External prototyping costs for electronic devices are half the cost of internal development

7 minutes

This year almost every second enquiry from our customers started with "I've run out (or am running out) of budget for my in-house team and the end of development is still in sight, can you do anything about it?" Of course, we will never leave you "in the lurch", we can take over internal projects and see them through to completion. Of course, it's never completely free, but we decided to calculate specifically how much clients can save with us compared to in-house development. To get a good idea, we compared the average cost of our customers' in-house hardware prototyping with our outsourced development budgets, even over the last five years.

Up to three million in in-house development

Most electronic device and systems development companies handle new product development in-house. That's just the way it is. Companies usually believe that internal costs are easier to control. This makes sense, of course, but in most cases it is far from ideal.

In particular, the need to maintain dedicated oversight of successful development, i.e. a separate project manager, and the need to have a dedicated programmer or developer on the team are often underestimated. Respectively, just one will not be enough, but we will get to that. Unless your company has such a charismatic leader, for whom internal people work for free out of conviction, and employees receive bonuses at the lower end of normal salaries, despite all the internal harmonious cooperation, in our experience the average total cost of creating a prototype of a new electronic device internally is between two and three million crowns.

Kofatec hardware

For the record, the sub-costs of hardware design account for approximately 34% of the expenditure, firmware development 42% and the creation of a communicating application 24%. Of course, the successful completion of the prototype development does not automatically mean a guaranteed start of return on investment, but only gives an accurate idea of the production costs.

Beware of too fast a return on investment

As we have repeatedly seen from our customers, the decision to handle development only internally - and not only in newly founded or less experienced companies - often leads to inappropriate pricing of the final products, into which companies try to translate too fast a return on high investments. An inappropriately set - i.e. too high - price can lead to overall business failure or only minimal interest in the product on the market, which in most cases is primarily influenced by its price tag.

We have been in the custom development market since 2014, and in 2018 we started to record both the differences between the costs of development by in-house company developers compared to an external ASN team, as well as the impact of both options on the final price of the solution. On average, all of this data shows that the cost of in-house development is approximately 45-55% higher than the cost of development by an external supplier. Of course, this is only true for projects solved by ASN plus, as we can't speak for the competition, but our pricing allows our customers to offer significantly lower end-device pricing (by a quarter to a third), get to market faster, and significantly increase the chance of higher sales with the same projected ROI.

High demands on the expertise of developers

In hardware development today, there are no technological constraints that prevent concepts from being turned into full-fledged products. However, with the uncertain strength of commercial potential, it is essential that prototyping costs can be kept within manageable limits. Although in-house development may seem procedurally easier and faster, companies often underestimate its complexity and unpredictability.

Again, we come to programmers and development. An in-house team needs to be able to work with circuit board design, have a grasp of modern hardware and its pricing, be able to develop reliable firmware, web parts including front-end, back-end and custom APIs, and of course, handle a mobile app for seamless device management and setup. The number of platforms supported, integration with third-party services and applications, data ingestion resources, and security standards are also important factors that affect the cost of device development.

With such a breadth of developer requirements, it is virtually impossible to have a single in-house expert handle prototyping. It is really quite challenging to finance the full-time workload of multiple in-house developers during development, not to mention the additional costs of the necessary software or the aforementioned need to manage the development team. External development companies are therefore much more flexible, more professional and cheaper, and they also have a much greater industry overview, experience and motivation thanks to the variety of orders.

External development saves you budget and hassle

If you are a supplier of electronic devices and want to reduce your research, development and prototyping costs, while also gaining scope for a 'reasonable' margin that won't put off customers, it clearly pays to use external developers. And not only to create a working prototype of the device itself, but also to develop additional extension services and applications that can generate new revenue. These additional services can also further offset the costs of research, development and production.

Our services are most often requested by customers who expect long-term cooperation in the development of electronic devices or software. Some of our clients use only partial services such as PCB design or embedded software and application development, while for some of our partners we also provide the actual production of electronics.

We are happy to help your project as well. We will add tailor-made arguments for your order, showing you why and how working with ASN is worthwhile. Contact us and join our existing satisfied Czech and European customers.