The brutal financials of a project like this

A project log for gCore (II) - a dev board for portable GUI gadgets

A high-end ESP32 development board with a 480x320 pixel capacitive touchscreen and sophisticated features.

dan-julioDan Julio 12/17/2022 at 21:102 Comments

This post covers a subject I haven't seen much discussion about: The [not so great] economics of selling a board like this.  I figure I've open sourced the design, why not be open about the business aspects of it.

I designed gCore for my own needs but I always thought it - and tCam - might be interesting to other people.  However, I am a one-man shop, interested in technical issues and not in marketing, managing production and shipping logistics.  Since Group Gets specializes in selling thermal imaging modules and boards, including my tCam-Mini board (that is used in tCam), it was an easy decision to have them distribute it and they were interested too.  Plus I like the team there.  They are good people and responsive to people like me (unlike my experience with other electronics crowd funding sites).

For a development board, gCore has a lot of parts.  These are needed for the added functionality and performance but make it more expensive to build.  Especially in low volumes.  Most boards in the same category have an ESP module, LCD display, USB IF chip, and voltage regulator (5V->3.3V).  Perhaps a Micro-SD socket.  gCore adds a LiPo charger, the EFM8 co-processor, TI current monitor chip, PWM backlight CC driver and the SPI-to-parallel converter (3 chips), plus supporting components.  As opposed to boards with the ESP32 WROOM module with 4 MB flash, it has a WROVER module with 16 MB flash and an 8 MB PSRAM.  These additional parts almost double the raw component cost over simpler boards.

At qty 500 boards the ideal raw cost for parts is about $37-38/board based on US distributor pricing.  I say ideal because that's the price if there were no parts shortages, which is not the world we live in.  Unfortunately these days we either have to redesign or pay through the nose occasionally because parts brokers [scalpers] bought the parts and charge 3-10x.

A problem is that a lot of makers and DIY types are used to super inexpensive dev boards, mostly built in China, with a lot less features.  And for a lot of projects the additional capabilities and performance of gCore don't matter.  There was never a way gCore would be cheap like these boards so I also knew it would never sell in high volumes.  I also feared that people would simply look at the price and be turned off before considering the value of the extra features and performance and how those could be useful. 

Initially Group Gets was going to be responsible for building the boards using their USA contract manufacturer.  I would get a negotiated percentage as a royalty.  Of course they need to make money and they charge a certain percentage to manage production to cover their costs, as well as percentages for managing, marketing and distributing the product, plus a profit.  Unfortunately the end result was a $160/board price.  There was no way this would be interesting to anybody.

So I decided to bite the bullet and assumed responsibility of building the boards in China using a CM I have used with success in the past, TinySine.  This would theoretically result in a lower cost to build boards and Group Gets wouldn't have to add their manufacturing management overhead to the final price.  In addition I don't have to necessarily mark up the costs as much as traditional companies since a) I'm don't have the same overhead and b) I'm not looking to make a lot of money with this project.  We talked and agreed that $99 was about the highest we could expect to charge - and even then we'd have to explain the value of this board (e.g. why one would buy a high end car when a Yugo will still get you from point A to point B).

Group Gets also wanted me to have a cute box for the board to come in.  I personally am just fine if boards come to me in anti-static bags but apparently the rest of the world disagrees...  So more cost.

I worked with TinySine to deal with some parts shortages by specifying alternates and agreeing to pay for two parts from brokers.   In the end I will pay $50.18 per board before they are shipped to the USA for a build of 250 units.  The boards will be tested, programmed and come with boxes (not sure yet if they will be in the boxes or that will be something I or Group Gets does).

Shipping to the USA is a big risk at the moment because of the risk of import duties.  At the moment certain categories of goods are exempt, at least until year-end, from the Trump-era 25% import duties.  Looking through the Harmonized Tariff Schedule and trying to figure out what category a board like this falls into is a tedious affair but I think that it legitimately falls into a category that is currently exempt.  I watch with alarm, however, over the increasingly belligerent posturing between the USA and China.  If the boards can be imported without duty then shipping will add between $1-2 per board, helped by the fact that it's cheaper to ship from China to the USA than vice-versa (FedEx charged me $166 to ship the test fixture to China).  So my landed costs are going to be either around $52 or $65 per board depending if I get hit with import duties or not.

All this leads to an interesting comparison of the real costs of building boards in the USA vs. China.  The USA CM quoted a number in the low $60s per board but this was before testing (which they hadn't quoted when we changed plans) and they hadn't actually tried to buy all the parts.  Shipping costs would have been less - or potentially zero - since they are located near Group Gets.  This means that the import duties would more-or-less equalize the landed costs for this board.  The savings of using the China CM will be from Group Gets having to burden the final cost with less overhead and lower profits to make the $99 list price.

In the end, I will probably make between $15-25 per board (depending on import duties and various shipping costs).  Which means $4-6k if we sell all of the initial run of 250 boards.  And incredibly less than the time I've put into documenting and writing demo and support code for gCore.  tCam firmware and supporting software alone is hundreds or thousands of hours of effort.   But as I said initially, I didn't go into this expecting to make money.  I designed the board I wanted for the thermal imaging camera I wanted and shared it with the greater community.  It's why although I'm an embedded development professional, I'm also a maker.  However an outcome could be that Group Gets becomes not interested because it doesn't make them much money (and, of course, they have to make money to survive).

So at this point it's down to marketing.  Trying to get the board in front of as many people who might be interested as possible.  I have shared it on various forums and GG has their own strategy.  I have a couple of more demos in mind too.  They're fun to write.  Then we'll see. 

I hope this was interesting for anyone who buys boards or is thinking of making boards for this market space.  Perhaps the next time you're looking through tindie and comparing prices you'll think about this aspect of things.


Ken Yap wrote 12/17/2022 at 22:47 point

Thanks for that very interesting explanation of the costs of manufacturing and marketing. Sure is a far cry from a onesie made for fun.

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Dan Julio wrote 12/18/2022 at 00:44 point

You're welcome.  It's in a no-man's land between one-offs and the kind of volume that people expect for products.

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