Manufacturing Costs

Our customer and channel conversations have indicated that there is a demand for lower-cost kite surfing products. So  now the question is, can we really manufacture (and then sell) the product we’ve been describing? We talked to 3 manufacturing plants this week (2 in China, 1 in Vietnam) as well as several kite companies to find out the real costs of kite manufacture, and here is what we learned:

We had a big discovery when chatting with another kite company about the process of communicating kite designs to manufacturers. It turns out, that in order to execute a kite design the factories require that we use a specialized modeling software called Surfplan to communicate the specs. And Surfplan is $7,000/year to license! A lot of smaller manufacturers can get around this by using template kite designs the factories already have specs for and then just throwing their brand name on and making some minor tweaks. We would not be able to do this, however, since our kite has a radically different design than conventional kites. The cost of this software is another reason we are continuing to explore the possibility of a partnering with a larger sports manufacture who could take on some of this risk.

The minimum production size for kites is a batch of 10-12, but most prefer to make at least 20. At this volume, we are looking at $400-$500 for a complete kite with bar and lines. (That cost can drop t0 $200-300 with higher volume). Despite the higher cost, the benefit of smaller production is that we can request the factories inflate the kites and let them sit for day to make sure there are no defects or twisted bladders (thanks Joe from NorCal kites for that tip). Even if no defects are detected in the factory, smaller production size avoids us sinking too many resources into a single iteration if we realize there are problems with the first version products.

To actually get the kites delivered it’s either $70/kite to go by air, which still takes about 3 days for delivery. Or we can ship by sea only costing us $25/kite but which can take in excess of 2 weeks. Once we have the kites we can sell direct, in which case a markup of 60-70% is industry standard. Or we can sell to a retailer taking a ~35% margin expecting them to markup an additional 35-45%. The major pro of distributing via channels is the wider reach, and ultimately key to building a scalable business. However, at least initially selling direct has both the benefit of higher margins as well as the chance to personally connect with customers, cut them deals, build relationships and (hopefully) convert them to evangelists

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