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How do Adafruit/Sparkfun/etc. have such low prices?
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How do Adafruit/Sparkfun/etc. have such low prices?

by vputz on Sat Apr 13, 2013 7:26 am

...the reason I ask is that I'm at that point where it's time to decide on a price for my kit, and so I started by doing the 2.3x/2.6x multiplier on my cost. And initially, because my time is worthless (joke! I know it needs to be accounted for) I added up the parts, based on a cost for 25 kits, out of Farnell.

So what we have is basically a 32u4 breakout board minus a few components (no headers, no voltage regulator since we're always powered by USB) and plus a couple (to connect to old RS232), with a PCB cost of about 5 pounds (say $8--I could probably reduce this by about half by switching suppliers; it's only 2"x2"). So my "notes.org" file with my price quote looks like this (all prices in GBP)

Code: Select all | TOGGLE FULL SIZE
  - 2x 22r  @ 0.008
  - 1x 1kr  @ 0.008
  - 1x xtal @ 0.25
  - 1x skt  @ 0.143
  - 1x led  @ 0.058
  - 1x 10uf @ 0.037
  - 1x 1uf  @ 0.036
  - 2x 33pf @ 0.036
  - 7x .01uf@ 0.099
  - 1x db9  @ 0.53
  - 1x usbb @ 0.3
  - 1x ADM  @ 1.61
  - 1x 32u4 @ 2.68
  - 1x board@ 5
  - Total: 11.43 GBP. 
    - At 1.6 GBP/USD, $18.25
    - With 2.3x-2.75x multipliers, brackts are $42 and $50
    - Shoot for $45?


So I will have to charge more than double what Adafruit does for their 32u4 breakout board to make a product which in a sense is substantially less flexible. Volume costs on the components don't help too much--going from the min order size of 25 for the 32u4 to the max order size of 500 only drops the price from 2.68GBP to 2.46GBP. Finding a PCB supplier who would drop the price to $1/in^2 would drop the pcb price from $8 to $4 (at 2.5x markup, this would drop the price substantially, by $10, probably the single best thing I could do).

But ... even so that would put me at $35 or so--without ANY labor factored in, or VAT added to the parts cost. Even for a niche product, that gets difficult to defend. What am I missing?

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by lyndon on Sat Apr 13, 2013 10:13 am

I doubt that anyone from Adafruit will say how they get their prices low (though it would be nice) but here are a few things I've learned over the years.

- Good supplier relationships will get you prices much lower than the catalog distributors.
- Work on driving the most expensive parts down. In your case find a cheaper PCB supplier
- You're on the right track with volume. Having lots of cash on hand lets you buy lots of expensive parts in enough volume to drive their parts price down.
- Automate, automate, automate: a machine can assemble a typical PC board much cheaper than a human. But you need $$$ to be able to buy the P&P machine and enough volume to keep it busy
- Having a niche product is one thing, better is a niche product that people are willing to pay a lot for. I know someone who sells product almost identical to what you can find off the shelf, but the one feature he added lets him sell it at 10x the price of the off the shelf item.

You raise some really good questions. There used to be a magazine called Midnight Engineering that would have made a great website if it were still around cause things like these (business side of entrepreneurial engineering) were being discussed all the time.

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by vputz on Sat Apr 13, 2013 5:30 pm

It's a tricky business, all right. The PCB supplier is relatively expensive, but they do free prototypes as long as I place an order every so often, so I'm probably going to use them for prototypes and beta boards and then try another service for "production runs", which will help. And while I'm sure very good supplier relationships can get lower prices, that's probably not viable without volume.

Unfortunately "volume discount" and "low inventory for agility" are mutually exclusive (and I'm still in the "flail with lots of projects and see which are interesting" phase so very unwilling to have lots of inventory). Admittedly common parts help (I may as well get a full reel of 0.1uf caps) but there's a lot of flux still... seeing the writing on the wall for 3.3v and ARM when I'm currently 5v/AVR means change is a'coming.

I'm still relegated to doing SMD by hand until OpenPNP or some other open-source PNP machine makes progress; I can't justify the expenditure and space when my day job will be moving me around. And my SMD skills are wretched (admittedly, no solder mask, but even with stencils I get several bridges on every board). Admittedly I just started and I know skill will improve (go Wright's law!), but still...

Yes on automation. At least I've made it as far as SMD (still painful) and stencils, and made my own hot plate controller for reflow (I even made a "manual PNP" rig to stabilize a vacuum pen but having trouble finishing that one). OpenERP is fantastic for inventory management and other businessy things. Still have a lot to do; overall I'm getting the impression that even a small kitbiz isn't even as easy as the people who say it's hard make it out to be.

But hey, I've at least made it to a second beta test. This one will likely never be profitable, but it's a learning experience and I've learned more than a university course costing much more would cost. I'm just not clear on how to EVER be profitable, and that's worrisome.

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by zippys123 on Sun Apr 14, 2013 3:08 am

Adafruit orders their boards from Gold Phoenix,i would suggest trying Seeed-studio for PCB's they are cheaper and of good quality they even do fulfillment so try and ask them for a quote for assembled board and they even sell it on their website so no worries :D

32u4 is costlier try an alternative or check Octopart

http://octopart.com/partsearch#search/requestData&q=32u4

usually Arrow or Avnet has cheaper prices mail or call their representatives and work out a deal

for small orders try mouser or digikey if confident in getting some parts except for IC's from China USB sockets,smd resistors,capacitors even Led's and crystals are cheaper.
use eBay or alixpress for good prices and see the cost breakdown it will come down drastically...
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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by vputz on Sun Apr 14, 2013 4:12 am

I've been looking at GP (and "pcb international"); they seem pretty reasonable. Actually I do love Seeed; I went through them for my OrbShield (http://www.seeedstudio.com/depot/orbshi ... p-671.html) and Eric&co were great to work with. But I wanted to try doing it myself for a number of reasons (the knowledge, for one, and also to try and keep track of my users to alert them of updates; this project is basically that shield + USB-based chip to fix the problems of using V-USB, but I have no way of letting everyone who had trouble know there's a better product). If I had any sense at all I'd still be using them, since I don't have room for a proper workshop and will be moving periodically--not ideal circumstances for starting even a small-scale manufacturing kitbiz.

The 32u4 in this case was needed for the USB connectivity (it's the whole reason I'm making the board and learning SMD techniques; I made a one-board version with a 328p and V-USB again and it was a bit of a failure).

In reality since the previous shield sold for $25 and needed a $20 arduino, selling both on one board for $45 is actually somewhat reasonable, but I was really hoping it would be drastically lower than that. Well, niche product I suppose.

As for ebay and alixpress, I'd seen enough warnings against doing so for repeatability that I intentionally went for a catalog distributor. I suppose there's nothing wrong with finding alternate routes and most parts are commodities, but hey, first time out I wanted to be sure...

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by lyndon on Sun Apr 14, 2013 1:08 pm

vputz wrote:not ideal circumstances for starting even a small-scale manufacturing kitbiz.


Don't be discouraged by that. I was a supplier for a Fortune 500 company while working out of a spare bedroom in a tiny apartment. There are many, many, many businesses that have been running out of the owner's garage for years. Lots of guys out there with a 2-stall garage crammed with CNC machines turning out thousands of parts a day. You can do it too.

I would not buy parts on eBay either, except for prototyping. I just can't let my reputation take the hit if stuff starts failing in the field.

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by vputz on Sun Apr 14, 2013 1:30 pm

I remember having a garage; it was nice having something resembling space! I wouldn't trade it for this adventure for the world (my day job for the next three years is remarkable), but I do miss the space. My CNC machine is in parts in my computer rack waiting for a compelling reason to spring to life again.

But this career is coming to an end in 3-8 years with a half-decent pension (enough to survive on if this minor business completely fails), and so I'm using the next few years to decide if running my own business is even going to be a valid option... and if I can't even figure out how to make something worth buying for a price that covers more than the raw material, it rather much won't be!

But for now, I'm pleased as heck that I've even got a product that my testers are happy to play with--and besides, being as it's an interface for an old 3d controller to represent it as a HID joystick, I can say that I've created something I can use to blow up zombies, and that ain't bad. All things in time.

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by westfw on Sun Apr 14, 2013 4:57 pm

Finding a PCB supplier who would drop the price to $1/in^2 would drop the pcb price from $8 to $4

Even $4 for a 4in^2 board is very high, especially in "production" quantities. Itead will send you 50 boards that size (well, 50x50mm) for $45, and 300 boards for $125...

Many of your component prices are high; "jelly bean" resistors and caps ought to be ordered a reel at a time, at which point digikey says that resistors should be about $0.002; an eighth of the price you quote (but only a whopping $10/reel of 5000.) There are numerous 0.1 or 0.01uF caps at less than $0.01 each (q1000 or so) (Obviously, other components are unique enough, and more expensive, so that you wouldn't want to order 1000x of them, even if you could save a factor of 8...)

If you get to be big enough, I think you can negotiate with suppliers based on your total volume, and get (for example) Q1000 prices on your 32u4s, based on ordering 5000 Atmel CPUs/year, even though you're only using 200 of the 32u4...

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by vputz on Mon Apr 15, 2013 7:00 pm

Well, it sounds like the answer to my question is "well, it's an economy of scale"--I was just hoping there was something less painful, since my definition of "production quantity" (for a niche product with relatively low demand) is much different from Adafruit's or Sparkfun's definition of "production quantity" (from http://www.slideshare.net/adafruit/kit-biz, "tally up the materials for 25-100"; I'm on the low side of 25 since it took a very long time to go through a run of 50 of the old shield version).

Itead sadly reports all sold out (as does Olimex), so my initial small "production run" will likely be GP or PCBInternational, although I've taken the liberty of solving part of my problem by just redesigning the SMD board to be smaller (this will be interesting, as I've got a nice 2x2 PTH kit and a nicer 2.5x1.3 SMD assembled version, and I'm curious which sells more, particularly as it's not clear what the price differential should be).

As for reels, I can only admit that it's not clear from here which components are likely to be justifiable in reel format. Certainly the 0.1uf, and probably the LEDs will show up a lot, but after that it's less clear (I'm not sure 22ohm resistors will show up a ton except in this application). And I've heard enough about the perils of excess inventory that I'm nervous about that!

But learning goes on. I've already accepted that this first project will never be profitable--but it's costing so much less (and teaching me so much more) than an equivalent university course that it's hard to complain too much.

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by westfw on Mon Apr 15, 2013 10:33 pm

Itead sadly reports all sold out

Of their PCB service? this: http://imall.iteadstudio.com/open-pcb/s ... 18013.html ??
Or Seeed: http://www.seeedstudio.com/depot/fusion ... p-835.html
That seems ... unlikely! I'm not suggesting that you buy a particular PCB, but that you ship them your design and have them make them "fresh."

The "reel" vs "inventory" thing is problematic. But to some extent "excess inventory" perils apply to inventory that you have to sell before you can pay for it. a $10 reel of resistors isn't going to make or break you. The 100 Arduino Micros that you took out a bank loan to buy, are more of a problem. And the fact is that some components REALLY penalize you for buying smaller quantities. (OTOH, this wasn't actually a suggestion that you go out and BUY full reels of everything; it was an answer to your question "how does Adafruit have such low prices?") (Can you do with 27ohm resistors? They get used in USB termination as well as whatever you're doing. One thing I'm trying to get used to is identifying where I can use common components, even if the value isn't exactly right. All those LED current limit resistors can be 1K, and I can use those 9.1k resistors I got from eBay instead of the 10k pullup, and...)

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by vputz on Tue Apr 16, 2013 3:04 am

Of their PCB service? this: http://imall.iteadstudio.com/open-pcb/s ... 18013.html ??
That seems ... unlikely!


Hmm, interesting; that page looks fine, but I found this one first: http://store.iteadstudio.com/index.php?cPath=19_20 which at least on my browser had "sold out" next to everything! But now I see from the small print that I should try their "new online store"--which is a redirect to the page you showed. Odd; wish I'd seen that before my local order, but it's good to support local business too. And Olimex (https://www.olimex.com/PCB/) has "temporarily suspended" their PCB prototype service (but this page has shown that for several months). In any case I rejiggered the board a bit (which is now 2.5x1.3 and will thus cost more from itead since it's above 5cm in one dimension; not the best manufacturing decision on my part but it's much prettier...) and got a prototype order in with a local company (expensive in the UK) and can at least try this out.

Right on the quantities--I'm intentionally doing everything on a VERY SMALL scale (I don't estimate more than 50 sales on this one in the next six months to a year, comparable to the shield through Seeed). But better to find out that, say, your web store doesn't work with one order every week or so than if you actually have a mass-appeal product...). A reel or two certainly won't make or break me, but a habit of buying reels when I don't need to will, in time...

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by adafruit_support_mike on Tue Apr 16, 2013 7:40 pm

If you don't want to buy full reels, run the quantity/price options to see which combination strikes you as most appealing. You'll often find surprises.. I tend to buy Yageo 0805 resistors from Mouser in lots of 200 because the unit price per hundred will be $.02 and the unit price per 200 will be $.009. A hundred cost $2.00, two hundred cost $1.80.. it's actually cheaper in the absolute sense to buy more.

Complete inversions of the price scale like that are a bit uncommon, but you'll often find cases where the financial jump to the next tier is significantly smaller than the jump in quantity. As a not-particularly-good example, I was just looking at non-inverting buffers for another post, so let's consider prices for the Texas Instruments 74LV07: http://www.mouser.com/ProductDetail/Tex ... 7OGrRgE%3d

As of April 16 2013, buying 50 of them will cost you $6.70. Buying a hundred will cost you $8.70. The splurge-factor is $2, which amortizes to 4 cents each for the second 50.. a bit less than a third of the unit price for batches of ten.

Your baseline cost is what you'd pay for the exact number of units you need. If you need 50, you can't buy 40 and claim the difference as a legitimate savings. Your surplus cost is the amount you'd pay above the baseline cost.. $2 in the example above. Your unit surplus cost is the surplus cost divided by the number of extra parts you get.. 4c/chip in the example above.

Paying the baseline cost is mandatory. Paying the surplus cost is optional. Your decision is whether you want to buy the surplus parts at the surplus cost. Sometimes the decision is easy (200 resistors cost 20c less than 100) and sometimes it's a judgement call. If you arrange the numbers that way though, you can build a respectable inventory at a surprising discount.
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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by adafruit on Wed Apr 17, 2013 12:03 am

zippys123 wrote:Adafruit orders their boards from Gold Phoenix,i would suggest trying Seeed-studio for PCB's they are cheaper and of good quality they even do fulfillment so try and ask them for a quote for assembled board and they even sell it on their website so no worries :D


Hi there, we do not sell any products with gold phoenix PCBs, they delaminate easily.
we suggest advanced circuits, we use their high quality pcbs for our kits! :)

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by vputz on Wed Apr 17, 2013 4:13 pm

Thanks, you two. Baby steps are always easier when you have people helping. I had noticed the "X costs Y, but Z more costs less" phenomenon and have played around a bit with it to good effect (and thanks for the warning on GP, though Advanced is far too spendy for small runs). This is a quiet little project (although I've had 10 people I didn't know ask to help test with zero advertising except a little talk on a forum, which always feels good) but the list of lessons learned is growing like mad and the board has gone through about 4 revisions before making it to market (I still don't know what I'm going to do about kit vs SMD-full-board pricing; the SMD board will be lower parts cost but added labor, but both of them at the same price I'd be very surprised if many people went for the kit).

You learn fast in this business, even if it's a hobby business. I'm glad I went with my own inventory and production on this one even if it's easier than just emailing the Gerbers away and having Seeed make kits for me; nothing against Eric and his team, who have been great, but the amount learned out of this has been titanic, and I haven't even gotten order #1 yet.

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Re: How do Adafruit/Sparkfun/etc. have such low prices?

by dmpyron on Wed Apr 24, 2013 1:57 am

Two things to remember are "economy of scale" and "economy of scale". Avoid "gold plated" parts unless you really need them. Automation helps a great deal.

Find ways to get multiple boards on a single board when scaling makes sense.

Remember, Adafruit have already put capital investments into their pricing, but that becomes pennies (pence) when you can use it to build thousands of boards. Your "free time" is known as NRE (non recurring expenses). In other words, design engineering. If you want to survive you need to, at some point, figure this in. Pick&place, ovens, scopes and such are capital investments. That's part of your NRE. Design and layout is part of your NRE.

Find a local chapter of the IEEE or the UK equivalent. There will be at least one person there who can help you get past the pricing and costing phases.

You can remain a hobbiest who sells stuff for nearly what he puts in (talk to an accountant) or you can try to make a real go at it (talk to an accountant). And it may take time to go from "nearly" to "profit". But talk to an accountant. And while you're spending money you don't have, talk to a lawyer.

And good luck. "Who sits on his arse sits on his fortune".

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