nope, I just didn't have a clue what was normal.

Anyway, you know the answer to this.  You have to provide realistic quotes up-front that let the customer know what they're getting themselves into.  If they can't afford (or can't stomach) the expense, they'll move on.  Or they'll wince, take a breath, get over it, and proceed.  You can't blame the poor guy for trying to squeeze value out of you.  We all do the same by shopping around for parts and fab houses, and likewise tend to get huffy when there are sudden expenses and delays we hadn't anticipated.  If he has the means and knows where you stand, the ball's in his court.

[jlmoon]

Design & Development of a project of this sorts.. .. $125.00 / hour - Minimum 40 hours just to start, 50% money up front... for first prototype.  150 boards, whole new contract based on a percentage of board shop price plus board shop price & materials.  All prototype hardware, firmware, software would remain intellectual property unless another contract / release was negotiated up front.  Period!

oh I forgot the Materials & Expendables involved in first design phase.



JLM

[hamdi.tn]

...I'll just use my crystal ball, shall I?

can't belive it 

Remember when you first learned that a diode had a voltage drop when conducting? 

i like this example 

i think the guy had an idea about plastic cost but not electronic, in fact you made the same mistake that he did by saying that it's nothing but couple of hour on a CNC, well every job is more complicated than an outsider can possibly imagine.

All prototype hardware, firmware, software would remain intellectual property unless another contract / release was negotiated up front.

I think the D&D policy you posted is more suitable for a confirmed design company that does not care if it let go an occasional, pain in the ass client like this, not really for an independent designer who live with those occasional ppl, but this does not justify over care about a client, sometime you have to say no.
But by remain intellectual property, you mean that it's your right to use whatever solution you used for a particular project again with different project with different client OR that the client can't give those files to other company to use them OR the client have no access to design files , it's your mission to deliver the mass production?

[ehughes]

Based upon your specs:

$100USD /Hr  - 120 Man Hours,   Delivery of 5 prototypes and a production package he could shop around with.   Half the time is for development.  The other half is your cushion for dealing with the crap that comes along.

But before I would quote anything I would need a written documentation from customer with:

- detailed functional specification before work beings
 -cost target and QTYs.
- basic mechanical specs at outset to guide design

Once I get specs I would provide an development estimate that states:

-Re-enumerates requirements & deliverables
- 50% up front for 1st time customers.  non-refundable if they walk away
- Billing will be done on monthly basis, net-15 terms to actual hours charged.
- I would detail the estimate hours on each design task.

After sending the estimate, I would require from the client a

- Signed PO
- 50% Down Payment


Then I would start work.

Once deliverables are met,   Additional software and research is billed at $100/Hour and requires another set of requirements and PO.

Once you have been working with this client for awhile,  you can loosen up on the "additional software and hardware" requirements for a PO.

So,  sounds like you paid the stupid tax for not getting some training in basic business.   Remember,  "trust but verify".      This work can be very intricate.   Ask a wage that is commensurate.

Do this for awhile and build relationships.  Then you can loosen up a bit.  Never take a job on the promise of "Large volume, future profits, etc".   That is dumb.  Especially from an artist.  They are poor for a reason.

[Corporate666]

Also, designing and making an injection mold is "a few hours of programming a CNC machine and a couple of days to manufacture" just as your project was "connecting a few wires and spending a couple of hours ordering parts".  There is a lot more to it than that.

Of course there's more to it than that, but if we assume the two jobs require the same level of skill, and we're just looking at how many hours each will actually take, then I wasn't that far off:

http://www.protomold.com/protoquote.aspx

Give these guys a 3D model, and for $10K they will make the mold and produce 25 sample parts from it in 3 days.  If you want to be generous and give them a full two weeks, it's $5K.  But since we know they can do the job in 3 days, then this still means they're making $5K for 3 days of work.

Of course I understand the machines they use are expensive and stuff,  but still, no matter how you slice it, I'm pretty sure they're making way way more per hour than I am.

....and you can go to SparkFun and buy an Arduino, an SD card shield, a motor control shield and an RGB LED shield for $80, and get easy to use libraries for free, or probably get a high school kid to do the code for $100. 

The point is you can't make these relative judgments on value based on perception of what things "should" cost.  That seems to be the mistake your client is making that you're objecting to.  A big part of the cost of a mold is the patterning and whether it's single draw or not, and whether the part is designed for easy molding.   And a big part of your project are NRE costs which include your time spend specifying parts and processes. 

If your customer paid those NRE costs on his molds but did not pay the NRE costs on your work, then you made a mistake in your sales process to the customer.  He's obviously willing to pay NRE fees since the molding company got him to do it... and he should have paid NRE fees on your work too.  From your posts, it sounds like you are hundreds of hours deep in this project and have gotten $2,500-$3,500 so far, much of which was spent on parts and boards - and the hope is that "you'll make it up on volume".  But the hours spent working for free for this client would have been better off spent finding a better client. 

I hope he does turn around and order many batches of 100 boards at $75/ea.  But if that happens, you dodged a bullet.  You let a client transfer all his risk to you for nothing - no commitment, no blanket PO, no nothing.  That's a sure fire way to get burned and you shouldn't be in the risk game.  That's what banks are for - let him go get a credit card or a loan and let the bank take the risk.  If he's unwilling to do that, what does it say about his confidence in the numbers he is promising to come through with in the future?  And/or if a bank refuses to give him credit, and they are experts in risk management, what does that say about their confidence in the project?

[SL4P]

...Nobody else has said it yet, so I suppose I will.  What you described here is more of a proof of concept than a prototype, there's a big difference...

For this reason - and it only helps, but you can always get stiffed somewhere in the process...

I always divide the project up into clearly defined milestones.

• Exploration budget & payment plan
• Research & Viability of customer's idea
• Ballpark costing of whole project and timeline and repeat
• Acceptance & rework
• Element tests
• POC components for customer approval & understanding
• Collaborate on Product Spec & then Initial design expectations

-- This far let's you see how much the customer is committed and understands
-- You may walk away now...!

• FP budget & payment plan
• FUNCTIONAL prototype development
• Acceptance & rework
• PP budget & payment plan
• PRODUCTION prototype development
• Acceptance & rework

-- The proposal and exploration budget / milestone payments only get this far
-- He may walk away now !

• Review and marketing analysis
• PRODUCTION budget & payment plan
• Away you go...

Steps can be combined - but price just gets compressed - may get slightly higher if timelines are also compressed.
Also let the customer know up front - in writing - that unwritten variation orders don't exist.
Written variation orders will probably cost extra in time and/or money.
Also let them know of limitations up front that are keeping the budget in hand...e.g. limited memory, performance goals etc

If I'm not sure of the customer's position or the budget is more than I can risk...
Payment per stage is 60% up front, 30% on delivery, and balance of 10% on first beneficial use.
All these terms and milestones are clearly repeated with each offer document.

[kb0thn]

Give these guys a 3D model, and for $10K they will make the mold and produce 25 sample parts from it in 3 days.  If you want to be generous and give them a full two weeks, it's $5K.  But since we know they can do the job in 3 days, then this still means they're making $5K for 3 days of work.

Of course I understand the machines they use are expensive and stuff,  but still, no matter how you slice it, I'm pretty sure they're making way way more per hour than I am.

As they should be. They have "expensive [machines] and stuff". And they are running a profitable business. And they have priced themselves accordingly. If a potential customer doesn't like their price, Protomold doesn't let the customer name their own price and dictate their own terms. You can do the same. It's just a learning process. In the USA, we pay for most education past high school. My first 5 years of running my business were expensive too. I recognized it as the cost of more education. I think you would do well to treat this experience as educational and try to figure out how to not let it happen again.

-Jim

[Starlord]

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[Starlord]

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[Wilksey]

Eh,

What can you say?! Just learn from people like this! Take note of the comments on here and put some of them into action next time, it will protect you and your customer!

[Corporate666]

I think you misunderstand.  I wasn't saying the CNC place was being paid too much.  I'm saying I'm being paid too little. 

And no, I'm not forgetting that the CNC guys have expensive machines to maintain.

The point I was trying to make is that, while my customer has been happy to shower them with thousands of dollars, paying them a fair wage which is sufficient to sustain their business, he has been unwilling to do the same for me.

In other words, I demanded too little, because he wanted to meet a certain price point.  I was doing him a favor, charging him as little as possible up front so that he could get the first batch made and market it and continue to buy more from me in the future - I was chasing the long tail - but when it turned out the work was going to take longer and cost more than expected, he declined to reciprocate that favor.

So yeah, I screwed up.  I shouldn't have agreed to do the final PCB design for less than $5-$10K, nor should I have allowed him to order the first 10 at the price per board that I gave him for 150.   I should also have followed up our negotiations over the phone with emails, so that if any disagreement arose later I'd have a record of what I told him it would cost, and how long it would take to finish.

Please don't misunderstand - I agree with you that you sold yourself too cheaply and should be getting paid a lot more!

However, I am just pointing out (and not trying to say it in a rude way) that it comes down to an error in your salesmanship... in other words, what did the mold company do that allowed them to get (a fair) large up-front payment from the customer that you couldn't get? 

Since there are up-front costs, I would imagine that anywhere else he went to get his electronics design done would have also charged him up-front costs.  So part of your job is necessarily overcoming objections - his objection was the large up-front cost.  With mold companies, they will often agree to amortize the mold over a guaranteed # of orders... so they might quote a $10k mold cost and $5/pc thereafter.  However, if you commit to 1000pcs, they will do it at $15/pc and essentially "finance" the mold for you.  This ultimately is what you ended up doing by charging $75/ea for the boards, netting $25 extra.  But this may leave a bad taste in your customers mouth if he realizes he's paying 50% over your cost.  Hopefully not, but time will tell.

Anyway, sometimes you just need to be strict with customers, especially disorganized ones, because they will waffle over every detail and all of that time and indecision costs you $$.

[rx8pilot]

I have been in the end-to-end manufacturing business for a while now. When I started, I was effectively a "work-for-hire" business, looking for anyone that wanted to design something. I learned this same lesson quite a few times from a number of different angles. I undercharged, under-communicated, under-estimated, etc, etc....

I had a full shop with CNC machines and expensive software that I could barely keep going. Of course over time, I learned to better manage customers and projects to avoid most tough situations like OP wrote about. I eventually added electronics to my offering to augment my mechanical designs which made my projects even more complicated. After a few years, I found that I spent more time planning to not get ripped off by 'writing EVERYTHING possible on paper and getting client approvals that would hold up in court - I was not longer designing at all. To stay "safe" was very time consuming.

I ended up firing all of my clients and designing my own line of products in my industry. Now I have customers, not clients and it is way better for me. I am certainly not suggesting that everyone do the same. Only wanted to illustrate how hard it is to do engineering for hire. It is a very mysterious profession that is both creative and technical. It is very hard for even the most seasoned engineers of designers to anticipate all the details and time that will go into a project. With that said, almost all clients push hard for a hard price and a specific time table while having no understanding of what may be involved. No matter what you write down, the specs love to shift and change even with everything seemingly written down. At that point, it does not matter who is right and who is wrong - you and your client are now stressed because he/she just realized it was not the right spec in the first place and they are trying real hard to say that your design is not right.

I did have some really great and smooth project with great clients. Now, customer of mine makes any design decisions, they just decide yes/no to buy. If most say no, I revise the design. If most say yes, I move into manufacturing. Miraculously, I am much happier.