Some of you may recognize me or have seen me elsewhere on the forum. To preface this, I am a small one man shop. Job shop, used to do a lot of Tool & Die work. Lately (this year especially) I have been spending more and more time on developing products and bringing them to market. I have two questions related to this topic.
Question one relates to associated costs with development work. Just for random numbers, Product A took 30 hrs to model, develop, machine. Once finalized, it takes 45 minutes per piece to machine and $1000 worth of consumable tooling to run 100 pieces. Material costs $100.
One side of me says time X shop rate, + cost of materials and tooling/100 = "cost" of product
The other side of me says, there is a good chance I will make many batches of this product over my life time, so the development time should not be factored directly into the cost of the initial batch of product? How do you handle this? How do the big boys handle this?
Question two relates to development work for a customer. I currently have a repeat job I am hoping to get with a customer. Part up till now has been the customers product, I bought this product on a regular basis. Due to several reasons they can no longer make them. After several discussions I was given the go ahead to develop the part. They had no prints, no models, only existing parts. All the parts are made on jigs and fixtures. They sent me what information they could in regards to their production of the part. Taking my knowledge of the product, hours of research, reverse engineering, and development, I now have a solid model, and a machined part. Sent the customer a sample which they are happy with. That sample cost me.... god, I don't even know how many hours. I tracked my out of pocket costs closely, that totals shy of $2400 in tooling, materials, soft jaws, etc.
How do you carry expenses and break them down for a job? I can see if it is a short term contract for a customer, I would have documented closer and carried those costs into the job. In this case, I will likely be making, and selling this product, for near on the rest of my life, until I retire, the market dies, or I get put out of business by some Jetsons style printer that magically creates parts.
Currently I have this part priced to the customer at a price which covers all of my tooling and material costs per batch, labor at shop rate, including inspection, and a minute or so per setup (8 total) per part cushion. The above $2400 will be enough tooling to cover the first batch of parts, so I am at a loss for my development labor.
The NEXT time I do a job somewhat like this, how SHOULD I do this?
I've asked several people about this and gotten some interesting responses. The most interesting was from my dad. The company he works for is currently working with a Federal agency to develop a product. The last 4 years they have been developing a product to bid for a job. They have spent over $6 million on the job so far. What they have learned, is that they do not want the job. They do not want to make the product. They have learned a lot developing the product, and as far as I understand it, will essentially eat the $6 million and move on with their lives. Other friend in other industries, every dime is paid, time & cost, by the customer. Would be curious to hear some opinions from the machining side.
Question one relates to associated costs with development work. Just for random numbers, Product A took 30 hrs to model, develop, machine. Once finalized, it takes 45 minutes per piece to machine and $1000 worth of consumable tooling to run 100 pieces. Material costs $100.
One side of me says time X shop rate, + cost of materials and tooling/100 = "cost" of product
The other side of me says, there is a good chance I will make many batches of this product over my life time, so the development time should not be factored directly into the cost of the initial batch of product? How do you handle this? How do the big boys handle this?
Question two relates to development work for a customer. I currently have a repeat job I am hoping to get with a customer. Part up till now has been the customers product, I bought this product on a regular basis. Due to several reasons they can no longer make them. After several discussions I was given the go ahead to develop the part. They had no prints, no models, only existing parts. All the parts are made on jigs and fixtures. They sent me what information they could in regards to their production of the part. Taking my knowledge of the product, hours of research, reverse engineering, and development, I now have a solid model, and a machined part. Sent the customer a sample which they are happy with. That sample cost me.... god, I don't even know how many hours. I tracked my out of pocket costs closely, that totals shy of $2400 in tooling, materials, soft jaws, etc.
How do you carry expenses and break them down for a job? I can see if it is a short term contract for a customer, I would have documented closer and carried those costs into the job. In this case, I will likely be making, and selling this product, for near on the rest of my life, until I retire, the market dies, or I get put out of business by some Jetsons style printer that magically creates parts.
Currently I have this part priced to the customer at a price which covers all of my tooling and material costs per batch, labor at shop rate, including inspection, and a minute or so per setup (8 total) per part cushion. The above $2400 will be enough tooling to cover the first batch of parts, so I am at a loss for my development labor.
The NEXT time I do a job somewhat like this, how SHOULD I do this?
I've asked several people about this and gotten some interesting responses. The most interesting was from my dad. The company he works for is currently working with a Federal agency to develop a product. The last 4 years they have been developing a product to bid for a job. They have spent over $6 million on the job so far. What they have learned, is that they do not want the job. They do not want to make the product. They have learned a lot developing the product, and as far as I understand it, will essentially eat the $6 million and move on with their lives. Other friend in other industries, every dime is paid, time & cost, by the customer. Would be curious to hear some opinions from the machining side.