EEVblog #887 - The Economics Of Selling Hardware

In this Fundamental Friday Dave discusses the economics of selling your own hardware. Both directly and through a distributor/reseller.
Everything you need to know about pricing your product for your hardware startup. Cost Multiplier, Gross Margin Percentage, Markup, and Cost Of Goods Sold are all explained.
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  • I was just considering doing this very thing and living in NorCal, made in California means something to the world. Thanks for the vid.

    Reginald MortonReginald MortonAylar önce
  • Lets just think about that....250% markup just to stay in business.....20 years ago 100% markup was amazing and you were flowing in profits. The avg just to stay in business was 25% mark up.....so inflation has risen 1000% while our pay has risen 5-10% of inflation!!!! WTF.....when does it end????? Just ridiculous

    S JS JAylar önce
  • How do you do when pricing a product for your client that you developed?, How would you price the work on software, desing etc and then add it to the product? or maybe price it separated from the product itself?... Thanks for all you work, grettings from Chile.

    ElectroMaticElectroMatic2 aylar önce
  • how about OEM ?

    chirag panchalchirag panchal2 aylar önce
  • Great video. That distributor might be able to sell 10k units instead of the 1k you can sell so even though you only make $28 each now you earn $280k instead of 75k. That number might get even higher because of economies of scale. Or you can use that time you are not packing/shipping products to develop another product and then you have multiple products earning you 28k a year. It all depends on your plans and the benefits the distribution agreement brings.

    excited boxexcited box3 aylar önce
  • Hi Dave (or anyone): very useful post, thanks! I put together a simple spreadsheet for a hardware product I am building, based largely on what I have learned listening to you. Would you (or someone here) be able to help review this for any obvious errors? Thank you!

    Johnny JohnJohnny John3 aylar önce
  • 11:04 "Don't pay for marketing" Best advice I've heard in a long time. Marketeers are frauds.

    Da QoraxxxDa Qoraxxx3 aylar önce
  • Great video! You left out the two most annoying and expensive bills: Legal and insurance. lol

    David PyperDavid Pyper3 aylar önce
  • Okay what about the "WHY" behind it? So there are a million products out there in every niche that all say they are the best in the world! They all say that! So how can you stand out? Well of course if yours has a slightly different thing of value but the main thing is the "STORY" BEHIND IT AND THE "WHY". Have a compelling one and you can charge 5000% markup and the people will go with you if they have the money. Some people can sell an ice cube to an eskimo or a handful of sand to someone at the beach.

    TWR ElectronicsTWR Electronics4 aylar önce
  • Awesome vid Dave... never thought about this subject..😉

    West StarrWest Starr6 aylar önce
  • Sadly, you could have created the greatest gizmo the world has ever seen, but then some shady Chinese manufacturer blatantly copies it (read: steals your idea), flooding the market with a cheap clone, essentially driving you out of business. Then you spend a fortune on litigation, yet in the end you just can't win. Nowadays, the scales of economics have put the small time tinkerer at a huge disadvantage, to a point where it's almost not worth it. Yes it's easier to build something, but a lot harder to mass market it without loosing the shirt off your back. Just my 2cents.

    Bill ABill A8 aylar önce
  • Thanks Dave. After learning something useful, I had a good laugh at the Turbo Encavulator video.

    Scott HolmesScott Holmes9 aylar önce
  • Can we download the excel sheet? I can't find it on the form or the website

    BoehoehuahoeiBoehoehuahoeiYıl önce
  • But the problem here is now every man and his dog claim to be a design engineer ...electronics is one of the skills that no longer has any saleable value in that. It’s pretty impossible to make a living as an electronics engineer.

    Chris CainChris CainYıl önce
  • You put %60 markup, then the distributer/reseller puts %60 markup, final product costs 1.6x1.6=2.56

    Ergin DemirErgin DemirYıl önce
  • Thanks for the video Dave, very well done.

    Chuck SampsonChuck SampsonYıl önce
  • 💲Economics 💲Of making time machine spare parts & Flux-cap engines - Murphy's law - one day you'll end up running into yourself & knocking you 🙉 out cold chit happens 🐌💬wot?

    Mark ArnottMark ArnottYıl önce
    • dont ask - i never know were this chit comes from just does :) its like pics in my head i join the dots like

      Mark ArnottMark ArnottYıl önce
  • There's something I dont understand... you say at the beginning that the COGS includes "wages". Why doenst that also include the wages you pay yourself? You later on say that the profit after you calculate everything is how much you pay yourself, so clearly COGS isnt including that wage and you're presumably working for free. This suggests that the COGS you calculate isnt a valid measure of how much it costs to make that item. COGS should include ALL the costs... at least that's how it seems to me. But, I'm not an economist or business owner, so what do I know.

    DeusExAstraDeusExAstraYıl önce
  • Not an expert on this but doesn't the EU require the CE certification on ANY electronic product? This could be another cost to the COGS? I do know in the USA where I am safety certification is not mandatory expect in consumer retail where the retailer may require it. FCC part 15 is easy to dodge. But I have heard CE is very strict.

    Andy DelleAndy DelleYıl önce
  • Thank you! I needed this video two years ago. Very usefull!

    Guat AgelGuat AgelYıl önce
  • I thought manufacturing and selling in Australia was just a dream these days. Most just re-sell, no manufacturing. Its impossible, if you create /invent a new product, even with the patient, you will find other major manufactures will steal you're design, improve on it and re-sell it or build it into another product, and they know you will not have the funds to fight them in court. They may even beat you to market too.

    bjtaudiobjtaudioYıl önce
  • I'd hate to see the mark-up for high end hi fi gear..speakers for example are extremely expensive. Even 2.5 x is a massive markup. My understanding is to factor you're labor charges and tax into the cost of the product first, the labor which is you're wages. So the 2.5 X is pure profit hence why everything is so expensive in this country. The 60% markup by the re-seller is over the top too, that is clearly excessive in most markets. You would be better selling it you're self in that case.

    bjtaudiobjtaudioYıl önce
  • Hi Dave, could you comment on certification requirements? I'm somewhat confused on whether or not electronic devices require electrical certification before they can be sold (FCC, CE, ROHS, etc.).

    Teague HallTeague HallYıl önce
  • old fashion dead tree hahaha

    biakrobiakroYıl önce
  • As for the "lost in shipping" part, I would like to say that you can add shipping insurance, so that if there's a problem, you get your money back, or at least that's what they promise. I'm not sure about the effectivity of this, but it could be interesting.

    GRBTutorialsGRBTutorialsYıl önce
  • I also add in the "auto plus" drive factor. Chevy, Ford ect=1x suggested price point. Mercedes, BMW ect=1.25-1.4x pp, ect, ect, ect...

    A MA M2 yıl önce
  • I would like to know where you are getting low cost PCBs without buying 10,000 or more units.

    Robert's Electronic HobbiesRobert's Electronic Hobbies2 yıl önce
    • China!

      Chuck SampsonChuck SampsonYıl önce
  • I'm considering that maybe your view, being the big monolith that is eevblog, is a bit bias. If I, someone who hadn't touched electronics 6 months ago launch a product I'm not sure I could find people who would want to receive the packages, nevermind review them. It's a bit pessimistic but there's probably plenty of products that couldn't really get anywhere without the exposure and customer assurance your product gets from a site that sells for you. I find that the upsides that resellers offers aren't really presented here. As a consumer I don't particularly mind buying directly from people on their own sales platforms but its difficult finding out about their stuff usually.

    MrSnowmanMrSnowman2 yıl önce
  • Boring!!! It's like finding Stereo Record Player adverts in your fav ELECTRONICS MAGAZINE. Fell asleep. :)

    supertimismsupertimism3 yıl önce
  • The only caveat that I would add to going through a distributor would be if they can dramatically increase the number of units sold. In the example of $28 profit through a distributor vs $75 sold direct, if you can only sell 1000 per year but the distributor can sell 10,000 per year, you'd make $75K direct vs $280k. All this is dependent on the distributor and market size. but it is another factor that wasn't discussed.

    Tom CourtneyTom Courtney3 yıl önce
  • How to Build List Inside Facebook? goo.gl/EUPXTo

    Ric FloresRic Flores3 yıl önce
  • Free Posting of your Products and Services to 23,000 Facebook Group Members of Global Selling and Marketing. Post your products and services goo.gl/8Gl5rg

    Ric FloresRic Flores3 yıl önce
  • better off reselling used electronics

    punker4Realpunker4Real3 yıl önce
  • Thanks a lot, Dave

    Hrnek BezuchaHrnek Bezucha3 yıl önce
  • Any recommended books on small business economics, as applied to electronics hardware?

    Mason Austin GreenMason Austin Green3 yıl önce
  • The negative notion on distributors isn't justified. A developer with less capital can use them to avoid investments into infrastructure. Or if you don't have the money for distribution facilities use a distributor. Another reason to use a distributor could be the focus on new products instead of managing the whole chain.

    Ralph KoettlitzRalph Koettlitz3 yıl önce
  • Would you like to do a video on regulations and such ? What sort of stuff has to have to be CE branded (in Europe) for example

    AxelAxel3 yıl önce
  • Great information!!! I'm looking into this process at the moment.

    Peter XYZPeter XYZ3 yıl önce
  • Great video, thanks a lot!

    Indiskret1Indiskret13 yıl önce
  • +EEVblog Hey Dave have you got a video or explained anywhere about the electrical safety, standards, regulations and testing (by test labs) .etc. that is required for a product before it's sold? And where kits fit into the picture and AC vs DC devices and so on.. For those of us who don't know anything about this?

    Tharun SontiTharun Sonti3 yıl önce
  • Great video! Clear and concise. Love it. Quick question though...I have a product I'd like to sell, and running the numbers of my BOM, it will be ~850 dollars (~$2125 with the 2.5 multiplier). My question is: Is the 2.5X multiplier a constant e.g. does NOT change no matter the COGS? Or is there a tapering off at higher COGS?

    futurepower89futurepower893 yıl önce
  • It's a minor nitpick, but 60% is in fact 0.6. You say "not the 60% figure, but the 0.6" which is nonsense, since they are exactly the same. Just like 100 centimeters is the same as 1 meter, 60% is the same as 0.6. The sign itself originally meant "for a hundred". Knowing that it's quite easy to see why 60 for a hundred is the same as 0.6.

    DelusionalLogicDelusionalLogic3 yıl önce
  • Brilliant video Dave thank you. Really outstanding to have it all so clearly summarised. ps my turbo encabulator is for sale if you're interested, still in its packing crates.

    m3chanistm3chanist3 yıl önce
  • Hey there, you mentioned that there are companies that will take designs and handle the rest and you end up with what amounts to a royalties cheque. Would you be able to elaborate on such companies ie: examples of them, how to find them, what sort of criteria they look for, etc?

    Robin HiltonRobin Hilton3 yıl önce
  • Ello :) I just got my DS1054Z. Got a nice free multi with it, UNI-T UT33D. Better than the POS I had before :) Needto figure out how to use the Rigol and get me some readings! Any tips? I bought it for learning

    TheDroidBayTheDroidBay3 yıl önce
  • I would rather sell 10.000pcs to a distributor in 10 batches instead of 1000pcs myself to retail customers.

    Frank JoostenFrank Joosten3 yıl önce
  • Dave a very nice and educational video! Thanks! Its so good to listen to a domain professional talking about selling specific industry products than some Economic / Finalcial weaboo that does not even know what the product is about and how it is made, Thumbs up for the Libreoffice....

    FlankymangaFlankymanga3 yıl önce
  • Isn't cost of goods (COG) supposed to include design phase as well? Some money in spend in software licences (Computer Aided Design), etc, etc

    DmitriDmitri3 yıl önce
    • Well, that would be your initial cost and, meanwhile you can add it to your COGS, you can also omit it and subtract it from your total profit after selling. Also you don't necessarily need to buy a software license. You can get away using free software, like KiCAD.

      GRBTutorialsGRBTutorialsYıl önce
  • Dave, I’m using the same 2.5x rule in the construction business. Usually for stuff I am not sure what to charge for, i mostly work on restoring old houses. Love your vids, keep it up :)

    Claudiu BurdujaClaudiu Burduja3 yıl önce
  • Let's see how this works out for the Batteriser.

    Ernst Stavro BlofeldErnst Stavro Blofeld3 yıl önce
  • Hey mate did you figure out git?

    ank2000ank20003 yıl önce
  • wow a your getting into accounting?

    Adrian ConnollyAdrian Connolly3 yıl önce
  • loved watching this. much to think about. I was wondering, if I sent them say a 1000 diodes on a reel but they only used 100. will the return the rest or ahould i be sending exact quantities?

    kieranjr1kieranjr13 yıl önce
    • Sometimes the shipping cost backward will be more than the whole rail. Assume this. However, for our customers we provide warehouse (as a separate service), so anytime they decide to manufacture another device we can reuse the components if they fit the BOM.

      Emil KirilovEmil Kirilov3 yıl önce
  • Surprised you did not talk about the time value of money, opportunity registers or Net Present Value.

    Upton Robotics Pty LtdUpton Robotics Pty Ltd3 yıl önce
  • Pickup needles in the old days had a 30 - 60 x COGS

    Infinite loopInfinite loop3 yıl önce
  • now i know why these VR headset cost so much

    djaysenpaidjaysenpai3 yıl önce
  • THANKS FOR THE VIDEO

    John ConradJohn Conrad3 yıl önce
  • I really learned so much with this Video Thank you Dave, because of you I Now have a stronger grasp on how to formulate my product to market. My only question is and maybe you can make a video of it. When my final product is for sale and I use all these different parts IE...Components and so on from all these different companies ....if I can patent the product do I need their permission? let's take your multimeter for example you used a whole bunch of components to create the unit if you were to patent it would you have to pay each company for their components? I hope this makes sense. Love your work it keeps me inspired to develop my on hardware.

    gorgster dgorgster d3 yıl önce
  • Wow, what a fantastic video, thanks Dave.

    BHBalastBHBalast3 yıl önce
  • I founded and ran a electronic company in the past (sold it now). IMHO a distributor is worth the mark up. Although in the first moment 60% (sometimes more) does not sound "fair" (=easy money you think you can have yourself), but the most important issues are: Reach far in the market to have huge volumes and do the work that you as an engineer probably dont enjoy: Dealing with stupid, time consuming customer and doing paper work, like single shipping, customs and national regulations in foreign countries etc. I did both, started selling the product myself and afterwards having an exclusive worldwide distributor (to whom I now sold my company). Also keep in mind: You might want to have time to develop further new projects in the future.

    Ein GastEin Gast3 yıl önce
    • These are exactly my thoughts at this moment. Why spend time slaving with all of that when you could enjoy a better quality of life and even design more products to sell.

      Ayson BaxterAyson BaxterYıl önce
    • Ein Gast You could hire a person to do the customer service. But yeah if the distributor gives you 3 times or more sales and more time to work on improving/inventing new products it is a good deal.

      RanEncounterRanEncounterYıl önce
  • Thanks for the video. I am getting into all this stuff with my new product. I am dealing with allot of Chineese people that tell me what to think and what should do, and it's not a very good way in making decisions. But I have nobody to advise me, so that makes things hard. I was shocked to hear you say that it is easier than ever. What kind of a person would I have to search out to be able to get down to earth advise as this video?

    Ralf SchooneveldRalf Schooneveld3 yıl önce
  • When comparing the benefit of using a reseller should you not price in the cost difference of your time in handling sales, rather than just the possible volumes of either method?

    E CooperE Cooper3 yıl önce
  • Excellently useful - covered a bunch of stuff I happened to be thinking about this very week. Plain "electronics design" videos come ten a penny these days, but Dave has the industry experience to back up a much broader range of subjects, such as this.

    Paul EvansPaul Evans3 yıl önce
  • Nice Overview. Here is something to think about. I made a widget that would fit into a standard cast aluminum 4- 1/2" square outdoor electrical box you could buy at any big box hardware store. Pretty slick, I thought, until I found the supplier changed the internal design of the box.

    Chris HarperChris Harper3 yıl önce
  • Very usefull and eye-opening material. Thanks Dave.

    ZaYwasZaYwas3 yıl önce
  • Hey mam, Just came across your blogs.... found them useful... gr8

    Abhi AroraAbhi Arora3 yıl önce
  • If you sell yourself you have to take into account marketing costs, even the cheaper ones such as sending samples to blogger/reviewers will impact on the overall business costs.

    Claudio G.Claudio G.3 yıl önce
  • although not for me, I think this stuff really is helpfull for starters.. love your work, keep it up. When is an update coming about your massive new office?

    kilobit999kilobit9993 yıl önce
  • Really interesting..good to know. I'm keen to develop an idea I've been sitting on. The main problem is I'm currently living in a country with terrible postal service. Seems to me to be successfull at e-commerce you need reliable postal with affordable rates. Dave when you got your Bryman dmm's done did you think about or look into logistics/drop shipping agent to handle the distribution Taiwan/China(whereever they are made)? Be interested to hear about that side of things. Your eroding those profits having to pay feight to Australia , plus import duties etc etc. The ones I have contacted in places like Hong Kong/Malaysia are incredibly expensive - in the order of several thousand $$ a month per X metres squared space - they don't deal with small/hobby companies. In an ideal world I would like to get my stuff manufactured and then delivered to a relatively nearby logistics firm. Nothing is easy about this process and real information is hard to come by. Easy to see how start-ups go bust quickly. makes me think that doing it through indiegogo/kickstarter could be the way forward. Get your sales in place first. If the campaign failed.. At the very least it would be a good reality check - before you go blow your savings on a turkey???

    steve flynnsteve flynn3 yıl önce
    • @EEVblog I mean from the china/taiwan to Australia. If you had shipping directly from there, instead of freigting to Australia first you could either increase profit or pass on savings to the customers. plus there the time that you have to spend doing the packaging and arranging post. Be good if there were smaller logistics/drop shipping agents who tailored themselves to small e-commerce business's.

      steve flynnsteve flynn3 yıl önce
    • @Robin Hilton great idea

      steve flynnsteve flynn3 yıl önce
    • Why not start another idea where you create a logistics sharing service. Ie: have distribution arrangements with other makers in different countries whereby you'll hold onto & ship some of their units for orders that happen to be in your country and they then do the same for you. Note that this would be a great way of reducing delivery times if you manage to get one or two makers partnering up per continent. Also I'd be keen to be a part of such a system if you end up shipping / wanting to distribute in New Zealand :)

      Robin HiltonRobin Hilton3 yıl önce
    • No I'm not eroding profits by shipping from here, the customer pays the shipping cost.

      EEVblogEEVblog3 yıl önce
  • When are you going to do the next mailbag I am hoping you have not stopped doing the mailbag! I miss it!

    Chris CrawfordChris Crawford3 yıl önce
EEVblog #887 - The Economics Of Selling Hardware