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Hi Dave, well done. You've explained in roughly 26 minutes what has taken me about 24 years to learn. I'm in the finance industry now and your numbers are spot on (as a minimum!). It's wonderful to see a tech savvy person who is also finance savvy. Keep up the great work.

Thanks for the video Dave. This will be a good reference point for those who argue a phone that costs $50 to make should be sold for $51.

I've been a small scale electronics manufacturer for 10 years and this video is very accurate and appropriate, nicely done Dave.

The 'profit' comparison between direct sales and reseller use would seem more useful if you were to take into account the opportunity cost of doing your own distribution: You may make 47K a years more by doing your own distribution, but if the additional work of doing all the shipping and handling means that you have to spend an extra 1000 hours working on this project, while you could be earning (just to pick a number) $ 60 an hour doing other work, you are actually losing 13K by doing all the work yourself.

This guide is completely wrong. Here are the true economics of selling hardware: 1. Think about something you want in your life 2. Now invent impossible but believable promises and an impossible but believable price 3. Put it up on Indiegogo and Kickstarter 4. Keep posting some promising updates every few weeks until you have all the money you'll ever need in your life

Very true - the price is what it is! The realities of production.... It is always a challenge to sell a product that is not built down to a cost, and the higher the quality build, the more labor cost in production, and the volume of production is always reflected in the end price.

any new video or blog about applying for quality certificate like FCC or UL or CE. this information is badly needed

I founded and ran a electronic company in the past (sold it now). IMHO a distributor is worth the mark up. Although in the first moment 60% (sometimes more) does not sound "fair" (=easy money you think you can have yourself), but the most important issues are: Reach far in the market to have huge volumes and do the work that you as an engineer probably dont enjoy: Dealing with stupid, time consuming customer and doing paper work, like single shipping, customs and national regulations in foreign countries etc. I did both, started selling the product myself and afterwards having an exclusive worldwide distributor (to whom I now sold my company). Also keep in mind: You might want to have time to develop further new projects in the future.

An electronics manufacturer in China showed me one of there products a yellow water proof AM / FM radio. It was well built and I was tempted. The cost was US $ 1.72 each with a minimum order of ten thousand units. A year latter I see this unit in Dick Smith for A$ $39.95. Dick Smith went bust but if you look at the prices at other electronics shops they are what the market will bear not cost plus margin. My pet hate is things are 5 cents less than the next dollar value $29.95 $ 49.95 etc.

Saw the blog post a while back... This is great info for hardware guys and could save many from shooting themselves in the foot.

11:04 "Don't pay for marketing" Best advice I've heard in a long time. Marketeers are frauds.

Great overview and 100% accurate in my experience. It's really best to go for 3x to be comfortable but that 2.5x number is the common minimum. In some small markets such as Pro Audio distributors will get down to 30% markeup, and selling direct to dealers you can even get to 20-25% depending on what the product is. It does stink to think the distributor can make more money than your company - but you have to have massive respect that they are buying/investing in your product at at least 2x cost of what you are! Another reason to go for 3x and above profit percentage is that you want to reinvest into your company - you don't want to rely solely on investors and credit accounts!

Dave, I’m using the same 2.5x rule in the construction business. Usually for stuff I am not sure what to charge for, i mostly work on restoring old houses. Love your vids, keep it up :)

This is awesome. Gonna watch this a few times. I've seen this in my feed several times, finally getting to the point where I might be trying to start a business myself.

Awesome video Dave. I would add that Economy of Scale is another important factor to consider when calculating the cost/profit of your widget. I've personally seen a >25% cost reduction on a single component/module when manufactured in 5k qty rather than 1k qty. When you get to 10k or 100k quantities things get interesting. In some cases, producing a product in less than 1k qty is not even worth the effort involved. You either get to a product price point that is more than most people would want to pay, or watch your profit margin vanish. Neither scenario ends well...

Fundamentals!!!! YES! Thanks Dave. Fundamentals Friday are my favorite type of videos.

This was a really nice video mate, I wonder how many kickstarters could have succeeded had they known this stuff

One thing to keep in mind is that the reseller DOES add a tangible value besides pure profit - he frees up your time so that you can start doing the NEXT profit making enterprise. This is significant IMO. Unless you plan to skate on the same old products for years, as soon as you've got things worked out on one product and it's a proven product with cost reductions done and defects reduced, you should start putting your time into making the next thing instead of wasting your time on fulfillment.

I love this video. Always come back to it whenever I need a refresher on the calculations :)

Great video!! I am working on starting an electronics business. Would love to see more of this! Best of all, I would love to see a video about compliance and certification requirements, and the risks of selling those first few (built at home), perhaps mains powered, electronic device, which you haven't thrown down the $100k for UL certification for (as a sole proprietor).

Dave, this is such a great video, even today! Thank you for sharing your expert knowledge and experience with the world! YOU ARE A LEGEND! 🙏

This video was insanely helpful. I had my COGS planned out but had no clue what to charge for the product. Now I know. Thanks for another informative video Dave!

Turbo encabulator's have come down in price!!

Excellently useful - covered a bunch of stuff I happened to be thinking about this very week. Plain "electronics design" videos come ten a penny these days, but Dave has the industry experience to back up a much broader range of subjects, such as this.

Well done Dave! This will help a lot of people understand this part of product development!

Hello Dave, I have a plan to start such a business as a side work and had some rough numbers. You gave the basics of a realistic start in a clear way. Thanks

Thanks for the info! could you possibly make another on getting a product certified and listed? like how much it could cost ect

So how do I become a reseller. : o D

Great info - thank you for sharing your knowledge. I have wanted to know this for a long time and you presented in a very concise way - excellent!

Thanks Dave!!, I was just researching all this information and it just magically appeared on my feed.

Hi Dave, could you comment on certification requirements? I'm somewhat confused on whether or not electronic devices require electrical certification before they can be sold (FCC, CE, ROHS, etc.).

This video was really informative for a young guy like me. Thank you for this very nice video, Dave!!

Really good info Dave. Thanks! I needed to learn this just now.

thank you EEVBlog for existing

Spot on, this holds true for most businesses that manufacturer things. The multipliers might be slightly different but the basic idea is the same everywhere.

I love Fundamental Friday. Good work!

The only caveat that I would add to going through a distributor would be if they can dramatically increase the number of units sold. In the example of $28 profit through a distributor vs $75 sold direct, if you can only sell 1000 per year but the distributor can sell 10,000 per year, you'd make $75K direct vs $280k. All this is dependent on the distributor and market size. but it is another factor that wasn't discussed.

SUPER! A masterclass in taking a hobby and industrialising it. Cheers mate!

Dave a very nice and educational video! Thanks! Its so good to listen to a domain professional talking about selling specific industry products than some Economic / Finalcial weaboo that does not even know what the product is about and how it is made, Thumbs up for the Libreoffice....

Thank you! I needed this video two years ago. Very usefull!

Very usefull and eye-opening material. Thanks Dave.

This guide is priceless. You sir are a legend.

Thanks Dave. After learning something useful, I had a good laugh at the Turbo Encavulator video.

Great information!!! I'm looking into this process at the moment.

As a marketing student this is very correct, a little simplified, but the relevant parts are there.

I was just considering doing this very thing and living in NorCal, made in California means something to the world. Thanks for the vid.

Wow, what a fantastic video, thanks Dave.

If selling directly don't forget payment processing fees and any other costs associated with selling online.

Very interesting subject, glad to hear more info.

Thank you so much, Dave. This has indeed encouraged me to continue on the path of starting my own hardware production company. I used a set of rough calculations based on Limor Fried's (Lady Ada @ Adafruit) suggestions. She says wholesale price = 1.7 x BOM (not GOG, just BOM). Take that x 1.7 again for retail : = wholesale x 1.7. Interestingly that comes out only slightly higher than your thumbnail of 2.5 x COG. And your explainer has practical, real-world details that confirm I'm on the right track. Also, FYI, I do a ton of electronic related research online - EEVBlog is high up on my top 10 of important places to check out frequently. Looking forward to future videos from that land down under :)) - H

8:50 - Dave starts experiencing a bizarre increase in the number of uCurrents "lost in the post"

Thanks for the video Dave, very well done.

When comparing the benefit of using a reseller should you not price in the cost difference of your time in handling sales, rather than just the possible volumes of either method?

Awesome video! You really cut through the BS. It's great that you mentioned shipping costs from the manufacturer. I've read horror stories about hidden costs, especially if your shipment happens to be pulled for inspection.

Brilliant video Dave thank you. Really outstanding to have it all so clearly summarised. ps my turbo encabulator is for sale if you're interested, still in its packing crates.

For a major reality check, watch the American show "Shark Tank". (I believe there are similar shows in other countries.) It's a show where entrepreneurs try to get venture capital from a panel of seasoned experts in the field. The unknown in using a distributor is whether they can increase your VOLUME enough to compensate for their margin.

Very good, simple and good understanding! implement it in my development. Greetings from Argentina

Dave, Fantastic video. You made a complicated subject much easier to understand. Were you an instructor in a previous life? :-)

Hey mam, Just came across your blogs.... found them useful... gr8

i used to be a contractor for many years. your "rule of thumb" was very close to mine. any non-standard job that came in that you didnt know from experience how much labor costs it would take, you would just charge 2x the materials cost (or, COGS x 3, as you would put it)

Great video! Clear and concise. Love it. Quick question though...I have a product I'd like to sell, and running the numbers of my BOM, it will be ~850 dollars (~$2125 with the 2.5 multiplier). My question is: Is the 2.5X multiplier a constant e.g. does NOT change no matter the COGS? Or is there a tapering off at higher COGS?

Would you like to do a video on regulations and such ? What sort of stuff has to have to be CE branded (in Europe) for example

Awesome vid Dave... never thought about this subject..😉

When you can under cost your suppliers, as an OEM, they mostly drop the prices to the public, OR: sue you!.. for whatever reason they can "find"... :)

Nice Overview. Here is something to think about. I made a widget that would fit into a standard cast aluminum 4- 1/2" square outdoor electrical box you could buy at any big box hardware store. Pretty slick, I thought, until I found the supplier changed the internal design of the box.

Good video for start up, cost of warranty needs to be added up too in COGS.

Hi Dave, A smal things in your COGS, somethings expensive in time is the Documentations and /or users manual. Depend of the way to ditributed : files of paper prints. :) Regards Phil VR (BE)

Very helpful video, thanks!

Hello Dave! I recently saw an "usb supercharger" which you will you plug into a usb port of your computer and then you will charge your smartphone from it faster than without the device. I smell bullshit but if you would like to make a video on one of those it will be quite cool to see what's inside. Thumbs up if you think Dave should see this!

Great video. That distributor might be able to sell 10k units instead of the 1k you can sell so even though you only make $28 each now you earn $280k instead of 75k. That number might get even higher because of economies of scale. Or you can use that time you are not packing/shipping products to develop another product and then you have multiple products earning you 28k a year. It all depends on your plans and the benefits the distribution agreement brings.

Hi Dave! This was a GREAT video!

Awesome FF video topic Dave!

Very interesting, thank you, excellent information!

Hey there, you mentioned that there are companies that will take designs and handle the rest and you end up with what amounts to a royalties cheque. Would you be able to elaborate on such companies ie: examples of them, how to find them, what sort of criteria they look for, etc?

Great video Dave!

Thanks for the lesson! Any recommendations on books or sites that can help pursue a hardware startup?

Economics, Thats what I know about! I don't come here for that....... Love it!

Thank you for the detailed video ! Very interesting. You didn't talked about certifications (CE, CEM compliance or whatever), is there nothing to say about it? Can I just sell an electronic product without any certification? Even in Europe where you see the CE marking everywhere?

How do you do when pricing a product for your client that you developed?, How would you price the work on software, desing etc and then add it to the product? or maybe price it separated from the product itself?... Thanks for all you work, grettings from Chile.

Where did you find those cheap assemblers? I had looked into selling a board once, and the assembly would have cost more than everything else combined.

fantastic video as always! coudl I ask you how do you calculate the developement cost for unit of your product? for example to develope the software and schemantics you spend 1000$, how you divide this for the units if you don't know how many unit will be produced with that software and schemantics?

Thanks a lot, Dave

Pickup needles in the old days had a 30 - 60 x COGS

loved watching this. much to think about. I was wondering, if I sent them say a 1000 diodes on a reel but they only used 100. will the return the rest or ahould i be sending exact quantities?

I would like to know how much money the Batterizer made, while not actually doing anything.

Great video, thank you.

What do you charge for software? So if you make a circuit sim, how would you figure out what to charge for it?

That's very interesting, I would probably model the situation as a Linear Program and let a computer optimize if I had to work it out for myself.

I like videos like this! No one talks about this on Engineering courses. In your opinion, how to give discount? Like, if you buy 100 or 1000 of one product, how to calculate those discount?

+EEVblog Hey Dave have you got a video or explained anywhere about the electrical safety, standards, regulations and testing (by test labs) .etc. that is required for a product before it's sold? And where kits fit into the picture and AC vs DC devices and so on.. For those of us who don't know anything about this?

Great video, thanks a lot!

As for the "lost in shipping" part, I would like to say that you can add shipping insurance, so that if there's a problem, you get your money back, or at least that's what they promise. I'm not sure about the effectivity of this, but it could be interesting.

This and Fran's (from frantone) video on entrepreneurship is all you basically need to start a business. Great video Dave! Well, you do need passion and hustle, but you got that, right? Right?

Do I include paying myself in the COGS? or is the 2.5 enough of a profit to cover that? (i.e. If it takes me 1 hour to process and fulfill the order, and I make $25 an hour at my day job, should I add that to my COGS?) Thanks!

Hi Dave, awesome video ! I wonder, is it legal to do this without any sort of compliance testing? like CE, FCC, etc. How much would that typically cost? Is it something your average electronics person without any business education is able to do ?

This was a great video!

I aleays enjoy your tutorials !

Interesting video, Thanks!

Got a lot out of it. Thanks!

A lot to consider, and it's rather interesting. With a reseller, you'll only make $28 per unit (from your example). But, you should take in mind that you'll probably sell a lot more units. Another thing to consider is also, is there really a market for these things (and is it still at your price you'll have to ask).