Labor is difficult to calculate precisely. Assembling surface mount components is time consuming; we spend about an hour per radio on that alone. Then there’s QC, mechanical assembly and tuning, all of which takes an additional 30–60 minutes. Add the fact that we were shipping orders one by one, and you’ve easily got two hours per radio in labor.
All in all, our Grand St launch did *not* make us money — but it did give us a great chance to cover some of our costs as we moved towards bigger volumes. For that, it was incredibly valuable; I’d do it again in a heartbeat.
The Rub
Building electronic products by hand is hard. And expensive. So, scale it a bit.
Our ultimate goal is, and has been, to sell The Public Radio at wholesale prices direct to radio stations — who would use them as a tote bag replacement during fund drives. Remember that even if we scale our purchasing and assembly, these things need to be tuned to the customer’s station before they’re shipped. If we can tune them in batches — say, a hundred or a thousand all to the same station — then we save ourselves a *lot* of work.
Kickstarter is, admittedly, not specifically tailored to establishing a wholesale business. There are a lot of logistical challenges that we’ll face selling to individuals, and it’s unclear whether we can deal with them in a way that’s sustainable long-term. But Kickstarter allows us to get access to a big network of people, and gives an opportunity to reach out to station managers and say “we’re doing this thing; let’s talk about it.”
Preparing
Figuring out the details of the campaign were *hard.* Aside from issues in producing a video (I can only blame this on the poor on-screen appearance of yours truly; both Zach and Colin (who was super gracious about helping us out) did a great job), the real difficulty was in setting the unit price (i.e.reward level) and funding goal.
We’re offering a handful of non-radio rewards in the campaign, but the bread and butter will be the “radio monogamists” level, which consists of an assembled and tuned Public Radio, including jar. Drawing from what we learned about buying habits on Grand St., we decided that $40 is a reasonable street price; we then averaged our shipping costs across the country and added $8 to cover those. As a result, the shipped price for our mainstay reward will be $48.
To be clear, the $40 baseline here is simply an estimate of what the market will bear. When we launched on Grand St, we started at $60, but after a week or so of no sales we dropped it to $40. That was the extent of our research, essentially — we couldn’t imagine it on a shelf for much more than $40, so $40 it is.
The funding goal was trickier. In the year+ that we’ve been working on this, we’ve spent $5–10k in cash — not to mention *months* of our weekends and after-work hours — developing it. It’s been a huge effort, and releasing it to the public will be even harder. But we’ll never get that time back, and anyway it has already paid for itself (in intangible rewards) many times over.
So, you just take that out of the equation — and expect to take many, many hours of future work out of the equation too.
We ended up setting a funding goal of $25,000, which corresponds to 500 units sold at $48, rounded up a thousand bucks for good luck. In the end, the deciding argument was this: while our cost structure at $25k probably wouldn’t make us money, the experience — and pulling it off — would be totally worth it.
Fulfillment paths
The exact quantities at which our production modes shift are still up in the air, but there are a few ways we *think* this can go.
We barely fund, selling about 500 radios.
Obviously this didn’t happen, but nonetheless: At quantities of 500, we should be able to get our COGS down to about $30 (but not much lower). As a result, our income above COGS is about $10 per radio, though much of that will end up going towards payment processing & Kickstarter’s fee. Not counting costs incurred for reengineering (which would probably be minor, as the marginal benefits wouldn’t add up to much), supplier vetting, and our own labor, we’d expect net income for the whole project to be about $2500. In short, we’d lose money on the deal — but gain invaluable experience as a result.
In this scenario, we’re probably using a local vendor for our PCB assembly, and doing a lot of the mechanical assembly ourselves. There would be a *lot* of long nights ahead, and many of them would be spent doing assembly and distribution ourselves.
We overfund, but not enough to buy reel quantities or amortize our tooling.
This is roughly where we are now — somewhere in the 1500 unit range — and it’s a *very* uncertain place to be. At 1500 units and a $28 COGS (we’d save a bit of money from the increased scale alone), our net income off of a $72,000 campaign will be in the range of $6500. If we reinvest that into engineering and reduce the COGS to $21 (still speculative at this point, but not without reason), we might be able to increase our net income to about $10,000. Do we take that risk? Either way, we’ll probably be incentivized to buy a number of our components in larger quantities; how do we deal with the excess inventory? Do we push The Public Radio to become a sustained business, even if we don’t currently have the demand to support it?