For the purposes of the following illustration we will be developing a new smart torch. It will be in the form of a compact torch and will include an SD memory card and USB socket at one end. It also has a small display showing the current time.
Evaluation report – Evaluate your idea and generate a report giving important information regarding any potential issues, define the market for your product and the size of it, as well as identify potential selling partners, and importantly stipulate what they will want out of the deal.
To originate three initial visual & mechanical proposals shown as photo realistic renderings.
CAD: To model the complete 3D assembly and output production ready data.
Electronic development – including a prototype for approval.
Tooling based on a 1+1 tool for the main case (left & r/h side) plus another smaller 1+1 for the ancillary parts required
US $10k ex rate 1.3 = £7,692.00
PCBA jigs and other assembly set up costs
US $1.5k ex rate 1.3 = £1,154.00
Total (lower end) development costs = £18,246.00
Final assembled unit cost of $6.00 ex rate of 1.3 = £4.62
MOQ (minimum order quantity) = 500 units
This means to buy your first order you will need to pay £2,310.00
Selling your product
Based on the product development costs and profit margin you now need to sell your torch.
Retailer: will want to make as large a profit as possible, typically they will take the cost price and multiply it by 3 or 4 and add VAT, giving the final retail cost.
You need to add a profit so if we assume £1.50 profit per unit.
£4.62 + £1.50 x 3 + VAT = Final retail cost of £21.99 (rounded down).£4.62 + £1.50 x 4 + VAT = Final retail cost of £29.99 (rounded up).
A good retailer will hopefully sell a good quantity of units per month/year. In this scenario your profit per batch of 500 is £750.00.
Licence: An existing manufacturer makes your product and pays you a licence fee to do so. This all comes down to the price point the manufacturer wants to set and potential profit achievable at that level. In this scenario the manufacturer will already have a brand and add your product to their range. In terms of the actual fee, this will depend on the manufacturer and potential for selling large qty’s. You need to negotiate the best deal possible.
Distributor: They already have channels with retailers who could sell your product. Any distributor will want to buy your product for a price that makes sense based on the target retail cost. The benefit should be more coverage and much higher sales. As with retailers and licences this can be an easy ‘hands off’ way to make an income. A higher profit might be achieved by offering exclusivity to the seller.
Own website: Use your own website and market the product yourself. It’s easy to set up paypal payments now, which also accept most credit and debit cards. In this scenario you set the retail cost and your own profit. If we set a retail price of £14.99 then your profit per unit rises to £10.37. If you could sell 5k in year one then that gives an annual profit of £51,850.00. The down side to this is that you need to market your own product. This can be done by developing the SEO of your website to ensure it is high on the list when people are searching for torches online. Google adwords is another good option where you pay to be found for certain search terms. Other means of advertising may also be used but remember that all these costs will come out of your profit.
Amazon or other online shops: Selling products on Amazon means more coverage. If your products sell in reasonable quantities then Amazon will start buying and selling your product directly. Profits will be slightly less than those quoted in ‘own website’ above but easy to let Amazon market your product. This will all be guided by the interest you generate yourself on Amazon and potential for profit, as always. You could also try to sell your product to other online stores.
Crowd funding: A great way to announce your new product. Funds are accrued by selling your product to interested parties. Special versions of your new product will attract more interest. The idea here is to sell products directly to buyers so profits can be maximised. A good idea can attract interest and sales to pay for all the development and cover the buying costs for the first batches.
We also have to ship the product from China. By sea is the cheapest way. Shipments take 4-5 weeks to reach the UK. On arrival import VAT (re-claimable) will be due as well as any import duty (might be 3% of cost price). To ship the batch of 500 torches by sea might cost around US $600.
Hopefully you have found this article helpful, especially if you are about to start the development process.