Electronics Cost vs. Volume
Most people know, by now, that prices of electronic devices drop sharply with the increase of production volume. It's the de facto answer you hear from all manufacturers when you complain about the quotes they give you "Oh, don't worry! It'll become cheaper once we make more.." This is true, indeed! It's mainly because manufacturing electronic devices -even at the prototyping level- requires upfront costs and tooling costs that will eventually be divided on number of units made. In electronics, you can't 'fake' prototypes by much. At the end of the day, they must function as close to the end device as possible, otherwise, they will be useless. At Hexabitz, we design and build electronic devices, every day, for clients from around the globe. We know firsthand that building hardware is expensive and time-consuming. We walk our customers through the process and explain that things will get better with volume.
The key question here is how much the price decline is approximately? Everyone building an electronic device dream about selling it at scale. Both engineers and stakeholders are eager to figure out how cheap they can build at scale (and therefore how much profit they can make.) Usually, you send the manufacturer a bunch of quantities that you will never use (10, 50, 200, 500, 1000, 10k+ ...) and let them do the job and send you quotes to feed your curiosity. It'd be great, though, if there was such a magic formula to quickly figure out pricing at 100s and 1000s based on low-quantity prices. Even a rough number would suffice and will be useful for internal discussions and back-of-napkin calculations. I had a hunch such a rough asymptotic model exists. Most of the data is already available online in various formats and requires basic crunching.
Building an electronic device is usually comprised of the following steps:
- Purchasing components.
- Fabricating the PCB.
- Assembling the components on the PCB (PCBA).
- Programming, testing, calibration, and various related activities.
- Building the enclosure.
- High-level device assembly.
For the purpose of this article, I'll focus only on the first step: components. Usually, components constitute the majority of the cost for an electronic device. The second and third steps (PCB and PCBA) will be discussed in a future article. The fourth step is a bit hard to quantify and is subjective to device nature. Same applies for the sixth step: high-level assembly. The fifth step (enclosures) is related to mechanical engineering. Not my domain but I assume one can come up with similar assumptions. I'll leave this step to someone else with more experience in the domain. So, to summarize, we will investigate printed circuit board components and assemblies and the relationship between pricing and quantity (mainly between 10 and 1000).
Component prices are readily available online from large distributors (Digikey, Mouser, Future, etc.) or online databases (Octopart, etc.). Although there's a lingering supply chain crisis in the electronics industry currently, it affects the absolute price of a component and not the relative price decrease with volume. I compiled prices for components from Digikey.com for major component types:
- Chip Resistor - 5% tolerance
- Chip Resistor - 0.1% tolerance
- Chip Capacitor - Ceramic
- Chip Capacitor - Tantalum
- Capacitor - Aluminum Electrolytic
- Crystal - 16 MHz
- Fixed Inductor SMD
- Transistors - Bipolar (BJT) TO-220
- Transistors - FETs D2PAK
- Microcontrollers 8-bit
- Analog to Digital Converters (ADC)
- Motor Drive ICs
- Power Management ICs
- Wireless Modules - BLE
- Connectors - Terminal Block
- Connectors - USB Type-C
For each one of these component types, I randomly selected at least three candidates from different manufacturers and calculated normalized price for quantities 1, 10, 100, 1000 and 10000 and then averaged the normalized price across these candidates. Passive components, crystals, and connectors are displayed in dotted lines while other semiconductors are in solid lines. Note that most complex components (Microprocessors, FPGAs, etc.) are only available up to qty 1000 as they're usually consumed in much less quantities than passives.
There's a clear trend line here and a bit of distinction between passives, crystals, and connectors on one hand and other types of active and complex semiconductors on the other hand. I plotted the average across each category and the total average below.
This does not provide an accurate representation of every electronic board made, as there are endless variations in electronic products, but the rough trend is compelling! Here are some key takeaways:
- Passives (especially chips resistors and capacitors) drop down on average 60% at quantity 1000 and up to 75% or more at quantity > 10000. Larger electrolytic capacitors and connectors don't drop as much. Usually no more than 40% at quantity >= 10000. Their bulky size and complex shape make it difficult to produce them cheaper at large scale.
- Semiconductors usually drop by 25% at quantity 100 and no more than 40% at quantity 10000. The more complex the device is, e.g., FPGAs and MPUs, the less its price drops. FPGAs drop about 10% and MPUs drop about 20% max at quantity 100. Usually, complex devices are consumed in much less quantities and they have a market monopoly. Thus, there's no big incentive to drop the prices more.
- On average, an electronic board bill-of-materials (BOM) would drop approximately by:
-- 15% (+/-10%) at quantity 10
-- 35% (+/-10%) at quantity 100
-- 50% (+/-10%) at quantity 1000
The simpler the board, the more it trends toward the lower range, while complex boards trend toward the upper range.
- The action (big price change) happens in the low 100s for most designs. Usually, you don't get major price change at 1000s unless the design is quite simple and comprised of mostly passive components.
So, next time you argue with your colleagues or customers about a design cost, you can confidently say: "Don't worry! It'll drop by half if we make a thousand." The real question now is whether you can (or you should) sell a thousand boards... The world is already filled with stacks of electronic devices that nobody needs or wants.