Once upon a time there was a fellow who was plagued by mice. He set a trap every night, and every morning, sure enough, he had caught a mouse. But one night he found that he had run out of cheese. So, he used a picture of cheese in the trap. And sure enough, the next morning he had caught a picture of a mouse.
I’m not sure if that analogy applies perfectly, but for us to substitute a promise of sales in place of actual sales as an enticement to land a licensee, is definitely second best. We need a sales history, at least for a relatively short time.
As I’ve suggested in past issues, the catalogs are ideal for testing the market. The catalogs want novel products that ideally sell for between $19.95 and $29.95. But upscale catalogs sell products for more than $100 on the “easy payment plan.” And catalogs don’t want a four-color printed box. They want a plain box that they can slap a label on, and hand to UPS. Big savings. Fancy boxes are very costly.
If you want to produce and sell to the catalogs, you’ll need a novel product that looks like it was made in a factory, not cobbled with a hacksaw in your garage.
So, do you need tooling that costs $25,000? Prob-ably not. For each manufacturing process a range of tooling options exists that will enable you to produce without selling the farm. The principle is this: the more you invest in tooling, the lower will be your cost per unit. And conversely. Thus, most likely, you will lose money on early test sales. Edison hand made his first light bulbs, and sold them for well under his cost in order to “prime the pump.” And that’s what we must do to test sales. We must set our selling price at whatever our intended customers will perceive as maybe a bit on the high side, but worth every penny. The market, not our manufactturing costs, sets the selling price.
A convincing sales history will probably take you a year or so. You’ll be buying your materials and services locally rather than overseas. And you’ll be spending a lot of time learning about manufacturing options by researching on the Internet, and talking with vendors. For example, suppose your product’s main component is a plastic injection molded part. If you Google low volume injection molding, you’ll find 163,000+ entries. Many of these references are vendors who offer newsletters. Most of the vendors specialize in ways to make molds inexpensively. You may come across a reference to epoxy tooling, or epoxy molds. Google epoxy plastic injection molds, and you’ll find 85,000+ references.
So, one reference leads to another, and after a few hours we begin to know our way around the process of injection molding. We’ve learned that an epoxy mold is the least expensive. An aluminum mold is next. And a steel mold is almost twice as expensive as an aluminum mold. But there’s a missing link here. We can also machine the part on a digitally driven milling machine. How do we find this out? By reading the ads of certain vendors who specialize in low-volume plastic parts, and who provide both options, machining and molding. If you send them a drawing of your part, and discuss this with them, they’ll quote you tooling and per piece by each method. An epoxy mold may produce a cheaper price per piece than a machined part, but the mold will be much more expensive. The same part made on a milling machine will cost significantly more per piece, but tooling will be relatively inexpensive.
How do your choose? Simple arithmetic. Take the difference between the two tooling costs, and divide by the difference between the per-piece cost. For example, if machining tooling costs $200, and an epoxy mold costs $2,000, the difference is $1,800. And let’s say that the molded part costs $1, and the machined part costs $7, a difference of $6. Divide the incremental tooling cost by the savings per piece, that is, divide $1,800 by $6, which gives a break-even quantity of 300 parts. Proof: 300 total molded parts cost $300 for the parts, and $2,000 for the mold, for a total cost of $2,300. And 300 machined parts cost $200 for the tooling, and $2,100 for the parts, for the same total, $2,300.
Your big question then becomes, “Will I sell more than 300 parts?” If you think you will, then the epoxy mold is the most cost effective. Use the same equation for epoxy versus aluminum.
I’ve used injection molding here because so much of what we produce today involves plastic molding. But the principle of how we learn about tooling options, their costs, and their correlative piece-part costs, is the same for each manufacturing process.
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Best Wishes, Jack and Karla
