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Invisible expenses – Hardware startup

We have seen a lot of people ripping of electronic items to see how much each component costs and then come up with a figure of the value of the item. We would like to weigh in a few expenses which we have identified and experienced apart from the cost of components, which is mostly ignored by many, so that it might help someone stepping into this field.

Assembling Cost: The PCB components are to be assembled. Some people need PCB Stencil, which costs a few thousands in rupees. There are also different finishes of PCB, all the way from least expensive leaded finish to expensive finishes such as ENIG. We mostly use ENIG in our boards for better finishes and quality. The assembling cost varies with quantity.

Transportation: All components, boards, boxes, cases, moulds, stencil, prototypes, cables, screws, batteries, papers, stickers and almost everything is transported and it costs a lot of expense. And an additional 18% GST (+1% cess if from states like Kerala) when billed from the vendor.

Moulds: These are the one time investments for making plastic cases of electronic items. These costs all the way from 50K for small moulds and upwards to tens of lakhs depending on number of pieces per mould to complexity, cooling, finishes etc.

Screws: Might not seem an expensive item, but is usually more expensive than the passive items used in electronics.

Seller platform fees: All online platforms charges fees, in various tabs, depending on the category, all the way up to mostly 20-50% including the shipping and handling charges (including GST). And this amount they collect is credited a few weeks to months later, depending on platforms. If you have your own site and set up a payment gateway, you might have to pay about 2-5% on transaction charges and 18% GST on it. Also be ready to shell out money on packing and printing labels and on shipping charges.

Printing charges: You end up printing a lot of sheets for shipments and invoices, not to mention other documents and accounting related papers.

Storage charges: If you make more, you need to have a bigger rented space to store more. This can’t just be any place as your product might wear out and be covered in dust if not stored properly.

Return charges: If you plan to get online to sell, be ready to accept returns. There are users who order, and return without even receiving the items, and others who order and return without reading the descriptions or looking at the images. Also, we observed that, only a few still contact the startup for support. Most rely on the easy return conditions of e-commerce platforms and do a hassle-free return than try to sort out the issues. In case of return, the seller (you) will be charged the shipping charges, and will also end up losing the packing, invoice and related expenses. The returned items will take and eternity to come back to you.

Items with issues: No machinery is 100% perfect. If you make a 1000 pieces, there will be items which are not fit for sale. This happens in all stages, from PCB manufacturing, assembly, components, final assembly etc. This is an overhead cost.

Salary & Rent: Now, this is mostly the avoided part. Everyone works for a salary and each stage requires a human input, which is to be paid for. Also, there is a rent to be paid for storage and other infrastructure.

Taxes: GST on all payments made. Additional cess for certain states.

Import duty: The items which you see on international websites can get up to twice as costly when it gets to your hand, including the GST, shipping charges, import duties, cess, surcharges and then handling charges, storage, import clearing charges, duty advancement charges and GST on top of these (except for items whose GST has to be paid at the time of import)

R&D: Development takes a lot of time, and lot of trials before it can hit the market or ramp up into production. There are small batches of components required and this is quite expensive (as much as 40x) depending on the quantity that you do. For instance, a prototype assembly for a board (30x50mm, with 25 components) would cost you, Rs. 500+GST for assembly (excluding the 2-4K you spend on stencils). The same production version might cost you <Rs.50 including the stencil charges and taxes.

Banking charges: Companies have current accounts, which doesn’t pay interests, and are charged per transaction.

Capital investments: There are equipment which you need to have to build the firm up, from soldering iron to oscilloscopes or even much expensive items, depending on need.

Electricity charges and related: On the commercial scale.

Government registrations, renewals, taxes and audits: There are charges for all these, and these are not limited to these mentioned tabs.

We will be adding valid points as we catch up with them, or if you can help us with something which had not been mentioned, kindly comment below.