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I saw a TV show, Pitchmen, about people inventing things to sell on TV.
Everyone on there has spent their life savings and taken decades to bring a product to market.
I'm wondering why does it take so much effort and money to make a little plastic item that should cost around $1000 to design and $1000 dollars for a nice prototype?
This is strictly my opinion, but is it possible that the manufacturer for said item would need to retool existing equipment/machinery to make the new invention? They may even have to purchase a whole new machine to create it, I don't know. And the manufacturer wouldn't just make a dozen to see how it flies; it would not be cost effective. Add in marketing, distribution, and miscellaneous other things, yeah, I guess it would involve a lot more than is evident at first.
I am currently 'crunching numbers' for a project of mine, and yes, hidden costs pop up everywhere. Just my thoughts.
Because your numbers are way out of whack with the realities of the costs to do stuff.
The process involves many more costs than appear on the face of things ....
For example, I had a friend come up with an idea for a "soap saver" soap rest, which could allow a bar of soap to rest on a bed of spikes so it could air dry completely.
He was an engineer, but he didn't know anything about plastic injection molding nor the preferred plastic compound to make the product. He was able to make the prototype (after many tries) to his satisfaction for the concept, but then had to re-design the product with the (paid) assistance of a plastics engineer to best meet the requirements of making the product as well as the plastic selection.
Then he had to pay another company to make the mold for the product, which had to fit into the injection machine for the limited production first run. This cost him well over $6,000, and this was some years ago. He did an initial product run, paid for out of his pocket up-front, and sold those through a couple of hardware stores ... which he'd convinced to carry the item.
By that point, he'd needed to patent the item to protect his concept and product from others making it. He spent many thousands of dollars on the patent search, attorney's fees, and submittals of the drawings and sample item to the patent office for his claim.
He'd also spent a lot of money on the packaging design to an illustrator artist, and yet more money on having it printed up on card stock. All paid for, up front before the product ever hit the stores. He'd spent several weekends stapling two of the soap savers to the card stock so that he had inventory to supply if he could sell the product ... most of which was placed on consignment for the initial orders.
Then he had to pitch the product to the folks that specialize in the TV advertising market, and ran in to a problem there. His product was in the range of a couple of dollars, and their specialty is products that are $19.99 or some such increment ... interesting to the buyers, affordable, and yet profitable to the sellers. Those promo pitchmen take a sizable chunk of the $19.99 for their marketing, promotion, and processing of the orders ... which are then fulfilled by the manufacturer.
All told, my friend had the better part of $75,000 invested in hard cash before he ever had a saleable product in hand to sell. The product was a couple of dollars on the card, retail.
Yet you'd look at it and say that it's a couple of pennies worth of plastic product, throw-away packaging, and couldn't cost that much to invent, produce, package, market, and deliver. You're right ... there isn't that much hard cost in the little item once in to production. But there were a lot of them needed to be sold to pay for the costs to bring that product to the consumer and to pay any profit back to the inventor/product manufacturer.
Given all of his hard costs, my friend had a good, usefull product at nominal cost to the consumer. In the years he had a patent protection, he lost his butt on the whole deal trying to sell these. He was never able to sell the item in the quantities needed to reach a profit level ... even when the product was sold at at a substantial markup over it's cost to him.
You might also look at the manufacturing to retail consumer profit margins needed to survive in this business. The manufacturer takes his raw materials and marks that up, perhaps 300% or more. Then it goes to his distributors, who mark it up again, who sell it to his retailers, who again mark it up for the retail sale. It wouldn't be uncommon to see a 300% mark up at each level. That's why the TV pitch sales are so alluring to a manufacturer/inventor ... they capture more of the retail profit.
FWIW, I know a fellow who specializes in investing in these types of products. He's part of a group which raises hundreds of thousands of dollars for each product that they accept for the TV type marketing. They've had 7 products that worked, and made them money ... and some which barely sold and they lost a lot of money on.
Sunsprit is totally on target. My business has been based on a niche software product I developed. The two companies that marketed it for me lost money just getting it exposed to the marketplace. The cost of trade show booths, transportation, print advertising, phone calls, and all ran into thousands of dollars. Eventually both backed out and left my customers to me.
The marketplace is a LOT tougher than it looks. I dream up ideas for products (sometimes literally) every day of the week. Many of these would be marketable and even popular, but the costs and risks involved means they don't warrant development.
Once you have a product, it is fair game for other companies to rip off the idea, or find a way to produce it for pennies (especially offshore). To give you an idea of just HOW crazy things are, I recently bought a pound of frozen vegetables in a dollar store for a dollar. It came from China. If I buy a similar size package in Publix, with American vegetables (U.S., Mexico, or Central America) it'll cost as much as twice as much. When Mexican farmers can't compete with produce shipped halfway around the world, things are crazy.
Add the rapid change of technology to the mix and what you design today will quite likely be outdated within the development period. Who would have believed ten years ago that your cellphone camera could do more than many camcorders? Our entire marketplace is unstable.
My business has been based on a niche software product I developed.
Our entire marketplace is unstable.
In the past I have developed software, by myself, in one year that has taken others three years to create a similar product. That is probably part of the reason I didn't see why it was taking people so much time, effort, and money to develop "physical" products.
When you put other people in the mix, things go "outside your control".
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Yes, follow the details of sunsprit:
Basically you need a maximum of 10% cost of goods for a simple plastic manufactured product.
50% Marketing expense.
20% overhead
and 20% for you MINUS the development costs.
Injection Molds can be $6,000 to $600,000 (for molds the size of auto bumper or dash)
Engineering time ~ $150 / hr
Patent !!! $15k - $50k
Attorney ~ $350 / hr
Takes a wad of cash to get rolling, and a cash flow of $.40 / product will recover $100,000 start-up in only 40,000 units. Your tooling will be good for about 100,000 units, so you stand to make a little $$ if you can arrange to sell 100,000 units before the competition trounces you.
You gotta be good, fast, and well funded to survive.
Just getting with the attorney and filing the patent on my friend's invention was $15k...
She's got over $30k in this thing and it doesn't even have moving parts!
Is she on the way to making a profit in the near future?
Does anyone think an inventor could cut the cost by just selling on the internet like ebay store or at small markets themselves? Basically negating the big retailers.
Injection Molds can be $6,000 to $600,000 (for molds the size of auto bumper or dash)
Looks like some room for lower cost competition there.
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