5 Ways to Reduce Product Cost
1) The Packout: Look at what you’re
including with your base model. Do you really need to include all of the
accessories? Can some be removed and sold separately?
2) The Box: Look at the box/packaging
itself, and its percentage of the overall Ex-Factory (XF) cost. Can this cost
be reduced, keeping in mind the box's main purpose it to protect the product
and market at retail? If the product is being sold direct from the web, it
should be simplified even more so as it won't need fancy (and expensive) four
color printing because the visual marketing is not required.
3) Labor and Markup (i.e., factory profit):
Are these values in-line with industry norms? Can they be negotiated down while
carefully balancing the relationship with the factory? (The factory needs to
make a profit in order to want to continue manufacturing the product).
4) Follow the Pareto Model: Usually a
product cost follows a Pareto model where 80% of the cost is driven by 20% of
the components. In the BOM, sort by price, and look at the most expensive
components. Can any of these items
(usually the electrical components) be reduced through lower cost drop-in
alternatives?
5) Overall Design: Take a step back and
review the overall design. Can metal be changed to plastic without a loss of
performance or perceived value? Can you use discrete components rather than a
module? This will incur extra NRE and
compliance testing charges, but because these are fixed prices, they can be
offset with higher volumes.
In all likelihood, once these areas have
been reviewed and changes have been implemented, your product cost should be
significantly lower.
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