What Costs to Expect for New Product Development
Developing a new product is a long and lengthy process, especially for those new to the process. One major challenge in the beginning is simply coming up with a budget and where to allocate your capital. Often times companies don't plan effectively and end up with a budget too small, or they end up repeating work during scaling due to lack of planning.
We are here to take you through common costs you will encounter during new product development (NPD). The main costs can be broken into five phases: Ideation, Prototyping, Engineering, Production and Shipping.
Estimated Cost: $500 - $5,000
Ideation is a necessary step before we start on any design. Product development is a very involved process that requires a great deal of planning and experience to do correctly. Without the proper planning in place, projects can end up being many times more costly than initially intended because of design changes and uncertainty. Industrial design may also be involved in the ideation phase, as it determines how the product will look and how the user will interact with it. This is a vital step since it addresses the overall structure of the project and often dictates how well this product will sell on the market.
Estimated Cost: $200 - $10,000 per iteration
Once the shape and functionality of the product has been designed the next step is creating the prototype. This process is done to ensure all the components and pieces can fit together and function as intended. During this step both the prototype can be created using traditional fabrication techniques or possibly 3D printing. The prototype can then be tested with early adopters before moving into the detailed design.
Estimated Cost: $2,000 - $20,000
To prepare your product for success in manufacturing and end use, you will have to work with a mechanical engineer. The engineer will typically use the industrial designer’s model, however, when they design the part it will be optimized for manufacturability and ensured it can withstand the expected stresses it will encounter during use. The mechanical engineer must also be very diligent in designing for product assembly since, if done correctly, this can save a lot of money reducing assembly cost and assembly time per unit. As you'll see from the costs of the sequential phases of development, engineering has a fairly low cost relative to the overall process. It's suggested to invest in this phase and explore many options, as it could save you exponentially in the later phases.
Estimated Cost: $30,000-$200,000+
Setting up for mass production will likely be the biggest expense when launching a new product. The major cost will be tooling. This can be in the form of molds for plastic parts, castings for metal parts, fixtures for machining, etc. The good news is that once these tools are in place and the supply chain is set up the unit cost for the products drops to a low unit cost.
Another big expense is the cost for the minimum order quantity (MOQ). The minimum order quantity is usually a couple thousand units; however, this is dependent on the factory you have chosen to work with. Unfortunately, the MOQ does not reveal the whole truth, we have found that to maintain a high priority and quality products from a factory it is advisable to strive for higher volume orders.
Estimated Cost: $3,000+ (dependent on order size)
The importing costs of a product order largely depend on the size and weight of the products being shipped. The most economical method of shipping products from China is via cargo ship. This cost is variable depending on the size of the product you plan for transport, so I would strongly recommend that you do some research before starting your project.
As outlined in this article there are many steps and costs associated with a new product development. A good rule of thumb is that a new product development will cost $15,000+ pre-manufacture for a custom product and $100,000+ for production and logistics, but this is different for every project.
Taking a look at the overall process, we have created a pie chart to give you an idea of how you should expect to allocate your budget.
Even from a quick glance, it becomes very apparent how much capital production needs in order to launch a new product into the market. For this reason, it's very important to be thorough and explore all options early in the development. If you start out trying to cut costs in the beginning, you may end up shooting yourself in the foot by the time you are ready for production.
If you are still unsure how much you should expect to allocate to your project, feel free to reach out to our team and we can discuss your specific situation!