Manufacturers have a lot of things they need to pay for with the money you\u2019re giving them. It would be unwise of you to believe that you\u2019re simply paying for the parts. Consider that you also have to pay for labor, as someone has to put in the legwork. You\u2019re paying for the manufacturer’s overhead, which includes their operating costs like rent and utilities. And they\u2019re also factoring in their incidental expenses when charging you\u2014that is, supplies they use while working.<\/p>
But like I said, you\u2019re setting yourself up for success if you\u2019re reading this before looking for manufacturers. Here are seven things to keep in mind when mapping out your manufacturing budget.<\/p>
Bill of Materials![\"bill](\"https:\/\/cdn.cadcrowd.com\/blog\/uploads\/2018\/02\/bill-of-materials-300x225.jpg\")
<\/h3>
A Bill of Materials (BOM) is a list of the materials needed to create a single unit of your product. Depending on the complexity of your design, it could be quite costly to make, which would increase the initial investment you need to fork over to the manufacturer. Also, consider whether you\u2019re offering different variations of the same product (maybe you\u2019re manufacturing shoes and want them to come in different colors).<\/p>
Obviously, more expensive materials will hike up the price. Not only does metal cost more than paper, but tooling will cost more. Think about whether the parts used to make your product are pre-made and sold on the market or need to be made custom. If it\u2019s the latter, you can expect to pay quite a bit more.<\/p>
You could go into this phase blind, not knowing how much your product costs to make. But if you do your research, you\u2019ll not only be able to plan ahead, but can shop around and find better deals with your new found knowledge.<\/p>
Minimum Order Quantity<\/h3>
You may be able to find manufacturers who are willing to make less of your product and are more negotiable, but they\u2019re rare. A lot of manufacturing is done in China, and these factories have their own reasons for having non-negotiable, high Minimum Order Quantities (MOQ).<\/p>
One of the biggest reasons why Chinese manufacturers have high minimum order quantities is because they need to make a profit. They usually operate on low-profit margins, so if they\u2019re going to train workers and set up a product line for you, you better be ready to order in the thousands.<\/p>
There are a few things you can do before giving up due to high MOQs. First, try looking for a small supplier. They may be willing to place a low quantity order because they\u2019re new and eager for business. However, make sure they comply with industry and safety standards\u2014if it looks too good to be true, it probably is.<\/p>
Second, you might as well try to negotiate. You don\u2019t have much to lose. If you find a supplier that is having a slow year or is under capacity, you may be able to cut a deal. The odds aren\u2019t in your favor here, but it\u2019s worth a shot.<\/p>
A final tip: A lot of factories in China accept orders before figuring out how they\u2019re going to fulfill them. You want to make sure they are equipped to make your product before signing any deals.<\/p>
Purchase Order (Price Quote)<\/h3>
Once you find some manufacturers you think might be a good fit, you reach out to them and get the MOQ and a price quote. This number can be shocking and is a huge initial investment. A lot of factories want up to a third of the total before they even begin production and require the rest once they ship you the inventory.<\/p>
If you aren\u2019t well-connected (or just plain lucky) and haven\u2019t pre-sold your inventory, you might be in trouble. Figure out beforehand how you\u2019re going to sell your product so that you don\u2019t end up with a huge inventory that is expensive to store and is only slowly moving.<\/p>
Tooling![\"tooling\"](\"https:\/\/cdn.cadcrowd.com\/blog\/uploads\/2018\/02\/tooling-300x185.jpg\")
<\/h3>
Depending on what your product us, the tooling cost could be quite high. When the manufacturer has to engineer tools to be used specifically to create your product, they are going to charge you for that. It can cost anywhere between $1,000 to even $200,000 (though you probably won\u2019t be paying that much).<\/p>
Once you pay for this, you actually own the tooling and could theoretically take it with you to a possible future manufacturer. However, it may be custom fit and only work in the factory that made it. Make sure you want to maintain a relationship with this manufacturer before biting the bullet.<\/p>
Because most small businesses and entrepreneurs can\u2019t feasibly fork over tens of thousands of dollars for tooling, many manufacturers will amortize the tooling costs. Meaning, you pay a little extra per unit until the tool is paid for. If your manufacturer refuses to do this for you, then they don\u2019t think you\u2019re worth the risk.<\/p>
Packaging![\"packaging\"](\"https:\/\/cdn.cadcrowd.com\/blog\/uploads\/2018\/02\/packaging-300x210.jpg\")
<\/h3>
Once you\u2019ve got the manufacturer and tooling figured out, you\u2019d think that\u2019d be it. Unfortunately, there are still other minor costs to consider. How are you going to package your product? The answer to this question comes down to one factor: is your item going on a shelf?<\/p>