As an open source company, we aim for a certain level of transparency. For example, our prices are publicly available. Today, we will also open up on our pricing model, current and future.
Starting from an open source hardware mindset, we have been pricing our products primarily with the bill of materials in mind. For example, parts to make one of our metal microdrives by yourself cost about $170. So, our pre-order price was $155, launch price was $170 and current price is $190 to match inflation. Our strategy was to maximize value for our customers by creating margin only from economies of scale at a certain volume of sales. Basically, finding a way to make drives for less than if you made them yourself, and sell quite a few of them. The numbers worked in theory. But we forgot about risk management.
Story time
About 15 months ago, we had accumulated:
- Enough cash to finance the manufacturing of a large batch of drives (500 to be exact).
- Enough trust in our supply chain, based on several smaller batches that were successfully manufactured to our tight tolerances. There had been a couple of issues, which is not uncommon in manufacturing, but they had been solved, and we assumed, behind us.
So, as you might imagine, everything that could go wrong went wrong. Parts were not up to specification. It then took several rounds of back-and-forth, both in communication and in shipping back the parts, to finally receive acceptable parts. That amounted to over 7 months. And during 5 of those months, we were unable to ship our main product.
During that period, the only silver lining was that we were able to borrow some cash to finance the search for another supplier. Directly this time, instead of through our Europe-based intermediary that connected us to a worldwide network of suppliers. We now get better parts and additional services that reduce our product assembly time.
Lessons learned
The first lesson we have learned is the perennial one: Do not put all eggs in the same basket. The second was to avoid intermediaries: While they reduce certain risks, when issues arise, communication is much slower and more difficult. But the final lesson, the most important one, is that we have not priced risks into our products. The only way to have more stock and more validated suppliers – so that we can always ship – is to have a higher margin.
As we learned these lessons, we also realized that:
- Our R&D is slowed down by lower margins. As we are not funded by grants, our R&D budget is made of our revenue cash flow after all expenses are subtracted. When the R&D budget grows too slowly, new products or features we have planned take double or triple the actual time we need to execute.
- With the prospect of working with international distributors, we need to increase our stock levels, and maintain them robustly in order to send you the products you need in a reasonable time.
- We have been improving our products significantly on all fronts in the last 6 months, including overall production quality, quality control on performance, and improved packaging for safer shipping and storage. Not all these have been announced yet, but will be in the next 2 months.
As a result, to avoid repeating past mistakes, and to sustainably grow, we are raising our prices by about 30% on all metal-based products and 10% on the remaining products. Business consultants might still argue this is not enough, that we should move to a much higher, value-based pricing model (one did just last week, actually, after hearing how much our customers save on average when using our R2drive to recover/reuse silicon probes- $2000-$4000, that is 10-20x the cost of an R2drive). But based on past numbers, we believe this pricing update will be sufficient to reach our objectives in terms of product quality, continuity and speed of order fulfillment, and new solutions for 2025.
An important part our mission is to make high quality open source hardware available to the whole scientific community. Therefore, if you are based in a structurally underfunded country and do not have sufficient funding to use our products, but would like to, please get in touch.
The 3Dneuro team
