10 Costs of New Product Development (NPD)
Developing new tech products or services is a vital step to ensure your business will remain successful and to eliminate the business risk of becoming obsolete. Understandably most entrepreneurs and business owners would like to diversify but don’t have all the information they need before taking on this type of project. Hardware products have a bad reputation as being difficult and overly expensive, I am here today to tell you that this is only because the companies pursuing them often don’t plan effectively and end up with a budget that is too small, or they end up repeating work during scaling due to a lack of planning.
I am going to take you through the 10 common costs you will have during a new product development (NPD). The main costs can be broken into three sections the new product development process cost, the Design for Manufacturing (DFMA), as well as the regulatory compliance. Finally, a cost that can be difficult to estimate but will make up a significant portion of your budget is the minimum order quantity or the total manufacturing cost.
1.0 Ideation Process
Estimated Cost: $5,000 – $10,000
Ideation is a necessary step before we start on any design. Product development is a very involved process that requires a great deal of planning and experience to do correctly. Without the proper planning in place, projects can end up being many times more costly than initially intended because of design changes and uncertainty.
2.0 Industrial Design
Estimated Cost: $5,000 – $15,000
Industrial design is the step in the process that addressed how the product will look and how the user will interact with the product. This is a vital step since it addresses the overall structure of the project and often dictates how well this product will sell on the market. This step utilizes a process called design thinking a problem-solving methodology coined by IDEO.
"Design Thinking is a human-centred approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success."
Estimated Cost: $2,000 – $10,000 / Iteration
Once the shape and functionality of the product has been designed the next step is designing the electronics and the enclosure of the product prototype. This process is done to ensure all the components and pieces can fit together, during this step both the prototype of the Printed Circuit Board (PCB)and the enclosure are created using 3D printing or another rapid prototype technology. The device is then tested with early adopters before moving into the detailed design.
4.0 Electronic Engineering
Estimated Cost: $10,000 – $40,000
The electronics for the device are selected and a PCB is designed to integrate all the components together. If the product connects to a mobile app, the firmware has to be created to function wirelessly with the application. Finally the PCB is printed and thoroughly tested to ensure it meets regulatory and quality standards.
5.0 Mechanical Engineering
Estimated Cost: $10,000 – $40,000
To design the plastic enclosure as well as the internal electronic mounting, you will have to work with a 3D CAD engineer. The engineer will use the industrial designer’s model, however, when they design the part it will be optimized for injection moulding to prevent warping or deform during cooling. The mechanical engineer must also be very diligent in designing for product assembly since if done correctly this can save a lot of money reducing assembly cost and assembly time per unit.
6.0 Certifications & Testing
Estimated Cost: $30,000 – $50,000
Before the design can go to mass production it must be tested thoroughly and pass the required product certifications. This step can take up to three months to complete, however; the three months spent can be considered the most important investment during a new product development since it will save cost on RMA’s in the future.
Types of product certifications can include:
FCC certification, for all electrical products sold in the United States, although this certification is significantly more expensive for wireless products.
UL certification or CSA certification, for any electrical product sold in the United States and/or Canada that plugs into an electrical outlet.
CE certification, for most products sold in the European Union. This certification is like the FCC and UL certifications required in the United States.
RoHS certification ensures that the product is free of lead and is required for products sold in the European Union or California.
7.0 Packaging Design
Estimated Cost: $3,000 – $5,000
The retail packaging of a new product is very important since it directly effects if the product will sell. A Graphic designer will design a product packaging then is will be prototyped at a packaging factory. This is a step that is often skipped but ends up costing the entrepreneur or business the success of the product.
8.0 Mold Tooling and Manufacturing Setup
Estimated Cost: $40,000 – $80,000
Setting up for mass production will likely be the biggest expenses when producing a new tech product. The major cost will be tooling the injection mold needed for the plastic parts. Once the mold has been tooled and the PCB is set for manufacturing a test run of several products must be done to test for quality control issues. The good news is that once the molds are tooled and the supply chain is set up the unit cost for the products drops to a low unit cost.
9.0 Minimum Order Quantity (MOQ)
Estimated Cost: $50,000 – $150,000
A big expense of bringing a new product to market is the cost for the minimum order quantity (MOQ). The minimum order quantity is usually a couple thousand units dependent, however, this is dependent on the factory you have chosen to work with. Unfortunately, the MOQ does not reveal the whole truth, we have found that to maintain a high priority and quality products from a factory it is advisable to have an order value of at least $100,000.
10.0 Shipping and Import Costs
Estimated Cost: $10,000 – $50,000
The importing costs of a product order largely depend on the size and weight of the products being shipped. The most economical method of shipping products from China is via cargo ship. This cost is variable depending on the size of the product you plan for transport, so I would strongly recommend that you do some research before starting your project.
As outlined in this article there are many steps and costs associated with a new product development. A good rule of thumb is that a new product development will cost between $200,000 and $1,000,000 depending on the complexity of the project and will take between 12 - 16 months to take from an idea to an order--mass produced in China.