Five Things to Consider When Deciding Profit Markup for a PCBA Quote
The Electronic Manufacturing Services (EMS) industry is a cost-plus industry. So it is very important that you have an accurate understanding of your cost model to start with.
But if you already have an accurate cost model to approximate the cost of making a Printed Circuit Board Assembly (PCBA), then the next logical question is, "How much should I mark up my costs?" The answer to this question, like most others, is it depends.
Here are five things you should take into consideration when determining how much profit to add to your cost.
How many boards are you going to make?
In EMS world, a low quantity is necessarily costlier than a higher quantity because of the high set up cost involved in creating the first PCBA. But that doesn't necessarily mean that you should have the same markup percentage that you would for a higher quantity either.
It is typical to incentivize customers with significant price breaks for ordering a greater quantity. The reason for this is that the total overhead contribution and profit dollars can still go up while the per unit contribution and profit margin goes down.
How quickly do they need it?
Time is money in the EMS industry. If a customer is asking for a rapid turn time, then it is expected that you may charge a premium for the expedited order. How you present that up-charge to a customer is entirely up to you: you can blend it into the per unit price, or you can call it out separately as a line item expedite charge.
What are the unknowns or risks?
EMS companies are very similar to the insurance companies in that their fixed bid pricing is based on estimation of risks. It is highly recommended that risks be considered as a part of your processes starting with the Request for Quotation (RFQ). Starting this early with a risk assessment lets you discover some of the potential pitfalls and protect yourself against them with adjustments in your markup.
The answer to this, like most other things is it depends. As your formulas become increasingly complex and tables increasingly interlinked, the chances of a tucked away error blowing up the entire spreadsheet increase while the performance of your spreadsheet continues to decrease.
This type of data linking can also make it impossibly difficult to manage consistent data formatting and make updates.
By comparison, CalcuQuote has over 50 different linked tables and thousands of columns with millions of rows for even our smallest customers. However, the database can perform lookups, calculations and compile graphs much faster and with greater consistency than a formula driven spreadsheet. From a user's perspective they just see well organized data at their finger as and when they need it.
What has been your experience in the past?
Empirical evidence is not always an accurate predictor of the future, but in contract manufacturing, it can shed a lot of light on what to expect. Customers with straight forward, simple builds that are well documented can be given a lower markup rate compared to customers that have legacy products with hard to find parts or are at a product development phase where there is high rate of Engineering Change Orders (ECO).
Who is your competition?
All EMS companies are not made equal. If you are able to distinguish yourself from the competition by offering superior quality, service or capabilities, then you're in a unique position to charge a premium for your services. This is also true if you have certifications, technology or processes that the customer requires. For example, a defense industry customer that requires a local EMS company with AS9100 certification may expect to pay a premium for their products. Whereas a very simple PCB that anyone in your region could assemble may not allow you to be competitive with the same high margins.
The CQ Way
To account for risks, CalcuQuote has a configurable risk management module where users can define criteria for assessing risk. CalcuQuote will even give you a reminder before publishing the quote if the risk assessment has not been performed yet or you have unresolved risk items.CalcuQuote allows you to start with an accurate estimation of your costs presented in cost buckets on a single screen. Then, you can separately markup the material and labor costs for each combination of quantity and turn time.