Learn the overall making process for products and services
Copy and fill in the Template. List the raw materials, or ingredients. Disregard if business is a pure service business.
List the needed equipment, tools and the facility.
List the labor, or who is going to make the product.
Describe the lead time to make the product from receiving raw materials to finishing packaged goods.
Calculate the average cost.
Does it make sense to outsource the making the product to someone else? If so, when.
Alex had much work to do once he got the good news that a large running retailer wanted to test market his apparel. He knew that his order quantities were too small to produce in China. His first calls were to US sports textile companies to get terms which include pricing, minimum order quantities and lead times, on fabric. Alex got help from a friend on identifying several cut-and-sew facilities and getting terms. He knew the terms on the digital printing.
Alex put together a detailed budget and project plan. No matter how he did the numbers, he saw that he was going to breakeven. After more thought, Alex knew he would not make money on the first order but could make money on larger orders going forward. He decided to go ahead.
Rob was excited to create a new iPad app which was like a pin up poster for designers. Now he had to turn it into reality. In the Create process, he showed his design friends demo shots of the apps and explained the functionality. Rob would develop a requirements brief which define what the app would do and a creative brief which would explain what the app would look like. While listing out all the details is tedious, Rob did find there were some things he had not realized.
He also asked his friends and searched the web for app developers. He knew how to code but some of the requirements were beyond his knowledge base. He sent out the requirements and creative brief to 3 companies for bids. In the end, he did not go with the cheapest bid, but one where he trusted the developers to get the job done right.
Steve wanted to create a commercial granola business called Ironhorse Granola, but he didn’t know how to make in large quantities. Fortunately, one of his cycling buddies knew a baker who was willing to talk to him. The baker loved the idea and told him a list of what needed to be done. Steve obtained the commercial kitchen rental rates and looked into the permits. He also got quotes - including price, minimum order quantity and lead time- from cereal, nut producers and packaging companies.
Finally, he needed help so he priced out the cost ofcooking assistants. When he put all the numbers together, he realized the business could have more money coming in, than going out. The permits would take time, but he needed time to test larger size batches in the meantime. Ironhorse Granola might just work.
FAQ & Resources
What is lead time?
The amount of time it takes to obtain raw materials or product.
What is finished packaged goods?
These are final products that are packaged & ready to sell.
What is average product cost?
Divide the total cost of material, labor, equipment and facilities by the number of products produced.