Breaking down the cost of your next IoT hardware product

Vidyadhar Kulkarni
Apr 21, 2020 · 5 min read

When you plan to make a hardware product and start talking to your customers, obviously after the PoC (Proof of Concept), the first question you’d hear is, “what is the cost of the product?”

In most cases, the success of the product very much depends on the cost of it. So, it is important to predict the cost of the product at the beginning of the design stage itself.

Profit = Revenue — Cost

It may not be as simple as it sounds, let’s take a tour to understand more of it. One easy way to understand this is to create a Bill of Materials (BoM).

Let’s take an example.

“What is BoM?”

The BoM or Bill of Materials is the list of parts used in your product with all details needed.

Let’s assume the burger to be your product

Typically, BoM is made of :

Fabricated parts

Enclosures, brackets made of plastic, metal, rubber, etc

Bought out or purchased or OTS (of the shelf) parts

Screws, nuts, o-rings, rubber caps, antenna, solar panel, battery, etc

Printed Circuit Board Assemblies

PCBs with all electronic components soldered/embedded, harness (cables and wires)

Packaging

Clamshell box, magnetic closure, shrink bundling, cardboard tray, tri-fold brochure, carton, wooden box, lanyard, stickers, etc.

Accessories

DC adapter, USB cable, extra batteries, stand, bracket, 3M tape, etc.

Although the burger looks quite simple, the actual BoM after you design the product would look something like this —

Life would be easier if we get this costed BoM at the beginning, but it doesn’t happen. So let’s see how we can focus on minimizing the cost at every stage of the product life cycle.

How does design affect the cost of my product?

Shape, Complexity, and Features

It’s obvious that the more complex the design, the higher the cost.

Material

Each material has its own characteristics and certain applications. So over-engineering in terms of selection of materials may boost the cost of production up. E.g. aluminum is approx 40% more expensive than steel, but the weight of aluminum is 40% less than that of steel.

Surface Finishes

Certain surface finishes require extra tooling operations or extra post-processing which can add up to cost. E.g. matte finish requires EDM processing on the mold.

Tolerance Requirements

Tight tolerances demand special processes and machines. Sometimes finding the right vendors to achieve those tolerances is also challenging.

Quality Process

Some products may need an inspection of each unit, while some may need 1/100. Equipment and labor cost is involved here.

Manufacturing Process

This is a key deciding factor in product cost. The cost drastically varies among different processes such as injection molding, CNC machining, die casting, 3D printing, etc.

I managed to control the cost in design, do I need to worry about anything else?

Material wastage due to rejection

Rejections are common due to bad finish, bad tolerances, etc

Labour and overheads

This is inevitable, although there can be ways to reduce the number of workers, e.g. jigs and fixtures, robots, etc

Maintenance

The machines and molds require maintenance after a certain number of cycles

Shipping

This mainly depends on the geographical locations of the source and destination. The backtracking can be avoided by managing the supply chain wisely.

Currency

Another important factor is the country where you’re manufacturing the product, e.g. buying parts from India would definitely be cheaper than that of buying from the US.

The process cost is too much, how do I justify?

It is observed that the processes which cost more at low volume are less at high volume and vice versa.

The most common way to produce enclosures is injection molding. Now, the part cost in injection molding is very less but the tooling cost is quite high.

I think I need an injection-molded enclosure, how much money should I spend to get the plastic enclosure?

It’s not easy to predict the investment required in Injection molding as the cost depends on a lot of factors such as,

  • Tooling material
  • Type of plastic
  • Number of cavities
  • Number of moving cores
  • Number of features
  • Type of finish
  • Post-processing
  • Type of assembly

While the vendors may not provide the right cost without you answering all the above information, not to mention the request for a 3D file, which can compromise the confidentiality of your design, we have https://www.custompartnet.com/ as our savior.

The UI looks like this, you can see the cost of the part on the right-hand side of the image.

Alright, the enclosure is sorted. Where do I purchase the electronic components from?

Unlike the enclosure, the electronic parts are standard parts, such as LEDs, batteries, capacitors, sensors, ICs, connectors, etc.

One may find a large difference in the prices of these components within different kinds of suppliers.

If you’re in the prototyping stage, it’s a good idea to approach the grey market because you would only be buying a few components and you don’t care if one or two of them don’t work.

However, as you move to the final stage, it’s best to engage with the manufacturer for all kinds of sales and support.

Some good sources of electronic components are,

  • Digikey
  • Mouser
  • Ali express
  • Tanotis
  • Arrow electronics
  • Newark
  • Element14

I hope you will find the article useful. Please share your experience and feedback and I wish you good luck with your product design and development. Feel free to reach out for any queries.

About Us

Fasal is an AI-powered IoT platform for the Agriculture ecosystem that records a variety of growing conditions on the farm. It then uses artificial intelligence and data science to make on-farm predictions and delivers the insights that matter into farmers’ hands in vernacular language.

We are building hardware IoT products for Farmers to help them grow more and grow better and it is in our blood to make sure these products are as efficient and as low cost as it can to suit the pocket of an Indian farmer. We are Fasal.

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