I talk to lots of founders who underestimate how hard it is to make money selling consumer hardware, especially on their first production run. If your product costs $30 to produce and you sell it for $99, you make money, right?

Not so fast.

To illustrate this, let’s manufacture a fictional pair of bluetooth headphones, the Bolt-o-Phones. We need to make a few assumptions:

Our Bolt-o-Phones will be sold for $99 MSRP (manufacturer’s suggested retail price)

First production run will be 5,000 units

Product development will take 9 months

A small, 5 person team will work full time on shipping this first product

Fictional bluetooth headphones, kind of like these ones from Motorola, but ya know, even cooler

Getting Started

Most companies spend lots of time and money in product development. Simple products cost $100k–500k to develop and usually take around 6–9 months. More complex products can cost millions and take years.

To get our Bolt-o-Phones ready for manufacturing, we need to hire a mechanical and electrical engineer, an industrial designer, and an operations person. They spend 9 months talking to users, building prototypes and getting ready to manufacture the product. Our costs look something like this:

***This estimate is highly variable depending on product complexity, team makeup, etc. It also will impact profitability more than any other cost.***

Bill of Materials is Just the Beginning

With product development finished we’ll have a final list of parts used to make our headphones (called a Bill of Materials or BOM for short). This is the most fundamental cost structure we have to deal with as a hardware company. We can’t raise money from investors or launch a crowdfunding campaign until we have a good understanding of BOM cost.

The BOM includes plastic parts we need molded, printed circuit board/components to buy, glue to assemble the plastics, and the packaging the Bolt-o-Phones come in. Each part is laid out in a table with all the information necessary to make one pair of Bolt-o-Phones: part number, quantity per unit, vendor, lead times, costs, and various notes.