As a business owner ready to take your product from the product development phase to the manufacturing phase, it’s good to get a better understanding of the three elements of manufacturing cost. There are many factors that need to be taken into consideration when manufacturing a product. We can easily split these three manufacturing costs into: 

• Material Costs 

• Overhead Costs 

• Incidental Overhead costs

The manufacturing process is covered with many unforeseeable costs which give many founders a constant headache. By highlighting these three manufacturing costs, we can help you better prepare for any future surprises. 

Material Costs

One of the most common manufacturing cost is material cost. This manufacturing cost speaks for itself, so to say, as we all understand what bearing material costs can lay upon us. If you’re looking into ramping up your product on the manufacturing lines, it is best practice to bargain or ensure, you get the most cost-effective raw materials. This is not to say ‘the cheaper the better’ but rather ‘the cheapest high-quality raw materials the better’. The amount of time and money wasted on low-quality raw materials is astoundingly straining on both, the manufacturer, and the founder. 

So, material cost is a great reminder to us that we need to be very thorough with the materials/components we are using in our products. Perhaps the materials are perfectly fine, but you find components in your bill of materials (BOM) staggeringly high. Perhaps you need to go back and reconsider a few areas of your device, before manufacturing. 

Overhead Costs 

Now, to jump into this manufacturing cost, we need to highlight two aspects to this. One being, direct overhead costs, and the second being indirect overhead costs. Let me explain. 

Direct overhead costs in the manufacturing costs spectrum are the costs which cover things such as salaries, expenses, and holiday, as well as any other unforeseeable problems which arise with the workers and employees.

Indirect overhead costs are things such as utility cost, Your manufacturing facility incurs expenses whether you are manufacturing or not. These costs include utilities, rent or mortgage payments, depreciation on equipment, and security.

Incidental Overhead costs 

The final element of the three elements of manufacturing cost is the incidental overhead cost. Now, you may be wondering, ‘wouldn’t this be covered in the general overhead cost’ not necessarily. You see In addition to the three most common manufacturing costs, you have expenses for the manufacturer’s supplies such as tools, tape, lubricants, and safety gear. Once you get a handle on your three largest manufacturing expenses, do an extensive audit of your facility to see where else you spend money that goes into your manufacturing costs. 

Conclusion

You’d be surprised as a founder of how much money goes into your manufacturing costs. Keep in mind that, when working with a manufacturer, make sure they’re the right fit for you. 

Although you may find yourself paying more for the manufacturing cost, you must also consider the quality of the output being offered. Don’t just pass a manufacturer by if you feel as though they are too expensive, but rather way the pros and cons, between quality and the manufacturing costs.