“Why do you want to know my target price?” It's very common for people to us this question when they purchase something or want to get a quote. They might think "I just want to know your sales price, Why should I tell you my target price?" Maybe you have this question in mind as well! So, today let discuss this question in some detail.
What is the target price?
In Finance, it can mean the price at which an acquirer aims to buy a company in a takeover. In Options, it means the price of the underlying security after which a certain option will become profitable to its buyer. In Stocks, it means a price set by analysts predicting where the stock will head in the next 52 weeks also price an investor is hoping a stock will go to within a specified period of time. (From: thestreet.com)
From above definitions different angles, we can summarize that the target price is a hope, a prediction, or a definition for the value of a product or service. In the following sections, we will talk more in details with two different parts of why knowing the target price is so important in the process:
Why Does the supplier need to know Your target price?
In his book: The World Is Flat: A Brief History of the Twenty-first Century, Thomas L. Friedman we can understand that: In the current world, business become more and more global since the world becomes more and more flat. People can do business with the people wherever, talking with each other through many different conversation apps, phone. And in the business world, the position between the buyer and seller’s status is becoming more and more equal. In general, there is a process of understanding each other when people have a cooperation or do business together. It's a process of matching value between each other -- you need something and I can provide it -- just that. Sometimes, when the supplier asks the target price, it is not really a matter of him wanting to know your price number for the sake of knowledge, but he might be evaluating you, the future potential for cooperation, how you define the price, or how sensitive you are on the price as a part of the overall project.
On the other hand, the suppliers do really need to know your target price. If they get your target price, it will help them to understand the product value more quickly. They don’t need to wait for the final quotation they finish themselves since they can already know, rather quickly, whether the price that can be offered is close to the price expected. Since, in the case of NexPCB, it can take up to 3 working days to get a formal quotation of PCBA or a turnkey product, this can save a lot of time. Moreover, the supplier can use the target price to double check if there is anywhere that the design files have a mismatch to the pricing. Overall, this means the supplier can make the requests more consistent with the real request and make amendments to correct and errors in a shorter time if there is anything not correct.
Why Do you need to know your final product target price in the early stage?
Normally, the target price has two different levels. One is the final product price of sales that will be provides to the end customer. The other one is the production cost. From our experience working with successful hardware companies, the final product price should be around 3 times the production cost. If you want your business to grow, you must be very clear about your product price. You can only do this when you are very clear about your industry, deeply understand your product, and its marketing. Only then you can give a definition for your product and define its price.
A correct price will positively affect your competitiveness in your market. If you set a too low price, some customer will doubt about your product's quality or it may be viewed as a low value product. On the other hand, if you set a too high price, the customer might choose the product of your competitors. Unless you have a very wealthy target customer set, everyone will want to save money in the same situation.
Furthemore, if your target price is not correct, it could affect your final results. For example, if your production cost is high and you need to keep the final price consistence with the market tolerance, then it can harm your business. It's at this point you might have think about the reason of this high cost. Maybe something is wrong with your design? Maybe the BOM parts are too expensive? Maybe the production supplier doesn't understand what you really need and the costs are too high? Maybe you will need a DFM (Design For Manufacture) project to help with the project to try to bring the price down.
In the end, the target price is not only a price. It is related to the design, production, marketing and just about all of your business. Checking the correctness of this number has a correcting effect on many levels.
What we've shared here is only a part of the overall topic that centers around target price. We hope it can help you get a better understanding regarding the target price and that it also can help you for your project and business getting smoother.
We understand it is not easy to have a target price in the early stage (layout or prototype stage). This is especially true for the startups. There is a lot of business work that needs to be done to have it ready. Having a trusted production partner early in your project cycle can help a lot. NexPCB has had the privilege of working with many early stage startups to help guide them through this path. We are always willing to help our customer find the right balance between form, function, manufacturability, and cost. If you're in this situation, don't hesitate to contact us today!