Cost of Goods Sold & Pricng Questions...
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    Default Cost of Goods Sold & Pricng Questions...

    I have a fairly simple product idea that I've been mulling over for a few months, and will probably try to cut some prototypes soon. The idea would be to have the parts made by a local shop vs. building my own shop, and just focus on the selling/business side for now.

    For those who make & sell a product of their own - How do you weigh your cost of goods sold, vs. the selling price. Spreadsheet of costs x multiplier to come up with a sales price? Or is it a gut-feeling of what the market will bear, then list it for sale? Somewhere in between?

    Curious to know your thoughts on this. Thanks


    (Edit - To be clear, I'm not interested in job-shop or contract machining services work - products only right now.)

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    With respect, the market doesn't give 2 s__ts what your COGS are.

    Regards.

    Mike

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    We make our own product, and we get alot on the "wholesale" end (I think that is the correct term as we don't sell to the public that I know of)... but the machined portion is just a small percentage of what we sell (mostly).

    For example, there is a certain product very similar to what we make that retails for just over $1k- it is two machined pieces, with a bit (a little bit) of electronics enclosed in it, think less than 1" cubed in size. The costs I think are mainly -

    A) gold plating (alot of our stuff is)
    B) the electronics inside
    C) quite a bit of 'lab' work under a microscope to assemble said electronics and silver solder into position

    I am thinking for this unit we probably get $500 or so per assembly. BUT, as I said, machined componets are a small part, 2 pieces, probably with less than .5 hours machining between them...

    Is your product, just mechanical in nature ie just need to get machine time, or dos it involve ass'y and stuff? If it does (ass'y, guts, outside services, etc), you should price that out first, then look at machining time and stuff to see what it will actually cost to produce.

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    Quote Originally Posted by Mike1974 View Post
    Is your product, just mechanical in nature ie just need to get machine time, or dos it involve ass'y and stuff? If it does (ass'y, guts, outside services, etc), you should price that out first, then look at machining time and stuff to see what it will actually cost to produce.
    Good question. Machining, plating/finishing, packaging would be involved in the final "product".

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    Quote Originally Posted by Jashley73 View Post
    Good question. Machining, plating/finishing, packaging would be involved in the final "product".
    This number sticks in my head, but I won't swear by it... I *think* to have 100 "lids" (.063x1.5x2" ish) gold plated is around $500. So--- $5/each? Keep those costs in mind in your research.....

    I mean, I know anodize and stuff will be much cheaper than that, but food for thought.

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    I've been doing products since 2006 and pricing is a gray area, but one thing is 100% certain- The higher your margins are the better off you are plain and simple.

    I have made and sold stuff that was really high cost, say like $10k sale price, but the cost was sometimes 80% of that in materials and services. For me, that ended up being totally unsustainable because I really needed a few hundred grand in inventory and I struggled to keep $50K-$100k on the shelves.

    I have one long time product line that have performed pretty well and I have refined everything to the point where I can sustain about a 50% margin because they sell well at a certain price point and I have built up a large inventory over many years.

    Everything else I take cost to have it in the box ready to ship with my spindle time factored at $100/hr and multiply that by 5 to 10. Then I compare that number to what I think the market will bear.

    If it's a really cheap to make widget just go off whatever you can get for it. Like if it's a formed bracket that costs 8 cents to make sell the fucker for $29.99 or something. It isn't worth it to sell something for $8 unless you're selling them by the truckload.

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    Retail is 2x Wholesale.

    Wholesale is 2x Manufactured sale price.

    Manufactured is usually 20% more than cost to manufacture.

    If you get 25-30% more than manufactured cost it can lead to competition doing the work for 20% markup. If you are already at 20% markup it tends to keep competitors away. Unless of course you have something proprietary that no one can compete with.

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    Quote Originally Posted by DanASM View Post
    Retail is 2x Wholesale.

    Wholesale is 2x Manufactured sale price.

    Manufactured is usually 20% more than cost to manufacture.

    If you get 25-30% more than manufactured cost it can lead to competition doing the work for 20% markup. If you are already at 20% markup it tends to keep competitors away. Unless of course you have something proprietary that no one can compete with.
    I think there's a scale factor that applies to everything you wrote above.

    If you're making a product that a bunch of other people already do you'd damn well better have some kind of crazy unique mystery process that makes it very profitable or you're going to lose your ass.

    I would hope that anyone jumping into their own products has, atleast what they perceive to be, a rock solid niche.

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    Most figure out what they can sell something for, then a way to build it for as little as possible to maximize profits.

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    If you can’t sell at a price it is too high. If the customer has a big smile the price is too low. A grumbling customer leaving with product is ideal.

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    Quote Originally Posted by garyhlucas View Post
    If you can’t sell at a price it is too high. If the customer has a big smile the price is too low. A grumbling customer leaving with product is ideal.
    I disagree with that.. It depends on what you are trying to sell..

    If something that everybody NEEDS. PRICE, and for the most part PRICE alone dictates sales.

    If its a luxury item, a "Toy" or a status symbol.. In my experience, for the most part, sales
    will suck if the price is too low. My little jaunt into the direct to customer market. COMPLETELY
    unnecessary thing. Couldn't sell them at $100, sold ONE.. a few went at around $200.. $245 was
    a little better on volume. Got to $365 and they went quick.. Then stopped making them because
    real work got busy again.

    There are some things that people just want to brag about how much they spent on it.. There are
    things that even if priced fairly just seem too good to be true..

    It really depends on who your target audience is..

    One of the management classes I took in college dealt with the cost/volume/demand thing..

    Say I'm selling 1000 penis widgets a month, at $100 each.. But demand for penis
    widgets at that price is 1300... Do the math.. (which means making up your own formulas)
    to determine if expanding to produce (or outsourcing) would make you more money at 1300
    widgets a month.. OR... raising your prices to reduce demand to your present capacity of
    1000 widgets a month..

    And then take it a step further.. If you double your pricing, and drop your demand to say
    300 a month, can you actually increase profits by dropping production by 70%???

    A lot of numbers to guess at and plug in.. But the lesson is...

    Selling More Product DOES *NOT* necessarily mean you are making more money.



    Old one I may have heard here.. Little kid with a lemonade stand.
    "Lemondade $100".. Neighbor comes by and says.

    "Just how many glasses of lemonade do you thing you can sell for $100"

    And the little kid says.

    "Mister.. I only have to sell ONE".

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    Price is based on demand. Buy a used college economics 101 book and dive in.

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    Quote Originally Posted by Jashley73 View Post
    For those who make & sell a product of their own - How do you weigh your cost of goods sold, vs. the selling price. Spreadsheet of costs x multiplier to come up with a sales price? Or is it a gut-feeling of what the market will bear,
    its not entirely black and white. The theory is you charge what the market will bear not some increment from cost. However supply and demand are a curve - price too high you don't just discourage demand, you encourage new entrants (increased supply). The grey is how exclusive is your little patch?.....and....even someone else can't make "it", new entrants/competition can also be alternatives.

    How protected is the IP (ip isn't just patents, its brand, know-how, design and so on)??. The more protected it is the more you'll get away with before alternatives get share, The less protected it is, the more price is a function of cost, as how lucrative it is will affect supply/new entrants.

    For example, I occasionally make roll off containers. Lousy business, but it plugs holes. I can call it a product all I like, but as anyone with a tape measure can figure out how to make one, the price is very much governed by a mark up over costs. If you start charging more than a say a 25% gross margin on such a product., someone will start completely and pull that margin back down.

    So while it might be incorrect to coach someone to equate pricing strategy to a markup over costs, it pretty ends up being that in a commodity type business. The trick is, or the prize goes to, he who can figure out how convert said commodity business into not just competing on price.

    For its worth, the average gross margin for publicly listed manufactures is iirc 28 or 30%

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