PCB Manufacturing Startup Costs: Budget for Tests and Success

Most startups that are still at the bootstrap or seed funding stage have very little money to burn. Some hardware startups consist of a few designers investing their life savings into a new product, and they don't have the luxury of infinite prototyping to build a working system. Because hardware comes with so many constraints, hardware startup founders need to get their budgets in place early in order to convice investors to contribute money towards a new product.

Most recently, I have met and worked with many hardware founders coming from the software world, and so they tend to approach the hardware development as they would a new software platform. This approach ignores a lot of risk and leads to major underestimation of the budget required for successful deployment of a physical product. 

With the new focus on efficiency and smart use of capital in 2023, startups need to be very mindful of their burn rate and their ability to hit their milestons, and it all hinges on creating a smar budget. In this article, my goal is to show startup founders what they should consider when determining their development and prototyping budget.

What Goes Into Your Startup Production Budget

The goal of determining a production budget for a new product is two-fold:

1. Determine how many prototypes you can realistically produce as you develop your product
2. Show potential investors you have a realistic plan for completing product development and scaling

The table below lists a typical budget for an advanced product requiring multiple rounds of engineering, physical design, prototyping, testing, compliance, and embedded development. The numbers here are determined based on a cutting-edge embedded system targeting an automotive application. The costs for production assumed North American production and assembly as IP concerns are very important for this class of products.

Will your production costs reach these levels? That's debatable, but it is important to at least see everything that can go into design, production, compliance, and testing before a product can be scaled.

Throughout this entire process, there will be some interaction with a PCB designer. One of the founders might be a PCB designer, in which case their living expenses and software license costs should be included in your budget. You might also contract with an external PCB design firm to help you build a product that is optimized for volume production.

Produce Locally or Globally?

Thanks to globalization, hardware startups have more access to manufacturers than ever before. No longer are your electronics manufacturing options confined to China. This flexibility and market competition allows you to find a manufacturer that is willing to work within your financial constraints while meeting your functional requirements. Due to IP concerns, lead times, and the ability to call your fabrication/assembly vendor directly, it often makes the most sense to produce prototypes locally despite the higher cost.

Startup companies often forget that it can be difficult to mass manufacture products in a timely manner. While manufacturing capabilities and efficiency have improved, design and rapid prototyping have become much easier and cheaper. It is easy to make one of something, but it is difficult to scale this to thousands of identical widgets.

When it's time to scale, your EMS provider will need to help with bare board costing, assembly, and sourcing costs. NRE costs per unit drop significantly when a product enters volume production because those fixed costs are amortized across your entire production run. The cost reduction per unit occurs with component costs as you produce at volume and scale.

Overconfidence Leads to Early Failure

Probably the most common reason hardware startups fail is because of one factor: overconfidence regarding cost. When someone looks at a product like an Arduino and sees that the unit price is very cheap, they get this idea that they can complete their development on the cheap as well. They simply are not aware of all the tasks required to get to that point, as well as the costs associated with those tasks.

When a startup comes to me with help with a prototype design and a transition to scaling, they are sometimes surprised at all the steps that go into design, prototyping, sourcing, testing, application development, and eventually scaling. They then become quite surprised at the cost, and they tend to have this perception that they can produce at scal;e on the cheap and still hit their functionality, reliability, and quality targets. Chinese fabrication houses that will produce and ship a board for $10 have done startup founders a disservice in this area.

If you have a great idea, don't just start plowing large amounts of money into component purchases, app development, and a fancy office space. Do the hard work needed to understand the hardware development and manufacturing costs first. After all, your circuit board will be the primary component that enables your product's functionality.

Worst-Case Planning

Incorporating the worst-case scenarios into your budget requires significant forethought and experience. Your pitch to investors should include every phase that requires financing and even plans for contingencies in case something goes wrong. Investors don’t just want to see that you have planned for success, they also want to see that you have planned for Murphy’s Law. Some of the worst-case planning you can perform include:

• Budget for multiple prototype runs (more than 2)
• Budget for high component expense (due to broker hoarding, redesigns, etc.)
• Account for 50% overages in your planned embedded development budget
• Account for 50% overages in your planned PCB design budget

These additions to the intended spending and budget can be filed under "Contingencies" in the above budgetary plan.

Don’t just plan for a redesign, plan for multiple redesigns and testing phases. After alpha testing, you may find unanticipated problems with your product that must be fixed before manufacturing for beta testing. This takes time and causes delays in your schedule. It also incurs extra costs, as you will have to pay your engineers to find the source of the problems and you will have to pay your designers to fix any problems in your layout.

Potential investors will appreciate that you have thought through this possibility before asking them for money. Thoughtful investors want your company to get the product perfect, even if it means overfunding the project.

Planning to Scale

If your prototypes work beautifully, you've addressed all the kinks in your embedded application or software, and you've confirmed you can source parts at the required volume, then congratulations are in order. You're ready to scale!

Once the company gets to this point, scaling brings a new set of sourcing processes, quality assurance requirements, testing requirements, and logistics challenges. After optimizing your prototype for volume production, you can take your device to a larger EMS provider, and they can help you navigate these requirements during volume production. Larger EMS companies have many of these QA, logistics, packaging, and sourcing processes in place already, and they will be best positioned to help you scale your product and bring it to market.

Industry professionals at startups and large enterprises trust Altium Designer^® to help them build cutting-edge hardware as they move through each testing stage and, eventually, to high-volume production. When you're creating your prototyping and production budgets, the ActiveBOM tool helps you quickly generate a bill of materials and gives you pricing data for components from multiple distributors. Once you’ve finished your PCB layout and you’re ready to share your manufacturing deliverables, you can easily share data and release files to your team with the Altium 365^™ platform.

We have only scratched the surface of what’s possible with Altium Designer on Altium 365. Start your free trial of Altium Designer + Altium 365 today.