2012.05.25

Maker Business - The Real Costs

You know me, I’ve always got more to say… I just wanted to touch on the real costs of making a thing.

In the olden days, when I primarily worked with software, there was an old saying “Linux is only free if your time has no value” and while it’s a slightly amusing phrase, there maybe some truth to it. Maybe. If you’re a Linux fan, the saying may come across as an insult. Sure, sometimes working with Linux feels a lot like yak shaving. When you need to install this library to install that library to install some other library to install the software you really wanted to install… you get the idea. (Linux has gotten much better at this in the last few years though, so much of these issues have gone away.)

With software, it’s (almost) all about the time you spend on it. If you’ve got a computer, you can develop software. Most of the tools are free, or low-cost (depending on the platform) and if you got access to the Internet, or a library, you can learn, learn, learn and become a software developer. (I’ll answer the question of if you should in another post!)

So you’ve got a computer, you’ve got time, you’ve got a desire to learn… those can be the basic building blocks to make software. Go for it. Now, keep in mind that many developers (especially in the open source world) are doing what they do because they want to solve their own problems. I really wanted DokuWiki to be able to present a random page, and when I found a plugin that didn’t work, it was worth a few hours to fix it. I didn’t go as far as adopting the plugin, since it appears to have been orphaned, but I did drop it on GitHub so if someone really wants my work, they can have it. The sharing and collaboration is part of what I love about open source.

So let’s talk about hardware…

Hardware consists of real bits, not just zeros and ones, but actual physical things that are created. When I turned one of my projects into a product I did my best to make sure the final price was such that I would actually make money. Making money is important. Note that I didn’t say making LOTS and LOTS of money is important. I mean, it is to some people, but… whatever.

So you’ve got your maker business, and you want to treat customers (and potential customers) right, and this will cause you to make certain decisions. I remember talking to someone 9 months ago who ran a successful Kickstarter campaign, and he pointed out to me that the first thing you need to do once you think you determine your costs, is to pad it. Remember that Kickstarter and Amazon each take a cut. The campaigner also said that he got one backer who had some terrible thing happen in his personal life, and asked if he could be refunded his pledge. If you do refund someone’s pledge, do you do the full amount or do you withhold what Kickstarter and Amazon take out of it?

Once you’re shipping actual products, if you’re not charging enough, how many returns does it take to make you start losing money? Things break during shipping, or get lost, or stolen, or just plain don’t work. It’s your job to determine how far you’ll go (and how much you’ll spend) to have satisfied customers.

And yeah, as I mentioned, physical things cost money, and when you are not big (as in, a small company, or someone just starting out) you probably have zero leverage to get any sort of discounts. This is where a lot of Kickstarter campaigns come in, as they involve raising enough money to do bulk purchases to drive down costs. It’s a good idea in some cases, but not all.

Even after you have all the physical things you need to assemble a product, there are at least two more thing you may need. Time (just like with software) and tools (which compare to a computer in the software example above.) In my case, to build my products I had some of the tools I needed, but I also had to buy some of them. If you don’t want to buy your own tools you can consider a makerspace or something like TechShop if you have one near you. As you continue to create your product you may end up spending more on tools, to do things better, faster, etc. This is another cost you may not think about. There’s also repairing and replacing tools, and consumables like blades, bits, paint, shipping materials, etc. and each one of those also takes some time. If you’re driving to a store, or even just ordering online, that’s time, and if your time is worth anything, you need to be compensated in some way.

I’m all about DIY, when it makes sense, and sometimes even when it doesn’t make sense, and that’s the key here. Sure, time is money, and yak shaving isn’t always the best thing to do, but sometimes you do it anyway. The good thing is, everyone has a different scale of what they are willing to do (or what they can do) and what they are willing to pay someone else to do.

I’ve gone off the rails a bit, and I guess I’ll need to do a 12.5 post to continue this. If it’s a bit rambling, forgive me, I’m still thinking through a lot of this.

(See all the posts in this series: Begin, Stock, Buy Smart, Basic Rules, No Leeway, Be Open, Community, Manufacturability, Marketing, Shipping, Lessons Learned.)

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