A bill of materials tells you what the parts cost, at one quantity, from one set of quotes. Your unit cost is something else: what it takes to put one good unit in a customer’s hands. The gap between those two numbers is where hardware margins disappear, and almost all of it can be predicted on a spreadsheet long before the first production order.
The layers between BOM and unit cost
| Layer | What goes in it | Why founders miss it |
|---|---|---|
| Parts | The BOM at the quantity you will actually buy, with minimum order quantities and attrition | The quotes were for a different volume |
| Labor | Assembly, programming and test time per unit, at the factory’s rate | The prototype was built by an engineer, for free |
| Yield | The cost of units that fail test or get scrapped | Every unit on the bench “worked” |
| Packaging | Box, inserts, manual, labels | Filed under marketing, not cost of goods |
| Freight and insurance | Factory to your warehouse, under the Incoterm you agreed | Quoted once as “FOB” and forgotten |
| Duties and customs fees | Tariff on the classified product, plus processing fees | Assumed to be zero |
| Selling costs | Fulfillment, payment processing, returns, warranty | Booked as overhead |
| Amortized NRE | Tooling, certification and test fixtures, spread over the units that carry them | Paid once, then ignored |
Two divisors: yield and NRE
Yield. If you build N units and Y of them pass, every good unit carries the cost of the bad ones. Cost per good unit is the total build cost divided by Y, not by N. A yield problem is therefore a cost problem in every unit you ship, which is why test points, fixtures and a real DVT build earn their place in the budget (more in EVT, DVT, PVT).
NRE. Tooling, certification and test fixtures are one-time costs, but every unit has to repay them. Divide each one by the units you realistically expect to ship before you would retool or recertify, not by the volume in your pitch deck. If the amortized number looks painful, that is information: it tells you whether to buy softer tooling, use a pre-certified module or wait on a fixture.
Freight, duties and the fees in between
Incoterms decide who pays for what. The ICC’s Incoterms 2020 rules define the tasks, costs and risks that pass between seller and buyer. An ex-works price and a delivered price for the same product are not comparable until you add the legs the cheaper quote leaves to you.
Duty depends on classification and origin. Look up your product’s code in the Harmonized Tariff Schedule and have a customs broker confirm it. Then treat the rate as a variable, not a constant. One example of how fast the rules move: since 29 August 2025, the duty-free de minimis exemption no longer applies to shipments regardless of value, so even small sample shipments can carry duty.
Customs fees are small but certain. Formal entries pay a Merchandise Processing Fee of 0.3464% of value, with a floor and a cap that are adjusted each year. Cargo unloaded from a commercial vessel at a US port also pays a Harbor Maintenance Fee of 0.125% of value. Add your broker’s charge per entry.
Selling costs belong in unit cost
Payment processing alone is a per-unit cost. Stripe’s standard rate for domestic cards is 2.9% plus 30¢ per successful transaction. Add fulfillment, the return rate you expect, and a warranty reserve sized to the failure rate you measured in DVT, not the one you hope for.
Labor is designed, not negotiated
Assembly time is mostly set in CAD and in the harness drawing, long before anyone negotiates a labor rate. On a core-sampling drill we converted from an off-the-shelf tool, we documented the teardown step by step, moved the harnesses to heavier-gauge wire with modular connectors for higher current and easy reassembly, and delivered ten prototypes with an assembly manual, fabrication illustrations and wiring diagrams included.
Connectors add lines to the BOM. They also make assembly and rework easier, and a written assembly sequence is what lets you time each step. That timing, not a guess, is where a credible labor estimate starts.
What to do this week
- Re-quote your BOM at your real first-order quantity, with minimum order quantities and attrition included.
- Classify your product in the HTS and have a broker confirm the code and the current duty rate.
- Build a one-page cost stack with every layer in the table above, and mark which numbers are quotes and which are guesses.
Our unit cost & NRE model walks through every layer above. If you want a second pair of eyes on your numbers, send us a brief.