Re: Looper development and production costs?

[Kim Flint <kflint@loopers-delight.com>]

At 01:12 PM 10/13/2001, Doug Miller wrote:
>Any $ put into design ALWAYS pays off big time on the bottom line.
>
>>If Gibson cares about selling EDPs, they'd get an industrial designer to 
>>redesign the face plate.  Graphic designer to redo the logo.  Do any of 
>>these things make the EDP a better product?  No, but extra sales would 
>>sure influence someone into throwing cash at an EDP 2 project.
>__________________________
>Doug Miller
>Graphic Designer

I guess it makes sense that a graphic designer would think so. I tend to 
agree. but again, let's look at numbers to do such a project. How much 
would it cost to for this design work, and how many more sales would it 
generate? Would the additional sales even be enough to cover the 
additional 
cost? I'll make some wild guess estimates. Since you want to redesign the 
faceplate, in addition to industrial designers and graphic designers that 
requires new engineering work to do the mechanical redesign of the metal, 
and then the electrical engineering and PCB layout of the front panel PCB 
that holds the parts. Then of course, the NRE charges for retooling the 
metal and PCB fabrication, and silkscreens for the paint, etc. Probably 
you 
need to redesign and reprint any marketing literature also. I guess you 
have to redesign the footpedal too, but I won't count that.  So I'll 
estimate:

Industrial design:  $20,000   (that's much cheaper than ID estimates I've 
gotten for other things, but we'll find some cheap guy to do it..)
Graphic design of new logo:  $5000  (? not sure what that costs.)
mechanical engineer for 1 week: $5000
electrical engineer for 1 week: $5000
PCB layout designer for 1 week: $5000
NRE charges on PCB and metal tooling:  $5,000
prototype build and testing:    $7500
redesign, reprint marketing lit:  $2500
= $55,000


How many extra units do we need to sell to break even on that?
if list price is $1150, wholesale is probably half, $575.
Probably 50% of wholesale price is COGS, so that leaves $287.50/unit after 
manufacturing costs.
we have a corporate requirement to maintain 30% margin, which is not even 
that much for a low volume product, but .3 x 575 = 172.50, so that leaves 
us with $115.       presumably the division has overhead costs to pay for 
office rent, salaries, etc., let's say that's 10% of income which is 
probably too low, or $57.50/unit, leaving us with $57.50. But let's say we 
tighten our belts somewhere and manage to devote $75/unit to pay for this 
redesign.

$55,000 / $75 = 733 units needed to be sold just to pay off the cost of 
this redesign and break even. I guess these should be counted as 
additional 
sales beyond current figures to make it worthwhile. There have been very 
few years in the echoplex's history where that kind of volume was done, so 
we are talking about something on the order of doubling sales or more. 
Even 
if that is the wrong way to look at it, maybe we are optimistically 
talking 
about only a 50% increase in sales needed to cover the cost and take the 
rest out of existing sales. We will say that is 1/2 our number above, or 
367 additional units sold.

Now, is a new faceplate design for this product going to generate 367 - 
733 
more sales? is this project realistic?  How many people base their 
decisions on buying rack mounted musical instrument gear on how it looks? 
My guess is, somewhere near 0. Even if just attracting more attention is 
all we hope to do, will we attract that much more attention just by 
changing the faceplate, and convert it into 367 more sales? I doubt it. 
You 
might even lose sales because people already recognize it as it is, and 
you 
will need to spend a lot of effort to reeducate the market.

If you ever tried to design a 1U 19" rack faceplate, you would know that 
there just isn't a whole lot of room to do anything interesting in that 
space, with the constraints of the hardware mounting room behind it. You 
mostly attract attention just by looking different from other stuff, and 
the echoplex accomplishes that already just by being NotBlack. If you look 
at a rack with an EDP in it, you spot it instantly because of the contrast 
with all the surrounding stuff. Even if you thought it was ugly, you still 
saw it first.

Right now, the echoplex faceplate is fairly low cost to make, just stamped 
sheet metal, painted and silk-screened. We don't want to increase the cost 
by doing this redesign, which would raise the list price. That would 
reduce 
sales, countering whatever effect our redesign gives. So we have to limit 
our poor designer to avoid any fancy molding or extrusions, custom knobs 
and buttons, etc. unless we are willing to raise the price. He can only 
work with stamped sheet metal and paint....

If you ask me, that $55,000 is far better spent on advertising, in-store 
demos, endorsers, etc. That will bring a lot more sales than a different 
faceplate. Or you could spend it on new product development, etc.

kim


______________________________________________________________________
Kim Flint                     | Looper's Delight
kflint@loopers-delight.com    | http://www.loopers-delight.com