Calculating manufacturing cost for a patented product

Calculate Manufacturing cost from Sales Price

When designing your patented product for manufacture, think carefully about the price point you need to achieve. The target manufacturing cost will influence the: choice of material; manufacturing method; and channel to market.

The maximum manufactured product cost depends on:

  • the price that the end‐customer is prepared to pay, and
  • your channel to market.

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Typical Sales Price / Manufacturing Cost ratios

For example, if the end‐customer price is $100, and your channel is via:

  • Your website directly to end‐customers, your manufacturing cost should be at most $50
  • Retailers, your manufacturing cost should be at most $37.50
  • Distributors that supply retailers, your manufacturing cost should be at most $29.50
  • Direct marketers, your manufacturing cost should be at most $20

Maybe, that is why all “As seen on TV” products are made of thin plastic.

A great product with an inappropriate manufactured product cost will fail. It is difficult to reduce manufacturing cost after tooling ‐ you will likely need to return to the design for manufacture phase and re‐tool. Do the groundwork right first time.

If you intend “supplying” your product, you can (over the long term) typically expect to make a “gross profit” (i.e. sales price less “cost of sales” only) in the region of 30% of the manufactured product cost.

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Or, evolve into a licensing arrangement

An alternative option is to make sales without profit to “prove the potential market”, and then to pivot into a licensing arrangement with a competitor / manufacturer in consideration for a royalty. But, you can only pivot into a licence if you have a provisional patent.

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* All images are of IdeaNav prototypes

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