Project Costs & Lead Times
What drives cost in product development?
The first thing you need to understand is that product development is an investment. You are investing in the creation of this innovative product so that hopefully you can sell it for a profit. Short cutting this process comes with the risk that you will have a less valuable product in the end or even no product at all.
The second thing you need to understand is that every single product and product development effort is different. It is impossible to say exactly how much it will cost to develop a product until the product design is fully complete and even then, it is still a well educated guess. However by understanding what the cost drivers are and applying years of experience, a good project manager can estimate anticpated cost ranges.
Costs to a business are typically divided up into two categories, recurring and non-recurring. Most product development fees are considered non-recurring unless you hire your own staff. There are several factors that drive costs:
- Development Labor
- Prototyping & Expedite fees
- Testing & User Feedback Costs
- Manufacturing Start Up
- Product Testing & Certification Fees
- Unit Production Costs
- Additional Costs (Marketing, Overhead, etc.)
Unless you’ve developed skills as a project manager, industrial designer, and variety of engineers you will likely need to hire help to create your product. There are a few options for you here that range in value:
- Hire college students. They are typically the cheapest option but typically lack the professional experience needed to produce a successful product. Consider this a high risk option that could end up costing you significantly more time in the long run.
- Hire professional independent contractors. They are typically the cheapest “professional” option but they may have limited bandwidth. Many independent contractors provides services as a second job or have to serve multiple Clients with limited availability which can make scheduling a challenge.
- Hire a product design firm. They are typically the more expensive “professional” option but also provide the most in return. A good firm has a large variety of skills, services, and experience that you can quickly access under one roof to enhance and streamline the development process. This can help reduce development risk and rework. In addition, they likely have more sophisticated quality and revision control systems than individual providers. And since they often employ a team of individuals, they can be more responsive and flexible to work with your schedule.
- Hire your own team. This may seem like one of the cheaper options, but carrying one or more salaries comes with significant risk to your business. It can be difficult to attract top talent to a small company, especially if it’s not well funded. It can take time to find and interview these candidates and many products often require a team which means you’ll need a project manager as well.
Prototyping and Expedite Fees
Prototyping isn’t cheap. And it gets significantly more expensive to make parts fast. The same 3D printed part could cost $150 and take 8 days to produce or $600 and be available in 2 days. This can add up when you have to iterate quickly across multiple parts. Overnight shipping can easily add hundreds to thousands of dollars to your project as well.
There are two easy ways to reduce your prototyping costs. First, work with a prototyping or fabrication specialist who has in depth knowledge of the different types of fabrication methods and can help you make the best decisions. And second, work with a good project manager who can anticipate reasonable development and prototyping time frames to avoid getting into a bind.
Testing & User Feedback Costs
Once you’ve built your prototypes, what will you do with them? You may need to build testing fixtures or get user feedback on them. All of this costs money and you should anticipate having to do it multiple times.
Manufacturing Start Up
The capital expenses incurred at the start of manufacturing are one of the largest barriers for new companies. We’ll talk about this more in future lessons, but basically you have to invest in tooling or some form of automation in order to produce parts at extremely low unit prices. This investment is a large, one time cash expenditure which could range from $10,000 to $200,000. If you’re making an innovation in manufacturing methods, it could be in the millions. Fortunately these costs are considered Non-Recurring Expenses (NRE) and you should only have to pay for them once unless you change your product.
Product Testing & Certification
Does your product need to be approved by the FCC? How about the FDA? Does is need to be UL listed? Do you need to provide any testing results to get liability insurance? Once your first products have been produced, you may need to get them tested and certified for legal reasons. For most non-medical products, this could range from a few thousand to tens of thousands of dollars.
Once you’re all set up to fulfill orders, you’ll have to place an order for a large amout of units in order to get a certain unit price. For example, to get your product for $5 a unit, you might have to order 5,000 units. That means you need to be prepared to write a check for $25,000, which often happens before you’ve collected any sales revenue for these units. This is often overlooked by many new businesses.
In addition to the obvious product development costs, you may need to pay legal fees, create marketing imagery, build a website and many other activities related to setting up your business. Maybe you want to rent office space or set up a small warehouse with inventory storage and fulfillment capabilities. Start planning this early on to avoid these costs sneaking up on you.
How long does it take to develop a product?
Products can take anywhere from 6 months to multiple years in order to design and manufacture. Every product is different and it highly depends on product complexity and available project funding.