EFI control -- ECON 101

[John Dammeyer]

I'll add my $0.02 here to support what James is saying.  I think one of the
reasons you see a bunch of wires coming out the hole in the side of the box
with sealant or potting compound around the wires is the sheer cost of
connectors.  Look through the Digikey catalog for panel mounted, water proof
connectors capable of higher amperages and you start to see the cost of the
unit escalate.

You might say,  ah well,  manufacturers buy in volume so they pay less.
There are very few custom or semi-custom manufacturers in the small DIY-EFI
marketplace who can afford to buy connectors in 2000 lot quantities.  Just
imagine each connector with pins is $10.  That's $20,000 in inventory
sitting there.  A microprocessor with Flash memory may also go for $8 to $15
depending on the type.  $15,000 for 1000 units is a lot of money for a small
manufacturer.  If the true cost of components in 1K qty was $250 then we're
talking $250,000.  At 7% interest this is $17,500 per year to just keep the
stuff in stock.  Add warehouse space for 1000 units and it's not unlikely
that just to keep the stuff you need $30,000 per year to hold onto it.

If the units sold for $1000 each the first 40 pay for the cost of having
them in stock.  Of course with the first 40 sold the interest payments drop
because there is $10,000 from the sale of those towards the loan for parts;
now we owe $240,000.

None of the above takes into consideration the cost of labour to sell this
first set of 40 each year.

My guess is that most of the smaller EFI companies build no more than about
100 units at a time.  For boards that have surface mount components they may
have 200 made and populated with the inexpensive parts like resistors and
caps because we tend to buy them in 5K reels.  Then the more expensive
goodies will be assembled by the same guy that also serves as technician,
salesman, accountant and designer.  Hopefully they sell enough to make the
interest payments, pay for the shop space (or the mortgage on their double
garage) and reap enough profit to pay a minor salary.  Some of these smaller
companies usually subsidize their hobby (DIY-EFI) with a real job during the
day or by doing electronic hardware/software design as their 'other ' job.

Regards,

John Dammeyer


----- Original Message -----
From: "James Montebello" <jamesm at lapuwali.com>
To: <diy_efi at diy-efi.org>
Sent: Wednesday, February 07, 2001 3:20 PM
Subject: RE: EFI control


>
> Production costs are only a small part of the problem.  Have you ever
> worked out costs for support, personnel, marketing, distribution, etc.?
>
> Products, even really good products, don't sell themselves.  This is a
> very common misconception, particularly among engineers.
>
> The higher the volume you're trying to push, the higher your marketing and
> support expenses will be.  Then there are liability issues.  The broader
> your customer base, the dumber it is, and the dumber your customer base,
> the greater your liability exposure.  Lawyers can be really, really nasty.
>
> The general rule of thumb is, to simply break even, you have to charge
> 3x the total unit cost, even at very large volumes (Sony/GM/IBM level
> volumes).  The $390 unit cost you quote for your design means a retail
> price of $1200 for *break-even*.  Add a razor-thin 10% profit margin,
> and you're looking at $1300 a pop.  About what a full blown SDS or basic
> Electromotive system will run.
>
> Now you have to explain to the potential buyers why your unit is so
> much better than all those others on the market, and do so in terms
> they can understand.  To get 2000+ units per year, you have to sell to
> a big market, including lots of ads in various magazines, stumping at
> trade shows, schmoozing with the trade press, etc.   All this work for
> a grand $250K per year profit, assuming you manage to sell 2000 units
> per year.  I'm willing to bet SDS is NOT selling that many.  Note that
> none of this has anything to do with designing or building the ECU or
> associated wiring itself.  Note that none of this has ANYTHING to do
> with the quality of the unit.  You sell based on perceived quality, not
> actual quality, particularly as a new entrant into an already hot market.
>
> If you want to built an OEM quality ECU that will mount up to MY car,
> be absolutely trouble-free, and will sell for significantly less than any
> of the other available units, then I'll be first in line to buy one from
> you.  I'll make sure to be early so I grab one before you go bankrupt.
> You'll be the last in a long line of like-minded engineers who simply
> don't understand the business side of the operation, and think that
> quality will sell itself.
>
> james montebello
>
> On Wed, 7 Feb 2001, Shirley, Mark R wrote:
>
> > Just goes to show that not everybodies definition of enthusiast is the
> > same.  I don't like trailer queens.  I want my cars to be daily drivers
> > as well as my hot rods.  I have an engine in my truck that is so unusual
> > that it needed to have an aftermarket ECM to operate.  There simply was
> > no other option.  It's intended to be a daily driver, but I'm always
> > fighting
> > the aftermarket EFI since it's not weatherproof.
> >
> > I know exactly what it costs to design and build a hardened ECM for
lower
> > volume applications.  It used factory sensors, was weatherproof, came
with a
> >
> > near-OEM quality harness, was programmable via laptop, etc.  In volumes
> > of 2000-5000 pcs per year it ran around $250 to produce.  The harness
cost
> > $140 to produce.  That's a pretty tidy profit for the manufacturers if
they
> > price it at $1000.  Heck, they could probably get $1200-1300 for it.  It
was
> > that nice.
> >
> > All I am saying is that the aftermarket guys can do better, and there's
a
> > market
> > for better quality merchandise without paying $4000 for a racing system
like
> > a Motronic.  There's at least two of us here on this dinky little
mailing
> > list.
> >
> > If you give somebody decent quality merchandise for a decent price, it
will
> > sell
> > itself and you'll put your competitors out of business.  The fact that
there
> > are
> > so many little EFI systems out there shows that no-one has done this.
>
> --------------------------------------------------------------------------
--
> To unsubscribe from diy_efi, send "unsubscribe diy_efi" (without the
quotes)
> in the body of a message (not the subject) to majordomo at lists.diy-efi.org
>
>
>

----------------------------------------------------------------------------
To unsubscribe from diy_efi, send "unsubscribe diy_efi" (without the quotes)
in the body of a message (not the subject) to majordomo at lists.diy-efi.org