What’s the issue?
To be sure of an acceptable ROI with an electronic product development, it is necessary to know both what the manufacturing cost of electronics (PCBAs) will be and what the market price can be, but manufacturing cost isn’t accurately known before design. It’s an irritating dilemma, but the EM can help.
How do I confirm ROI from manufacturing cost of PCBAs before design?
It all boils down to component cost, which can be estimated via distributors like Farnell. The rule of thumb:
The cost of a populated and delivered PCBA in moderate size batches (100s) is 3 times the component cost
This isn’t as hard to work our as you might imagine, and if you need help, the EM is only a button click away. Just think through the major functions your device needs. Let’s take an example: you need a PCBA that will provide wireless Bluetooth connectivity, programming capability, the ability to respond to the status of several switches, to drive an OLED screen, and finally to drive a d.c. motor. If you know how to get some rough costs for this from a site such as Farnell, then go ahead and do it. If not, just click CONTACT US, and the EM will help you. Let’s say the sum cost of these components is £17.50. There needs to be allowance for necessary passive components in the circuit (nominal resistors and capacitors), and the EM recommends adding 10% for these, which brings the component cost to £19.25. Therefore in batches of hundreds, the manufacturing cost of the PCBA in question is: 3 x £19.25 = £57.75.
- If the board contains either a low number of items or any single item on it is disproportionately expensive, the rule breaks down.
- This is an approximation, but it is very useful for getting a feel for whether a not a development stands up commercially.
- ROI is calculated using discounted cash flow techniques (not the topic of this article but it is well covered on the web). In short, all the investment and costs are added and it is established that income from the investment over the investment period is in excess of cost by the degree that the target ROI demands.
How do I know if my electronics costs too much and breaks my market model?
There are another couple of rules to consider (VAT ignored in calculations):
- If selling business to business (B2B) without distributors or middlemen involved, the price will need to be at least twice the cost, which would mean the example above would need to sell for approximately £115.50.
- If selling business to customer (B2C), the price will need to be at least three times the cost, which would mean the example above would need to sell for approximately £173.25.
Obviously, there is a risk that the market model is broken if your market will not stand the figures calculated above. This exercise is well worth doing because it gives a good indication of market viability before any expense.
How can I estimate volume manufacture costs when volumes are extremely high?
If volumes are vast, the cost of the PCBA becomes the cost of the components in those volumes. The reason for this is the cost of set up and PCB without components becomes negligible. What the component costs are likely to be in such volumes are best discussed with reputable distributors, e.g., Avnet, Anglia.
A final note: always make sure any developers have target manufacturing costs to work to, which of course fit the market model. Also, make sure it is understood the target versus actual is regularly reviewed. Help with implementing the contents of this article is gladly given by the EM (click CONTACT US above).
