Most founders know one of them. Here is the full picture.
"It costs $12 to make" is one of the most repeated sentences in product development. It is also one of the most misleading, because it is usually describing only one of six numbers that determine whether a product is actually profitable.
The problem is not that founders are wrong about the $12. The factory probably did quote $12. The problem is that by the time that product arrives in a warehouse, packaged and compliant and ready to ship to a customer, the real cost might be $22. The margin that looked comfortable at the start has quietly disappeared, and nobody caught it because nobody was looking at the full picture.
Here are the six numbers that make up what a product actually costs.
1. Ex-factory unit cost
What the factory charges per unit at your agreed volume. This is the number that gets quoted, shared, and used in spreadsheets as the cost. It is the first number, not the only one, and every other cost in this list sits on top of it.
2. Tooling amortisation
Most consumer products require custom moulds or tooling to manufacture. That tooling has an upfront cost, typically between $5,000 and $30,000 for a simple injection-moulded part, and that cost needs to be recovered across your production run.
A $10,000 mould across 2,000 units adds $5 per unit to your cost. Across 10,000 units, it becomes $1. This is one of the clearest reasons why volume matters so much in physical product businesses. The tooling cost is fixed. Every additional unit you make reduces what it contributes to your per-unit cost.
3. Freight and logistics
Getting the product from the factory to your warehouse adds cost. Sea freight, air freight, and local distribution typically add 8 to 18 percent on top of the ex-factory price, depending on the size and weight of your product, how much you are shipping at once, and how quickly you need it.
Air freight for an urgent sample run costs significantly more than a full container by sea. If your business model requires fast replenishment cycles, that freight cost is not a one-off. It is a structural part of your unit economics.
4. Customs duty and compliance
Import duties vary by product category and origin country. Most consumer goods imported from China attract a duty in the range of 5 to 10 percent of the customs value.
Compliance is separate and often overlooked entirely. Before you can legally sell most consumer products in Australia, they need to meet relevant standards and in many cases be tested by an accredited testing house. That testing costs money regardless of how many units you sell. For a first-time product, budget between $2,000 and $15,000 for compliance, spread across your first production run. At low volumes, it can add several dollars per unit.
5. Packaging
Packaging designed after the product is finalised almost always costs more and fits worse than packaging designed alongside it. Consumer-level presentation, the kind that holds up on a shelf or arrives looking considered rather than functional, typically costs between $0.50 and $3 per unit, depending on materials and print specification.
It is also not optional. Packaging is part of the product experience, and for direct-to-consumer brands it is often the first physical impression a customer gets of the brand.
6. Warehousing and fulfilment
Third-party logistics fees, pick-and-pack costs, and returns handling are the costs that catch brands off-guard more than almost any other. For direct-to-consumer businesses, these typically add 15 to 25 percent of revenue. That is not a percentage of the product cost. It is a percentage of what the customer pays.
At a $49 retail price with a 20 percent fulfilment cost, you are spending roughly $10 per order just to get it out the door. Factor that in before you set your price, not after.
Add all six. That is your landed cost.
The target landed cost for a consumer product typically needs to sit at 20 to 30 percent of the retail price to leave enough room for marketing, returns, platform fees, and a margin worth running a business on. At $49 retail, that means a landed cost somewhere between $10 and $15.
If the six numbers add up to more than that, the answer is rarely to accept the margin. The answer is to go back to the design and find where the cost can be reduced without compromising what makes the product worth buying. That might mean a different material, a simplified assembly, a higher volume commitment to bring tooling amortisation down, or packaging that costs less to produce without looking like it does.
Cost modelling is not a finance task that happens at the end of a product project. It is a design input that should be running from the start.
We build cost models as part of every project we take on. Email us or follow the Contact us button if you want to run the numbers on your product.