How Much do Manufacturers Really Charge?
How much manufacturers charge will be influenced by a lot of things—many of which are difficult to predict. As a result, it’s not unheard of for a new entrepreneur to get vastly different quotes from one company to another. While it may be tempting to go with the lowest, this is a mistake that can lead to scope creep later that makes a project unsustainable.
When evaluating manufacturing costs, the more information provided, the better. This detailed approach ensures the individual providing the quote can investigate exact costs and even offer alternatives that will make the project more cost-effective. With a well-established quote, the creator will be better prepared to bring their product to market.
Factors that Influence How Much Manufacturers Charge
It’s difficult to gauge how much manufacturers charge because of the wide variety of products to consider. As a result, there’s no one-size-fits-all estimate. Instead, creators must look at several key factors.
Factors that influence costs
Ways to reduce expenses
|The overall cost of materials will obviously impact the per-unit cost of manufacturing. However, creators must also consider how difficult a particular material type is to work with and how challenging it is to source.||The creator should be very specific to the kind of material needed, as well as why they need it. Through this, the manufacturer may be able to offer viable alternatives that are easier to source and work with.|
|Labor can be one of the costliest parts of a project. A sophisticated, multi-step process will obviously lead to more labor hours, and a higher per-hour price as expert skillsets are needed.||It’s vital to seek out a breakdown of how long it takes to make a product by the minute, with accompanying steps. This approach can allow the creator to locate waste and eliminate it.|
|The cost of making parts like molds, cutters, jigs, fixtures, and more can add up quickly, especially in cases where high-quality steel is required, like for injection molding. Complexity also increases the risk of waste and unusable tools.||Tooling costs can be managed by carefully looking at the average number of tools assembled, as well as where there may be waste in the creation process. Alternate materials may also be considered, like durable plastic in place of steel|
|Indirect costs incorporate every component that does not include the direct creation of a product, like machine maintenance, wasted materials, depreciation of assets and inventory shrink||Outsourcing is the best way to limit indirect expenses, as a contract manufacturer will take on most indirect costs as a standard part of doing business. When outsourcing, it’s important to get an itemized listing of costs to avoid paying for inappropriate expenses.|
These are just a few of the components to consider in the estimation process. However, they aren’t the only factors, as the choice of manufacturing partner and pricing scheme will matter just as much in the overall estimate.
Common Pricing Arrangements that Can Impact Costs
Aside from specific product-related concerns that might affect overall costs, creators must also understand different types of pricing arrangements that may differ in terms of additional expenses. Here are three common pricing arrangements to consider:
1. Variable vs. fixed costs
In many cases, a contract manufacturer will offer a discount on the per-unit price when placing large orders. A product that costs $100 per unit when making 1000 units may drop to $75 for an order of 10,000. That is a variable contract. Meanwhile, with a fixed price contract, the per-unit cost will stay the same, regardless of the number of units ordered.
While it may be tempting for a creator to choose to go with a large order to keep costs down, typically, it’s wiser to pay the initial higher price on the first run before moving onto larger variable schedules later, when demand is established.
When a creator is willing to work with a manufacturer exclusively, the manufacturer may be willing to reduce overall costs to obtain that contract. This is often done with large, high volume accounts, or in government contracts. It’s not a wise decision when demand is not yet established, or for a first run. The creator could lose control of their production process without understanding if they have the leverage to demand better terms.
3. Overseas vs. domestic partnerships
Creators are often drawn to overseas outsourcing because lower-wage requirements may create more competitive pricing opportunities. However, when outsourcing overseas, there are many more risks related to quality, production control, and overall collaboration. When in the early stages of manufacturing, a domestic partnership will allow better control for establishing a manufacturing process and creating a minimally acceptable product standard.
When asking how much do manufacturers charge, there are many factors to consider. Some focus on the creation of the product itself, while others care most about the capabilities of the partner chosen. For new creators who require hand-on attention to ensure a successful first run, the best option may be to work with a production partner who provides high-quality in-house services and continuous support.