Profit margin over total production

[Ryan Collins]

Hi,
i received an offer from a company who is helping me to develop and protoype.

The offer is as following:
1. no upfront pay for developing en making a prototype
2. 10% cut on the production. Say $10,000 for making 100 prototypes, they get $1000.

is this percentage reasonable?

 

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[Nicoknowsbest]

10% cut on the production. Say $10,000 for making 100 prototypes, they get $1000.

What if it stays 1 prototype?

Say $10,000 for making 100 prototypes, they get $1000.

100 prototypes are already a first badge, right?

10% cut on the production.

One one production, on the first production or on every following production?

Cost for prototype plus 10% commission is a bit steep in my view.

 

[Ryan Collins]

What if it stays 1 prototype?


100 prototypes are already a first badge, right?


One one production, on the first production or on every following production?

Cost for prototype plus 10% commission is a bit steep in my view.

Its on going.

 

[Nicoknowsbest]

I personally would stay away from such a deal.

First of all, 10% is high in my opinion.

Let's say your prototype's actual cost is $ 1000.

You get this to work and order a volume of 1000 pieces the first year.

Let's assume your product costs $ 20 per piece to manufacture.

That's a total bill of 1000 x $ 20 = $ 20,000.

Now, 10% of $ 20,000 are $ 2000.

So you already pay double the first year ($ 1000 vs $ 2000).

Imagine what happens when you really have success...

What happens if you want to take your product and have it produced elsewhere?

This deal only benefits the manufacturer.

 

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[Ryan Collins]

I personally would stay away from such a deal.

First of all, 10% is high in my opinion.

Let's say your prototype's actual cost is $ 1000.

You get this to work and order a volume of 1000 pieces the first year.

Let's assume your product costs $ 20 per piece to manufacture.

That's a total bill of 1000 x $ 20 = $ 20,000.

Now, 10% of $ 20,000 are $ 2000.

So you already pay double the first year ($ 1000 vs $ 2000).

Imagine what happens when you really have success...

What happens if you want to take your product and have it produced elsewhere?

This deal only benefits the manufacturer.

Ok thats clear.

SO... what would you think?

 

[Nicoknowsbest]

SO... what would you think?

Get a specific and detailed quote for your prototype.

Find 3-5 competitors, tell them about the quote (but not the company who quoted you and other details) and have them compete.

Pick the for you best offer - that might not be the cheapest - and pay it.

Make sure you get all the plans etc. in case you want to take it somewhere else for (mass) production.

Hustle (Ebay, Craigslist, UpWork etc.) to generate funds meanwhile.

That's how I'd approach it.