How do I figure out what to charge for my hardware product?
This is a tough question and there are many ways to look at it. I am going to a have a target margin of 50%, but that is going to vary depending on how you are planning on selling it (direct, reseller …). This is only one way to get a price for your product, there are others based on how you sell it.
- know your COGS (cost of goods sold). Calculate all component and assembly cost.
- calculate your shipping costs, are they included or are you charging extra for it.
- calculate the cost to collect money (%3.5 of cc?)
- do you have commissioned sales staff (%2-%15)
- you should expect returns and defects of %2-%5 depending on the product
if you are using resellers, you also have to add %40 – it is a good idea to build this in from the start so you can do it when you are ready without raising your price.
So what does this all mean:
- $60 (40% retail)
- $10 (shipping [this is a little high, closer to 8 but lets be safe])
- $5.25 (CC charge)
- $9.00 (6% commision)
- $6.00 (returns)
= $59.75 - COGS
To have a 50% margin you are going to have to create your product (and packaging …) for ~$20
That is not a lot of money! it costs a lot of money to make hardware, do not under price your product if you want to be successful.
My knowledge is limited to CE type products. Two points:
In consumer electronics the market sets your price (Of course there are exceptions). Take our product -Butterfleye- as an example. We are making an awesome monitoring camera that has incredible differentiations compare to existing solutions. However monitoring cameras and other smart-home devices exists and there is an acceptable price range in the market. Nest Thermostat is $249. Dropcam $199, Logitech $349, Foscam $99. You need to know if you are going to the market as a low cost leader, high-end premium, etc… Depending on the value you add to the consumer and how emotionally invested (think GoPro, BestsByDre) you can get your consumer. Then you can be somewhere in the price range or push the upper/lower limits a little bit.
Step pricing vs increase adoption concept in CE. There are these set mind steps in the brain of 99% of consumers. $249, $199, $99, $49…When you drop your price from $249 to $199 there is a big step up number of consumer willing to buy-now. If you drop your price from $249 to $219 there is almost zero change. I am always surprised when I see a company pricing their product at $219 or $119, etc. These companies are literally leaving money on the table. The $119 guy should raise to $149 and get higher margin but same # of units sold (or drop to $99, lower margin but significantly increase # of units sold)
Notice, I didn’t talk about your internal cost of goods, disti margins, fulfillment center, etc. They are all important, but I think to have a successful CE company you need to start from the consumer and make sure your cost works out.
Founder, CEO, Butterfleye
You must obviously cover your COGs (cost of goods).
Retail stores typically want 45-50% of your margin so build that into the cost.
Compare it to other hardware goods in similar categories.
Founder/CEO of Nomiku
I will try to explain this (quick and simplified version) by using some of the most important abbreviations to learn First find out your BOM (Bill Of Materials) cost and multiply it by three. Thats (often in consumer electronics) your RRP (Recommended Retail Price). You can find out your BOM by sending an RFQ (Request For Quotation) to a number of appropriate ODMs (Original Design Manufacturer). The RFQ should contain your product specs and design intention. There are many learnings to do in the field of pricing… For example: • Better to launch slightly high, because it’s easier to lower the price at a later stage than to increase it. • You don’t (almost ever) want to be the most expensive item in any of your channels. • If the RRP comes out too high for consumers, could you pivot the business model towards service integration?
Founder, Industrial Designer, PeoplePeople
You can also price it by how much value you’re creating for your user.
For example, you created a unique robotic product display for a retailer that increases sales by X% from their previous display. You can charge a portion of that X% and capture the value of the increase in sales that you helped generate.