Tip of the Week: Tip #4 of 25

Tip 4 – Cost-to-Price Ratio & Your Invention
Blog By Edward Ayres

“It’s very inexpensive to make!” With a majority of companies adhering to the manufacturing principle of cheaper is better that’s a great starting point. However, it’s only half the equation. Another very important question is, how much will consumers pay for your product? Cost-to-Price ratio is critical and an important aspect of invention success. Being inexpensive to make is great but if people won’t pay enough for it than it really doesn’t matter.

What is Cost-to-Price ratio? Very simply, it means how much does cost to produce your product versus what it will sell for. An example would be if you have a product that cost $1 to produce and you can retail that product for $7 you have a 1-to-7 cost-to-price ratio, which many organizations would find extremely acceptable.

The actual invention, its industry, the target market and even the avenue of distribution all play a role in determining an acceptable cost-to-price ratio. For instance, companies with production and retail arms may allow for a lower cost-to-price ratio, and may find 1-to-3 or 1-to-4 acceptable. However, our contacts in the “As Seen On TV” industry will only consider products with a minimum of 1-to-5, and prefer higher as they have to pay for commercial air time. For inventors attempting to license their product the higher the cost-to-price ratio the better, and it can even be used as a selling point to entice potential licensees.

When inventing and designing keep your product’s cost-to-price ratio in mind. While being inexpensive to manufacture is important the product must command a fair sales price in order to pay for all aspects beyond production to include your royalty. If you have any questions don’t hesitate to contact us, and one of our knowledgeable consultants will be glad to assist you.

We hope you enjoyed Tip #4 from our new series “25 Tips on Inventing.” Please consider sharing this information as it may benefit an inventor you know. Check back next week for Tip #5.

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