William Chops Westfield wrote:
> I wonder if it would be practical/profitable for one of the bigger
> "for-profit" vendors to offer a limited "starter kit" that would sell
> for less than $10 and include the most commmon parts.

No.  Think about it.  The kind of people that would buy such a kit are
exactly the ones that would complain "I could have bought these parts for
$5.03 myself, your $10 price is a ripoff".

Then there's never a good answer what to include.  Remember the PIClist PBK
discussion of a few years ago?  It started out as a simple and cheap
programmer, but then all those people who wouldn't even buy one kept adding
more bells and whistles, then it became too expensive.  No matter what you
include, there will be far more people complaining that you didn't include a
LCD or a ZIF socket or a opamp or a few more LEDs or the power supply is too
inflexible or if it were only this other PIC, than people willing to buy it
as is.  And if you do add some of these bells and whistles, it will be too
expensive and many more will complain that they don't want to pay for a ZIF
socket, a LCD, opamp, a few more LEDs, a better power supply, or the bigger
PIC.  In other words, you're always selling into a niche.

Then there is the financial aspect.  The kit would have to cost less than
the total of the same parts bought at the same place.  Let's say the profit
margin on small $1 items is 50%, so you might make 40% on the kit max.
That's $4 profit on the kit price minus your cost of goods.  Even if you get
these kits pre-packaged in final shipping container in volume, the packaging
and labor to box it up and the eventual labor to take the order, address the
box, and get it shipped is going to be at least $1.  We'll assume the
customer is charged the true shipping costs, so I won't include that.  So
you're down to $3 you make every one you ship, and I'm being quite generous.

Now you have to include the cost to develop the product, get the first lot
produced, add the information to a catalog or web site, etc.  Selecting the
right parts, creating the bill of materials, and writing up the technical
documentation requires a engineer.  This engineer also has to interface with
production later and deal with the inevitable screwups in the production
process.  Then there is a bunch of project management and logistics issues
like getting the parts in, dealing with the lead times, new part numbers due
to RoHS conversions, vendor ships wrong parts, production says they're
already overbooked, etc, etc, etc.  I think I'm being very generous saying
that all the design, hassle, documentation, fire fighting, and everything
will only take 1 week labor.  At a bigger organization, as was your premise,
you can split this between skilled engineers and lower paid logistics people
as reasonable.  Let's say the average pay for that week is $40/hour
salaried.  The company gives 2 weeks/year holiday and the employees get
another 2 weeks/year vacation, for a total of 48 work weeks/year.  The
$40/hour the employee "makes" from his point of view really costs you $43.33
right there or $83.2K/year just in direct salary.  Now add $1000/year for
medical benefits, 20% managment and facilities overhead (I'm being very
generous), 15% in increase in your corporate insurance, your part of the
FICA, state unemployment insurance tax, federal unemployment insurance tax,
etc, and the real cost for that employee is $112.32K/year, divided by 48
working weeks comes out to $2340 to design this product and manage it thru
to introduction.  In reality most companies would never see a cost that low,
but let's go with that anyway.  At $3 profit per unit, that means you have
to sell 780 units just to break even.

Now we add the cost of the first production run.  You probably need to
produce in lots of 1000 to get the costs we discussed earlier, but let's say
you produce just the 780 units on the first run you need to break even.
That's another $5460 up front cost for a total of $7800.  I'll even ignore
the warehouse cost for now since that's hard to quantify (but that doesn't
make it any less real).

So for $7800 up front you break even after selling 780 of these kits.  I
don't see even a established big place, like Jameco for example, being able
to move 780 of these things before they go obsolete.  And there's no point
in launching a project just to break even.  For $9340 you get 1000 kits
which you eventually make $660 on.  Even if your wildest dreams came true
and you sold all $1000 in two years, that's $660 return for a $9340
investment after two years.  So after all that you get to make 3.5%
effective annual yield on your money.  The bank down the street gives higher
yield with much less risk.


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