Get excited because you’re getting closer to your anticipated product launch!
Part 1 – Covered in last weeks post
- Proceed or pivot
- Choosing your launch method
- Determining your budget and business plan
- Making a sales/marketing plan
Part 2 – Covered in this weeks post
- Sourcing production
- Attaining proper documentation
- Product packaging
- Lining up fulfillment and shipping
- Pricing your product
Please note that you don’t have to follow any specific order while completing these tasks. For instance, you may find it necessary to determine that you can source production of your product prior to even determining whether you should proceed or pivot. Everyone’s situation and product is unique and therefore you should follow the path that best suits your needs.
Sourcing Production
Production is one of the most critical decisions in your business, after all without product inventory you won’t have anything to sell. One of the biggest decisions when sourcing production is deciding whether to outsource production or to keep production in-house.
Outsourcing vs In-House Production
Who is going to manufacture your product? Will you keep manufacturing in-house or will you outsource manufacturing.
Outsourcing Production
Pros
- Less work to worry about during what can be a very stressful work period during product launch.
- Gain access to large production facilities with advanced manufacturing equipment and expert manufacturers.
- Large manufacturers place large order volumes for material allowing them to secure lower prices.
Cons
- You are removed from the manufacturing process preventing experience that could lead to design improvements to increase manufacturability and reduce your product cost.
- Delays product iteration from customer feedback due to large initial inventory.
- Need to pay for overhead and profit margins for the manufacturer.
In-House Production
Pros
- Easily iterate on your design based on customer feedback.
- Prevent excessive inventory from cluttering up warehouse space and hogging initial funding.
- Gain a better understanding to the manufacturing process to allow for making better business decisions.
- Scale production with demand.
- Stronger intellectual property protection.
Cons
- Typically prevents access to advanced manufacturing methods without investing large amounts in equipment which can limit design and manufacturing options.
- Lack of access to experienced manufacturers without hiring.
- Lower production rates due to a smaller workforce and lacking of manufacturing equipment.
In-House Production To Outsource Production Recommendation
- Initially launch with in-house production if possible.
- Iterate on your design to improve manufacturability and satisfy initial customer feedback.
- Once sales demand increases beyond your capability and is adequate to justify placing an order volume that meets with the manufacturers minimum order volume then look to outsource all or part of the manufacturing of you product. Many brands keep assembly in-house while outsourcing the manufacturing of components.
Note: Save yourself a lot of work by looking for Original Equipment Manufacturer (OEM) provided components that can be used in your design and procured at low cost and volumes prior to redesigning the wheel.
Instead of placing an initial order of thousands of units to meet manufacturer minimum order volumes prior to understanding market demand, begin with in-house production and then shift to outsourcing production as demand grows beyond your capabilities. By keeping initial production in-house you will gain insights into your products manufacturing process. Understanding your manufacturing process allows you to make better decisions down the road. Keeping manufacturing in-house initially also allows for rapid design revision in response to customer feedback giving you the ability to quickly implement product improvements to better meet market demand and impress early customers with responsiveness.
Most products and brands do not sell high volumes during their launch and take significant time and effort to scale sales before reaching demand that is adequate to satisfy even a minimum order volume from manufacturers. This is because many minimum order volumes from manufacturers are in the thousands of units while most products start with struggling to only get their first sale and then begin scaling in volume with market acceptance and time. Unless if you have a large marketing budget, a rare product that goes viral, industry or PR connections, or a large retail order chances are that you won’t have the initial demand required to move thousands of units within a reasonable amount of time.
Once your product has market acceptance and increased demand that you’re having trouble keeping up with, then its time to decide whether you want to outsource production, invest in in-house fabrication capabilities or do both. Outsourcing production will allow for access to advanced fabrication equipment along with expert manufacturers that can rapidly turn around high volume. Investing in in-house production can keep manufacturing costs lower in the long run because you don’t need to pay for your manufacturers overhead and profit, but it requires higher up front investment to acquire fabrication equipment.
One common solution that I recommend is to outsource the manufacturing of components which have significant advantages from using high cost fabrication equipment, such as injection molds and stamping presses, while investing in an in-house assembly process which is typically more unique to a product and may require designing and fabricating custom tooling.
On-Shore or Off-Shore Manufacturing
Should you decide to outsource the manufacturing of your product or components you will need to make the important decision of whether you want to manufacture on-shore (domestically) or off-shore (internationally).
On-Shore
Pros
- Gain greater oversight on your production.
- Eliminate the long shipping times.
- Gain the marketing value that comes with a Made in the USA product (be cautious of using OEM components if you’re seeking Made in the USA status).
- Retain stronger intellectual property (IP) protection to reduce the risk of copycat products.
- Prevents delays due to customs or weather transoceanic during shipping.
Cons
- Typically significantly higher cost
Off-Shore
Pros
- Typically significantly lower cost
Cons
- Can lead to quality nightmares due to lack of production oversight.
- Long shipment times with the potential for significant delays due to weather, customs and other uncontrollable factors.
- Weaker intellectual property protection increasing the likelihood for copycats.
Whether you should manufacture your product on-shore or off-shore will greatly depend upon your product. If cost is a driving factor in potential customer purchasing decisions you may find yourself forced to go off-shore to meet pricing requirements. However, if you have a product with strict quality and performance requirements that also has high margins it may be more beneficial to keep manufacturing on-shore to allow for improved oversight.
Another factor to keep in mind is that if you sell through retailers they expect punctual delivery. If you’re late retailers typically reserve the right to cancel the order. A canceled order can lead to significant losses and hurt your relationship with the retailer. Retailers do typically allow for you to specify delivery date, however the faster your delivery turnaround the happier the retailer is and the sooner you will get paid since retailer payment is typically set at net-90 payment terms meaning you get paid 90 days after delivery. By Keeping manufacturing on-shore you will be able to reduce shipment time and avoid potential delays. During transoceanic shipping, delays can occur from oceanic weather and customs. You can avoid these potential delays by manufacturing onshore. If you do decide to manufacture offshore these potential delays will have to be included in your lead time.
At ASR, we offer services including manufacturing support, tooling design, product life-cycle support, product design, engineering analysis, and more. Whether you need engineering help with your design, want to optimize product for unit cost or performance, or need help sourcing manufacturing, we have the experience and capabilities to help drive your success.
Attaining Proper Product Documentation
Documentation requirements will depend on your product and market. Two things all products require are a Universal Product Number (UPC) symbol and a Stockkeeping Unit (SKU). Depending on your product you may also need a Safety Data Sheet (SDS), Product Certification, and more.
Universal Product Number (UPC) Symbol
The UPC symbol is the most common barcode in the United States. UPC symbols are assigned by GS1 which is a non-profit organization. You will want to obtain two UPC symbols for each product, a 12 or 13 digit Product UPC Code and a 14 digit Case UPC Code. UPC codes are used in all retail and are unique to each product.
Stockkeeping Unit (SKU)
SKU’s are internal item identifiers and are unique to any organization. SKU’s are used to track individual units of a product. You will want to create an internal SKU system to track inventory, keep track of manufacturing errors, prevent copycats and more. Since SKUs are unique to a given organization its common for retailers to create their own SKUs for your products that are different from your own. Many manufacturers use lasers to label individual units with unique SKUs.
Safety Data Sheet (SDS) Form
If your product uses hazardous chemicals you will have to track down SDS forms which are provided by the chemical manufacturer. Refer to OSHA for more information on SDS forms and requirements.
Product Certification
Depending upon your product it may require certification. If your product failing can put lives at risk, lead to significant damages, or is hazardous for any other reason then its likely that your product will require a form of certification. For instance fall protection products require meeting with OSHA 1926.502, ANSI A10.32, ANSI Z359.14 and more.
If you have a product that requires testing and certification, then ASR’s analysis services can help ensure your product meets required specifications prior to expensive certification testing by using advanced computer modeling. ASR also offers product testing and validation services to help get your product the certification it needs.
Product Packaging
Depending upon your product and sales channels, product packaging can be a critical component to your success. Some products are susceptible to damage during shipment and need to have packaging designed that can keep products safe if they are dropped. Packaging design and unboxing experience is also critical to sales and branding.
ASR offers analysis services and testing and validation services to ensure that your product packaging is adequate to prevent your product from being damaged during shipping.
If you have plans on selling your product on the shelf of a retailer then your packaging will need to stick out against the competition in order to generate sales. With the typical consumer only looking at your product for a few seconds your packaging will have to stand out to earn a chance at converting customers. For this reason we recommend hiring out packaging design to a professional. We can work with the designer you have chosen to ensure packaging meets with strength requirements to prevent your product from arriving damaged.
Lining Up Fulfillment and Shipping
There are a few options when it comes to fulfilling orders. You can use a 3rd party fulfillment services that will warehouse and fulfill orders for a price. You can also fulfill orders in house. If you fulfill orders in house then you will need to procure packaging material for shipping including shipping boxes, fill material, packing tap, and a shipping label printer and paper. Depending upon shipment volume you will also want to look into creating a packaging station with a packing table to increase productivity.
If you plan on shipping directly to customers you will have to determine shipping costs. Start by researching different shipping companies such as USPS, UPS, FedEx, and DHL. I have found USPS flat rate shipping which includes free boxes to be the most affordable, easiest to manage and the fastest for shipping initial lower volume orders. However, you will want to research all of your options for shipping prior to settling on a shipping service. You may also decide to offer multiple options to your customers at varying price points. If you decide to ship internationally you will also have to research international shipping costs and any custom requirements. As your volume increases different shipping companies can become more competitive as you receive volume based pricing.
If you’re selling through retail then its typical that the retailer will cover shipping costs as long as you use their requested shipping provider and account. It’s also common for suppliers to cover shipping should a minimum order volume be made which is specified by the supplier as an incentive for larger order volume.
You may also decide to include the cost of shipping in your product pricing in order to offer free shipping.
Pricing Your Product
Product pricing is one of the most critical components of your business model. Should you price your product too low you can be losing necessary profit for growth or even selling at a loss once all costs are accounted for. Should your price be too high potential customers may not even consider it for purchase.
Determining Your Minimum Price
In order to determine the minimum price of your product you will have to first determine your product’s unit cost and required margins for reasonable growth and development.
The unit cost of a product is the cost incurred by a company to produce, store and sell one unit. Common things included in unit cost include but are not limited to:
- Manufacturing & assembly
- Shipping to warehouse, assembly line, etc..
- Warehousing
- Packaging & packaging materials
- Payroll
You will also want to determine the necessary minimum amount to cover single time expenses and business growth and development. Typically this will be between 18% and 35% of the Manufactured Suggested Retail Price (MSRP) of your product. This is what you pull from for your advertising budget, single time expenses such as manufacturing equipment, and overhead costs. You will also have to add in the retail margin which is typically about 50% of MSRP which is also known as keystone pricing. In practice retail margins vary depending upon the product, retailer volume, market and more.
A good equation to determine your minimum MSRP is:
MSRP >= 2*(0.18*MSRP + Unit Cost)
Where:
- 2* represents keystone pricing
- 0.18*MSRP represent the minimum amount a company needs for growth and other expenses without risking losing money on an order
Using the above equation your minimum cost to the retailer would be.
Retail Cost >= 0.18*MSRP + Unit Cost
Determining Your Final Pricing
Now that you know the absolute minimum price, its time to determine the price that you will actually charge. Outside of determining a minimum cost, the unit cost of a product should have little to do with it’s pricing. Instead you should use your market research that you did while finding your idea and beta testing to help determine the best price of your product. You will also want to take another close look at the market and current pricing of similar products to ensure that you’re competitive. Should you price your product too low, customers may assume that it is too cheap and overlook it. Should you price your product too high, customers will overlook it as it is outside of what they have gotten used to as the value for such a product. You may also look into more complicated pricing strategies to better satisfy different potential customer expectations. If you are unsure about pricing it is typically better to error on the high side during launch. Customers are more accepting of price reduction compared to price increases after launch.
Once you have determine a reasonable price that your believe the market will accept check that it is greater than your minimum MSRP. If the price determined is not greater than the minimum MSRP then you will have to revisit a previous step to work on lowering unit cost or increasing product value.
Please comment below with any questions. Launching your product will be covered in next weeks blog post!