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when the watch you are describing is only worth $50, give or take.
How do you know that it is «only»? The BOM alone is likely to exceed that for a not very smart watch. There is no «only», as there are other costs of running a smartwatch business:
– The cost of engineering the bloody thing: you have to pay salaries to engineers. Smartwatch engineering is a niche skill and not every engineer is capable of creating a good smartwatch design.
– The BOM itself: engineering decisions will affect the BOM. Sacrifices might have to be made, which has a risk of the final product becoming less reliable or less clamourable to consumers.
– Supply chain management: the cost of a stable supply chain might fluctuate but the supply will be stable. A supplier might be cheaper but flaky which means unexpected repurcussions for the production line; for example, components becoming unavailable and requiring re-engineering thusly.
– Integration with smartphones: most users expect a smartphone app, which means actually 2x apps (Android and iOS), which means salaried mobile app developers. Apps require on-going support, so it will become an ongoing expense. If you handwaive the smartphone apps as a nuisance, the watch might be not as appealing to consumers.
– Scale: for the product to be sustainable, it has to be produced in significant numbers. The manufacturing line is unlikely to agree to produce the product in the quantity of, say, 1k units either.
– Quality assurance: customers will abuse the product. So it will have to be tested within a particularly defined framework to reduce the number of support incidents. QA costs money, too.
– Marketing: customers have to discover the product before it can be sold to them and know why they should want this product and not a competitor's. Marketing is not free, even if it is one man show. If the customers can't discover the product, revenue will be zero or close to zero.
– Distribution network: resellers will take a cut from each watch sold which will have to factored into a unit's price. Direct distribution channels can do away with that, but you will have to negotiate contracts with postal and courier services to get the preferential pricing, or pass the cost onto the customer (not every customer likes high shipping costs), procure quality shipping packaging in numbers (the smartwatch is fragile) and be prepared to run to the post office yourself, like, daily.
– Support: stuff breaks. So you will have to commit to and support the product, and support is not free. Customers will come back to you with all sorts unusual problems and sometimes with zany requests. No or poor support, a backlash from customers and alike will not be conducive to the overall success of the enterprise.
– Costs of running the business: accountant(s), sundries, plus your own salary.
– Taxation: the government in your local jurisdiction will send a tax man to you to get a slice.
– Most importantly: profit. Sustainable profit from each unit sold also has to be factored into the price. The product has to become profitable at some point otherwise it will tank and vanish before it reaches v2.
That is a very, very high level breakdown of things that are just on the surface, and there are many nuances and unexpected expenses. All of that defines the cost of a single unit.
At the $50 price point it is unlikely to become a successful smartwatch product.