Good article from Zach over on the HAXLR8R blog about the hidden gotchas of hardware cost estimation:
If you’re a hardware company, you are in the business of selling things. In order to make money, you need to sell your things for more than they cost you to make. This is basic economics, but the application of this principle is anything but simple.
In this day and age of hardware startups launching on Kickstarter, or offering presales on their website, it is even more important. If you price your product too low, you run the risk of cutting your margins down so low that you don’t make enough money to survive. This death-by-success is worse than the alternative which is to over-price your product and not generate enough sales or interest to run a viable business.
When pricing your product you are walking on a knifes edge: too high and you can’t launch, too low and you risk imploding. The only surefire way to avoid this is to actually produce and pay for your product before selling a single one. For most startups, this is impossible: so you must estimate.
Read the whole thing here.