So you say you want to make and market a plastic injected molded product? Any business major can tell you the basic ROI calculation:
Revenue from investment – cost of investment
cost of investment
Think about it: if this formula doesn’t yield a positive number, you’re losing money! So how does ROI apply to the plastic injection molding process? Well, to determine that, we have to identify our variables. First things first:
- Cost of Design and Prototype Mold Development
- Tooling Costs
- Unit Cost During Molding
- Marketing, Sales, Warehousing and Distribution Costs
How much revenue — defined as profit for the purposes of this article — will you earn? Short answer: it depends. If you sell directly to the consumer (i.e. from an e-commerce website) you will earn a higher profit per-unit but may not realize as much revenue as you would if you sold to a retailer like Target or Wal-Mart, who then would resell your product. Alternatively, you might sell them to a wholesale distributor, who then resells them again to a retailer. The profit on that channel would depend greatly on the price you negotiate with the distributor.
All three distribution channels are valid for plastic injected molded products; the one you choose will depend on your personal energy level and appetite for risk. As noted above, if you sell the product yourself, expect to gain a larger profit per unit. But there’s a hitch: most entrepreneurs can only sell within a very limited geographic area, and don’t have limitless energy or a staff of thousands. Working with wholesalers and retailers is likely to vastly increase the number of units you can get out to the public, because of their vastly greater resources, even though your profit-per-unit, will be much lower. You will be getting a smaller slice, in terms of percentages, but from a vastly bigger pie.
How Does All This Impact You, the Plastic Injection Molder, Specifically?
By far, the highest costs for plastic injection molding are for the steel (sometimes aluminum) mold prototypes which are utilized for the “proof of concept” testing of your product. Unfortunately, even after spending thousands — sometimes hundreds of thousands — on a prototype mold, you might discover your product just isn’t right, because of its design or some other flaw. While disappointing, at least you’ve avoided losing vastly greater sums down the road.
The upshot: making money from your plastic widget is much like making money from any manufactured product: it’s all about the dollars, so use your ROI sense!