Nope, you've got it right. We're selling at a loss up until roughly the ~1,000th unit shipped.
More specifically: if we ship 125 units, we lose roughly ~$5K per headset. If we ship 250 units, we lose roughly ~$2K per headset. If we ship 1,250 units, we're operating at a slight profit with a couple of years of runway. If we ship 10,000 units, our margins approach 45% (at least on our pure hardware offering; we'd like to layer in some software offerings as well).
Unfortunately, the most costly part of the project is the very beginning. But we think these sales targets are doable if we're able to get our operation off the ground (with customers able to see shipped units being used to replace laptops in the wild).
The key factor is how fast units need to ship. In general, the scaling is sub-linear due to
1. reduced per-component costs (volume discounts)
2. less administrative/engineering overhead (ie the salaries/one-off costs get divided among more units)
3. more optimized assembly processes
Assembly labor expenses are directly proportional to how many units need to ship per timeframe. If an assembly worker can assemble 10 units a day, you're shipping 200 units/month. So you can ship 1000 units in 5 months or hire 5 people and ship 1000 units in 1 month.
Comments
Nope, you've got it right. We're selling at a loss up until roughly the ~1,000th unit shipped.
More specifically: if we ship 125 units, we lose roughly ~$5K per headset. If we ship 250 units, we lose roughly ~$2K per headset. If we ship 1,250 units, we're operating at a slight profit with a couple of years of runway. If we ship 10,000 units, our margins approach 45% (at least on our pure hardware offering; we'd like to layer in some software offerings as well).
Unfortunately, the most costly part of the project is the very beginning. But we think these sales targets are doable if we're able to get our operation off the ground (with customers able to see shipped units being used to replace laptops in the wild).
Forgive my bluntness, I know next to nothing about manufacturing: are you able to scale up to 10k units at linear cost?
The key factor is how fast units need to ship. In general, the scaling is sub-linear due to
1. reduced per-component costs (volume discounts)
2. less administrative/engineering overhead (ie the salaries/one-off costs get divided among more units)
3. more optimized assembly processes
Assembly labor expenses are directly proportional to how many units need to ship per timeframe. If an assembly worker can assemble 10 units a day, you're shipping 200 units/month. So you can ship 1000 units in 5 months or hire 5 people and ship 1000 units in 1 month.
I would assume it actually becomes reducing cost, if anything?
Not sure, if you need to hire more people... again, I know nothing about manufacturing.