Cost Drivers in New Electronic Product Development

How much will the design and development cost? Let’s consider an example: a battery-powered hardware device with a microcontroller, two to three onboard sensors, extended memory, two wireless communication options (such as Wi-Fi, Bluetooth, LTE, NB-IoT, or LoRaWAN), and power management circuitry.

This example is intended to provide a rough idea, as costs in new electronic product development can vary significantly based on product requirements.

Here is a breakdown of the major cost drivers, listed in the order they typically occur:

Table of Content

Specification and Requirement Finalization Cost

Once the initial project requirements are noted and shared with the development company (also referred to as the design house, development agency, or original design manufacturer (ODM)), they must be further analyzed, clarified, improved, and detailed.

This process ensures that engineers fully understand the requirements and can develop the architecture accordingly. Rushing through this step will result in increased costs later due to wasted effort and the need for rework.

For the hardware example above, the process can require several hours of communication and analysis, amounting to a few hundred euros (or USD) in engineering hours.

Research & Development (R&D) Cost

R&D is a major cost driver, often exceeding €10,000 (or USD), until a Minimum Viable Product (MVP) or the first product version is ready. It can be broken down into the following stages:

Feasibility Research and Proof of Concept
Determining whether the product is technically feasible and creating initial concepts. More innovative products require more budget for this phase. The example above would not require a big budget for feasibility since the functionalities are known to be easily implementable.
Hardware Architecture and Component Selection
Selecting suitable components and drawing an architecture. Modular development (e.g., using integrated circuits instead of custom-built logic) can reduce development effort but may increase overall hardware component costs.
Schematic and PCB Layout Design
Creating the schematics and layout for printed circuit boards. This process typically requires a few weeks of manual effort, with detailed design reviews to minimize rework and avoid costly additional iterations.
Firmware Development
Firmware development costs depend on the tools and software development kits (SDKs) used. High-level abstractions (e.g., Arduino) allow for faster development but limit optimization capabilities. Initial development often starts with off-the-shelf development kits (a minor cost) while custom PCBs are being manufactured.
Hardware Casing/Housing Design
This stage focuses on the design of the product’s enclosure, balancing usability, durability, and aesthetics. The casing impacts not only the user experience but also manufacturing and assembly considerations.

Cost of Hardware Prototypes

Prototype costs can range from a few hundred to a couple of thousand Euros (or USD). Manufacturing in China is more cost-effective than in Europe, for prototyping and especially for mass production. However, chip availability and sourcing logistics vary by region. Procuring components locally (e.g., in Europe or the US) can reduce shipping complexity and lead times.

The cost of the enclosure (also referred to as casing or housing) depends on the manufacturing method and material used. For example:

3D Printing: Fast and inexpensive, but results in a lower-quality finish and is not suitable for certification (e.g., CE compliance).
Custom Molds: Require a significant one-time investment (several thousand euros) but enable higher-quality production for larger runs.

Cost of Testing, Quality Assurance, and Documentation

Testing and quality assurance (QA) typically account for 20–30% of the total development effort. During testing, issues often surface that require design improvements or adjustments. This can lead to a second iteration of prototypes, increasing overall costs.

Cost of Changes in Requirements and Scope Creep

Scope creep occurs when the development effort extends beyond the original plan. This may be due to poor initial planning, new requirements due to shifting business goals, or unexpected challenges during development. These costs can often be minimized by clearly specifying and agreeing upon the project details before starting development.

Cost of Certification

Certifying a hardware product (e.g., CE, FCC, or UL certifications) involves preparation, design considerations, and sometimes design revisions. Certifying bodies charge fees that, for a simple product like the example described earlier, can range from $5,000 to $10,000 USD. Final costs depend on the product’s components and application, which dictate the applicable certification directives. You may also need additional industry-specific certifications.