Calculating Injection Molding Break-Even Point
If you're designing a product that needs to be produced by means of injection molding, it's likely that you will be spending a good chunk of your budget to purchase the mold tooling. This article will help you discover how many units you need to sell in order to cover your initial investment from the mold tooling and from the initially manufactured units.
Whether you're in the design phase or ready to manufacture, most likely you've found out that purchasing the mold tooling for injection molding isn't cheap, especially if your product is made up of big parts. That's because the manufacturing process of injection molding starts with a big chunk of P20 steel — not only the material is expensive, but the machine that mills it is expensive, and the time it takes to mill it is quite long due to the hardness of the steel, which means you're paying for the time it takes to mill it. All of this equals to a pretty expensive upfront cost before you even start to manufacture one single unit. If you'd like to learn more about why injection molding is expensive, make sure to read our article on Why is Injection Molding so Expensive?.
Reducing Mold Costs
A way to reduce mold costs is to use aluminum instead of P20 steel — a service that we offer to customers who want to produce less than 2,000 units in total. Aluminum is less costly than steel and it takes less time to mill — however, because it is softer than steel, its mold life is shorter, meaning that you can only get up to 2,000 units per mold before having to purchase a new mold for more units. At Jaycon, many of our customers who purchase aluminum molds either need a small batch of units to fulfill a custom installation or they are investing in a prototype batch for beta testing. Once the units have been tested, we tweak or redesign their product taking into consideration the feedback from beta testing and move forward with a high-volume P20 steel mold.
After you have your mold tooling milled with the negative shape of your part(s), it's time to go into the injection molding. The cost involved in the manufacturing of each unit is different for each product, but the main driver of cost per unit is usually dictated by how much material is needed (which has a direct correlation to the size of the part, its wall thickness, and the amount of support ribs used). You can also increase your costs by adding post-processing services like painting and box build assembly (the process of putting different parts together with external hardware such as screws, for example). Also, never forget shipping costs as your product always has to go from the manufacturing facility to either an assembly house, to a wholesaler, distributor, or retail stores — and if that's the case you also have to think about packaging costs.
Calculating Break-Even Point
Now let's say that your cost per unit includes not only the manufacturing of the part, but everything we briefly discussed earlier (post-processing, shipping, etc). Your total cost per finished unit comes out to be $3.50. Now let's estimate the mold tooling to be $23,000, with a mold life of 100,000 units because you chose to go with P20 steel. Let's assume you got a big order for 5,000 units at a price of $15.00 and would like your first production run to be 10,000 units so you can keep 5,000 in your warehouse and hopefully sell them right away at the same price per unit of $15.00.
So now let's take a look at the formula we use to arrive at the number of units you need to sell in order to make your initial investment back:
By dividing the mold cost by your profit per unit (sales price - cost), you arrive at the number of units need to sell in order to make your initial investment back, which includes both the mold and the cost per unit.
Jaycon created a spreadsheet that calculates all of that for you — all you need is to edit the yellow field. We also included a few different items that can be helpful in analyzing your costs for your first order:
Using the Spreadsheet
Unit cost: the cost to manufacture each unit (includes injection molding, post-processing, shipping, packaging)
Retail price per unit: how much you are selling each unit for
First order amount (in units): The number of units you are manufacturing on your first order
Mold cost: the upfront cost you pay for the mold
Mold life (in units): the number of units one single mold can produce before you have to buy a new one
Break-even point (in units): the number of units you would have to sell in order to recover the cost of the mold and the cost per unit
Total order cost (for your first order): the combined cost to purchase the mold and to manufacture the units in your order
Total profit (for your first order): how much profit you are able to make with your first order
Maximum profit with this mold: the maximum profit you are able to make taking into account the maximum number of units you can manufacture with that particular mold
Total sales (for your first order): the gross sales you make with your first order
Total cost per unit (for your first order): the cost you pay per unit for your first order taking into account the mold cost, which is amortized into each unit
Profit per unit (for your first order): the profit you make on each unit taking into consideration the mold cost
To get the most out of this spreadsheet that was created using Google Sheets, we recommend using a Google account and when opening the document, go to File > Make a copy.
This article was published by the Jaycon team. Learn more about how we can take your product design and hardware idea to the next level here.