Contrary to popular belief, engineering costs and other one-time expenses are not the biggest financial burdens in product development. While these costs are essential, they are a necessary investment that will ultimately lead to profitability. Instead, the most significant expense comes from the first product order.
Example:
Your first order is 1000 units
- $15K for product development, $20 manufacturing cost, 30K for Tooling = $65K
- $30K for product development, $10 manufacturing cost, 20K for Tooling = $60K
(2) saves $5000.
If your next order is 10K units
(2) saves $10/unit and $100,000 on your 10K order.
Having a higher margin on your product not only makes it more attractive to potential investors but also positions you for greater financial success. Investors often prioritize margins when considering where to invest their money, underfunded product development directly impacts their bottom line. By planning for higher margins from the start, you set yourself up for success in the long run.