Olin Lathrop wrote:
> 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).
>   

And in fact, just the actual parts cost won't do it. You need about 10% 
overage to cover losses in assembly
errors or simple failures. The cost of shipping adds another 10%.
> 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.
>   

My casino in Laughlin, NV offers better than that, and throws in a free 
room as well.

--Bob
>
> ********************************************************************
> Embed Inc, Littleton Massachusetts, http://www.embedinc.com/products
> (978) 742-9014.  Gold level PIC consultants since 2000.
>   

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