What are Industrial Design Rates & Costs at Product Design Services Firms?

What are industrial design rates & costs at product design services firms? All products are the results of ongoing research and development processes. Sometimes it takes a repeated sequence of trials and errors until the designers come up with just the right formula. A product has to offer an easy solution to a problem in society or offer an alternative to an existing product. Otherwise, the whole endeavor may turn into a big waste of time and money.

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Industrial design and product design

“Industrial design” and “product design” are often used interchangeably, and they refer to more or less the same process of transforming an idea into a usable item. Both terms denote nearly identical meanings. The difference between the two is so subtle that it does not matter to anyone outside the research and development paradigm. For design professionals, careless usage can lead to confusion.

People in the manufacturing industry think that an industrial designer can be a product designer but not the other way around. They fall into a misconception, suggesting that a product designer lacks knowledge and practical understanding of manufacturing processes. Some say industrial design is part of product design; others claim that the opposite is true.

* Product design

The definition often depends on whom you ask and their professions in the manufacturing industry. Interpretation of the term varies, from a simple venture to develop a concept to an entire range of production processes. Based on various sources, you can say that 3D product designers focus on idea development from the concept phase to research, rendering, and prototype.

Everything about it only revolves around design and development, without mentioning any reference to mass production. Product design is not about how to build something, and the works mostly revolve around why and for whom something is created.

* Industrial design

An easy way to explain the difference is to say that industrial design is the complete process that involves mass production. Although there are differences in the development processes, industrial design picks up where product design left off. You can build something and call yourself a product designer, but you must also produce it in large volumes to earn recognition as an industrial designer.

A significant difference in the development process is that industrial design involves a technical approach known as DFM or Design for Manufacturing. The designer must optimize the product for mass production purposes by minimizing the number of parts or simplifying the assembly to lower the manufacturing cost. A consequence of the industrial design is built and prepared to generate business profit.

* Combination of both

The goal of a product design process is to create a solution. In industrial design, the primary purpose is to take the key to the masses through mass Manufacturing. The idea and concept for the answer are probably product design results. Still, the refinement process to ensure manufacturability is the brainchild of industrial design work.

At the very least, there are nine design phases to go through until your idea materializes and another stage to bring the product to market. Each stage is not cheap, but you can always find competitive rates from freelance industrial designers or small firms rather than big design companies. Standard pricing is impossible because every product is unique, and therefore the development also takes a specific design approach. The type of product also affects the cost. For example, an electronic product must undergo multiple certification processes. In comparison, simple mechanical hardware can skip most electronic-safety inspections.

The cost of new product development

* Ideation ($0 to $10,000)

The term ideation means much more than just coming up with an idea for a product. An idea has to be workable, and the design concept must meet all the requirements for manufacturing and offer the correct values to be marketable. Extensive planning and market research are the prerequisites for a product idea. A big part of the ideation phase is the 3D design service designer must refine features and functionalities while ensuring the efficiency of the design itself. The purpose is to allow for easy manufacturing without undermining quality. Ideation is the room where a designer can still afford to make mistakes. Afterward, any mistake may lead to expensive revision.

* Design for manufacturing ($5,000 to $15,000)

What makes industrial design different from product design is the DFM part. DFM aims to ease the manufacturing process of a product by simplifying components and assembly. Once a concept turns into a workable idea, a design firm must determine whether it can be manufactured using existing equipment or whether the factory must develop a new tooling. After the manufacturability issue has been resolved, it is time to determine the easiest, most affordable way to produce the design in a large number. In addition to tooling, DFM also considers selecting materials for the product and its packaging.

Depending on the factory partner, there might be a minimum order quantity for the first production batch, while factories are willing to supply the materials. Design for manufacturing is a phase that runs throughout the project until the product reaches the production line, and it is not a step a design firm can take and leave behind afterward. Every phase must be taken with DFM in mind throughout the development process.

* Electronic and mechanical engineering ($8,000 to $80,000)

The designer must optimize the PCB and plastic enclosure for DFM purposes. Components and materials are carefully selected to save cost yet retain the functionality and features. If the product is intended to connect to a smartphone, app, and firmware developments are required.

A plastic enclosure can be very simplistic, like a box with some access holes for buttons and controls. It can be intricate, too, for example, when the enclosure has to include mechanical parts that connect directly to sections of the PCB for mounting. Engineering works mainly focus on finding suitable materials for the product and specifying the dimensions or shapes.

* Prototyping ($200 to $10,000 per iteration)

After the functionality and specification have been determined, the design firm builds a few prototypes to confirm and verify that all components fit correctly and the dimension is correct. If the product has electronic components, prototyping includes PCB and the enclosure. In most cases, the prototype of the enclosure is done separately. A prototyping service is usually done by injection molding for the enclosure. Some firms opt for 3D printing for its speed and affordability because the technology requires no prior purchase of the mold. Injection molding remains the preferred method as it also confirms the manufacturability of the enclosure.

* Certifications ($5,000 to $50,000)

Before you can sell any electronic product to the masses, it has to pass regulatory requirements for safety. Some of the most important are as follows:

UL: a certification to indicate that the product is compatible with standard electrical outlets.
CE: a confirmation that an electronic product complies with health, safety, and environmental regulations in Europe.
FCC: an electronic product must not exceed the maximum level of electromagnetic radiation to the point where it interferes with wireless communication infrastructure.
RoHS: an electronic product with a RoHS badge indicates zero levels of dangerous substances such as Cadmium and Mercury.

Other certifications might be required depending on where you intend to sell the products. Sometimes certification is not obligatory, but it can be a good selling point.

* Packaging design and prototype ($2,500 to $5,000)

It would be best to have a graphic designer, not an engineer, for retail packaging design. Packaging can be effortless in that it does not require any prototyping. A packaging with intricate design with various details and moving parts may cost a sizeable amount of money to prototype, and the graphic design alone can cost hundreds of dollars.

* Manufacturing setup ($10,000 to $100,000)

Preparing the product for mass production is the most considerable expense of the overall cost. Your factory partner may need to purchase new tooling for the plastic enclosure, including making use of an injection molding service. The PCB also needs to pass a series of tests for quality control purposes. The cost is only for the first production run; after the mold has been acquired and the tests are done, the manufacturing setup cost drops by quite a margin.

* Minimum order quantity ($25,000 to $50,000)

The manufacturing facility will not want to produce a small volume of product, even for the first batch. It is not uncommon for a manufacturer to set an MOQ (minimum order quantity) to make up for the cost of tooling and tests. The factory needs to profit from the manufacturing process, so an MOQ is necessary. Depending on the cost of manufacturing per unit, you can expect to pay around $50,000 for the first batch.

* Shipping and import ($5,000)

If the factory partner is based overseas, you must spend more money on shipping and import. The most economical way is to send the products on a cargo ship. Sometimes, it makes sense to outsource the factory partner overseas despite the additional cost. The amount of money you spend on shipping and the actual product development service is still cheaper than hiring a local factory here in the United States. However, do your research to see if the manufacturing quality of an overseas partner is good enough for your target market.

Compensation methods for industrial design services

When hired to develop a new product, a design firm may use three different financing models, and each favors a specific type of development and scope of work.

* Flat fee or fixed price

The most popular financing model is a fixed price or a flat fee. It is ideal when the proposed idea comes with precise inputs, requirements, specifications, and well-defined outputs. You must have a clear expectation of the product, so the design firm mainly works to facilitate and execute your instructions. A flat fee is often the compensation method by startup companies backed by external investors.

Fixed price means they know how much to pay right from the beginning. The budget is more predictable, and therefore the financing is easier to manage/secure. There are inevitably some changes during the development process, including adding or removing features and modifications to dimensions and interface. However, the design service must implement alterations (from the original concept) without affecting the budget. Only the design will grow throughout the project, not the cost.

The design firm will want to avoid taking a flat fee project unless the product is almost done. The fee structure makes sense to the firm if there are only a few unknowns left to figure out; at least 80% of the design must comprise known elements, leaving the firm a small portion of variables to solve. A redesign or copy of an existing product with minor cosmetic adjustments makes a good example. In such a project, the firm will not change anything that may affect the functionality of a product because the focus is on the aesthetic factor. Also, there is no need to repeat the DFM phase, engineering works, and certification.

*Fee for industrial design services

When a product is still pretty much in the concept stage and has not been tested yet, a design firm may require a compensation method based on the services provided. It is impossible to determine a flat fee simply because the amount of work cannot be quantified accurately. The product requirements and specifications are not final, making them open to changes as the design develops.

Almost everything is unknown, meaning the design is subject to modifications based on findings from market research, engineering works, prototyping, testing, certifications, and reviews. Fee for service pricing structure is the most common compensation method in an outsourced brand new product design – even more so if the product has to be innovative enough to fill a hole in the market and provide a solution to unanswered problems. There are bound to be some explorations and experiments to study multiple concepts.

Some design firms are willing to offer fee-for-service and flat-fee pricing structures for the same project. The low-risk aspects of the venture, such as creativity and packaging, can be a flat fee. They are low-risk because most of the works are pretty predictable, and there is not much that can go wrong. It doesn’t cost too much to revise the mistake if something goes wrong. High-risk phases, including engineering labor and manufacturing setup, are provided based on hourly-rate pricing.

At least in the United States, the hourly rate for a turnkey industrial design service goes from $100 to $450, depending on whom you hire. An experienced design firm with hundreds of product portfolios and patents under its name will charge closer to the upper range, if not more. Apart from experience, the pricing is also affected by the firm’s location and the business network supporting/leveraging its operations, such as manufacturing partner, prototype maker, and parts supplier.

You can find more affordable options by going on the freelance route, as in hiring an individual freelancer to design the product and a factory partner for manufacturing it separately. If you hire an overseas factory partner, remember to manage the shipping and importing of the manufactured products. With fee for service structure, payment is usually made in milestones, but the firm may ask for an early deposit to start working.

*Fee plus royalties

To drive down the initial cost, you can ask for a non-typical pricing structure in which the design firm shares the financial burden of the product development. Instead of simply paying a firm for the services provided, you give the firm a share of ownership when the product is ready. As the product reaches the market, the design firm earns a percentage of the selling price for every unit sold.

Depending on the agreement, this ownership share can be permanent or temporary until the earned profit (the firm’s share) recuperates its portion of the development cost. The obvious benefit is reduced industrial design costs. Startups, inventors, and entrepreneurs have the advantage of not spending a substantial amount on getting their ideas transformed into marketable products.

When they don’t have the luxury of money, the development process can still run at full scale. The reward is distributed equally since the owner and the firm share the risk. While the pricing structure has a massive early stage appeal, it comes with a significant challenge early on: finding a firm willing to take the project. Most established design firms with reputable track records are not exactly fond of the idea without any further research into the proposed design first. Unless they are convinced the product can generate profits, they will likely steer clear of the pricing structure.

Another big problem is the amount of royalty required. Assuming an experienced design firm takes on the challenge, the compensation will not come cheap. For any product predicted to be successful, the royalty can be three times as high as the actual development cost the firm would have charged. Certain firms thrive on this pricing structure, and they are willing to offer a low hourly or flat fee but ask for shared ownership instead. It does look appealing for startups, but the product will never be fully yours except if you buy back their share at the end of the day. A buy-back will not be cheap either, especially for a successful product.

Intellectual property often gets tied up in the pricing structure, whether the product fails or succeeds. If the product fails, everybody wants no share of the losses. Both parties are now in need of untangling themselves from the owners so they can prevent more financial burdens. The burden can be a lot harder to tackle for the design firm. In addition to the direct losses from the failed product, it has to cover the cost of company overhead, such as employee payroll and office space rent.

There are great stories of successful product design with shared ownership between the inventor and design firm. Experienced design firms know how to build great products when the opportunity in the market opens and is ready to capitalize. However, a good design alone is sometimes not enough to do a successful business.

Which pricing model is best?

It always comes back to the nature of the product and the amount of budget you are prepared to spend. A flat fee should be the first option when the product idea uses known technologies and has well-defined output, and a royalty-based price comes close second. Each is best approached when you are confident that the development will go through smooth progression without much of a challenge in research and engineering. You already know what to expect, how long it takes to develop, and the profit margin estimate.

The hourly rate is the most expensive (and perhaps worst for individual inventors). If you do not understand the requirement, dimensions, and most of the specifications, you cannot predict how much money it will cost to develop. What you have at this point is nothing but a mere idea without clear insight about how the market will react to the product and whether it can be an excellent alternative to competitors. Be that as it may, you can start with an hourly rate structure until you have a good definition of the product before switching to a flat fee or even royalty-based pricing.

How can Cad Crowd assist?

It takes a lot of work to get from a concept to a product, and a lot goes into succeeding in the market than simply coming up with a good idea. Various factors need to be considered that go beyond the product’s essential functionality, which involves ergonomics, aesthetics, manufacturability, durability, ease of use, and production price. Cad Crowd has a network of designers and product developers who can assist you through the design and development process. Contact us today for a free quote.