How Much Does It Cost to Start Manufacturing?

The $7 Trillion manufacturing market in the US is expected to experience nothing but monumental growth over the coming years. After all, we are living in a consumption-driven society where the manufacturing continues even when we sleep.

Now, owning a manufacturing business is indeed rewarding. However, it’s expensive as well. You simply cannot decide to setup a manufacturing unit and not thoroughly understand the costs associated with such business.

Well, don’t sweat. This blogpost will help you get a basic understanding about how much does it cost to start a manufacturing business with rough approximation of costs and factors influencing those costs.

Ready to get started? Let’s dive right in.

Average costs for starting a manufacturing

Before we dive into details, check out this manufacturing cost checklist. It will help you plan your startup budget and know how much financing you need to get started.

Using this manufacturing startup cost checklist, you can plan your startup budget and get an idea of how much financing you will need.

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How to calculate the cost of starting a manufacturing

You now have a list of potential expenses and a rough estimate of your startup costs. Let’s estimate your actual startup costs using these two proven methods.

The first, traditional method involves using a startup costs worksheet to estimate the startup costs. However, the second, the Upmetrics method, is an innovative method that uses the Upmetrics financial forecasting tool.

Let’s understand both methods so that you can choose one that suits your requirements the best.

The traditional method—startup costs worksheet

The startup costs worksheet helps you calculate the amount needed to take your business off the ground. It is a comprehensive list of fixed and recurring costs to help you determine the actual cost of starting manufacturing.

Remember that many startup costs fall under recurring expenses, so cover those costs monthly, quarterly, or annually.

This cost worksheet helps you estimate the funding required to get your startup costs covered.

Calculate your startup costs using this worksheet.

The Upmetrics method—financial forecasting tool

It is an intuitive and efficient method of calculating startup costs. Using Upmetrics will not just help you estimate startup costs but also help with financial forecasting.

All you need to do is enter your sales, costs, and other financial assumptions and let the tool calculate monthly/quarterly/ and yearly projections for you.

Check out the financial forecasting tool for accurate financial forecasting.

Pro-tip

Check out the financial forecasting tool for accurate financial forecasting. Once you have an accurate estimate of startup costs, you can easily identify funding requirements for your manufacturing business.

Calculate Your Startup Costs

Once you accurately estimate startup costs, you can easily identify funding requirements for your manufacturing.

Raising funds for a new startup is nerve-wracking and time-consuming, but having a solid manufacturing business plan can make things much easier.

Let’s move ahead and discuss the factors that affect your manufacturing start-up expenses.

Factors that affect manufacturing costs

Let’s have a look at these factors that influence the average startup costs for setting up a manufacturing unit.

1. Factory Space and Remodeling Costs

Leasing or purchasing a factory space for your manufacturing business is a prominent startup expense.

Depending on what sort of manufacturing unit you are setting up, you might require anywhere between 7,500 and 15,000 sq. ft. of space.

Now, the average asking rent per square foot for industrial space in the US was between $8.84-$11.48 in 2022.  Considering that, your annual rent for a manufacturing premise might vary between $66,300-$172,200.

Bear in mind that your lease expenses can be significantly lower or higher depending on the location you choose. Suburban and rural regions are likely to lease cheaper than prominent bustling regions.

Further, consider the cost of renovating the manufacturing facility. Generally, the cost of renovation per sq. ft. varies between $50-$150 depending on the work required.

From minor repairs to full-fledged renovations, be prepared to spend anywhere from $375,000- $600,000 towards remodeling.

Also, you might have to keep aside a security deposit to get the lease contract finalized. The amount for security deposits varies, however, consider paying 2-3 months of lease upfront to secure your deal.

2. Machinery and Maintenance

The purchase of machinery and equipment is another prominent expense to add to your business startup costs.

Now, depending on what sorts of products you will be manufacturing, i.e. food products, spare parts, automobiles, clothing, chemicals, etc, determine the essential machinery and equipment. The costs can vary substantially for different manufacturing businesses, ranging anywhere from a couple of thousand dollars up to millions of dollars.

However, to give you a rough approximation, you would bear upfront costs of $50,000-$300,000 to equip your unit with essential machinery. Generally, the costs for installation and set-up are included in this. However, if that’s not the case, the additional expenses could range between $1,000-$5,000.

Another important aspect of this section is preventive maintenance. Keep aside 10% of the machinery value annually for the maintenance programs so that you can prevent any untimely breakdowns and expenses.

That being said, budgeting $5,000-$20,000 annually for maintenance and repair expenses can benefit you greatly.

3. Raw Materials and Inventory Management

Another prominent aspect where you will spend money is raw materials and their management.

Now, the cost of raw materials varies significantly depending on the type of your manufacturing business. For instance, if you are manufacturing machines, raw materials would take 60-70% of your total costs.

Budgeting $50,000-$100,000 for your initial inventory of raw materials will be sufficient. Depending on material turnover, these expenses will keep repeating every 30-45 days.

You also need to consider the warehouse costs for storing and managing your raw materials. Considering that you require at least a 3,000-5,000 sq. ft facility, you will be paying anywhere from $1,500-$3,000 rent every month.

If you have a pre-built storage facility within your manufacturing unit, you can save on warehouse storage costs. However, you still will be incurring costs for managing that inventory.

4. Quality Control

You need to invest in equipment for quality control and testing, the expenses for which will be added to your business startup costs.

Now, you can determine which equipment is useful for your manufacturing business. However, here are a few quality control equipment manufacturing units to invest in:

• Calipers and Micrometers
• Coordinate Measuring Machine
• Hardness Testers
• Optical and Digital Microscopes
• Spectrometers and Spectrophotometers

The initial costs for investing in these equipment will vary between $10,000-$50,000. However, equipment with high-spectrum features can cost more.

5. Hiring, Training, and Payroll

Hiring is an expensive endeavor. According to a study, small businesses spend approximately $4,700 to hire a skilled employee in the US. Now, that’s a huge expense to accommodate initially.

Further, consider adding $400-$1,200 to your startup expenses for training the new hires. Although expensive, training is quintessential for achieving efficiency at work, desired quality standards, and employee safety.

While calculating your startup expenses also include the payroll expenses for the first few months. This is because the payroll will be paid from your pocket till the business starts generating profit.

While the monthly payroll expenses and labor costs for your manufacturing unit depend on various factors, the costs will vary between $8,000-$30,000 every month.

Overall, you can expect the initial costs for hiring, training, and payroll to span anywhere between $20,000-$200,000.

6. Legal and Compliance Fees

When setting up a manufacturing unit, you need to consider the costs associated with legal compliance.

This includes the cost of hiring legal help if you decide to have one. Paying a legal professional would cost a small business anywhere between $1,000-$5,000.

Now, a legal professional will help you with business incorporation and setup. They will prepare the necessary documents and acquire essential business licenses and permits.

Additionally, legal professionals help in choosing a correct business structure by offering their valuable insights.

However, if you decide to carry on registration and license acquisition independently, you will be paying nearly $150-$350 for your business registration.

Additionally, the cost of acquiring essential licenses, i.e. environmental permits, manufacturing licenses, zoning permits for office space, health department, and fire department permits would cost an additional $1,500-$3,000.

7. Insurance

Small business owners must invest in essential insurance to get adequate coverage against casualties and unpredictable events.

Now, if there’s one insurance you must absolutely get, it is general liability insurance. This will offer general protection against bodily injuries, property damage, and claims made by third parties.

Additionally, you will be required to get worker’s compensation insurance to cover employee’s medical expenses, rehabilitation costs, and lost wages.

Depending on the scope of your coverage, be prepared to pay $3,000-$6,000 for insurance premiums annually. Since manufacturing is a high-risk industry, the premium expenses flare pretty high.

8. Marketing and Advertisement

Marketing is crucial to attract potential clients for your manufactured products. However, marketing and advertisement are pretty expensive marking a significant portion of your business startup costs.

Here are a few marketing activities you can explore and the approximate cost of each:

• Trade show and exhibition: $5,000-$15,000
• Email Marketing: $500-$6,000+ Monthly
• Paid Ads: $500-$3,000+ Monthly
• Social Media Marketing: $100-$2,000 Monthly

You also need to work on labeling and packaging for your products. The costs for these can vary between $100-$2,000 every month. Although, it is largely dependent on the quality of packaging and the size of your products.

Lastly, consider the cost of building a website, business brochure, and cards. The costs for these can span between $500-$2,500 and more.

And those are pretty much the most common expenses you will incur in your manufacturing business. Let’s now learn some practical ways to reduce these costs.

Tips for reducing manufacturing costs

Wondering if it’s possible to bring down your costs of setting up a manufacturing business? Check these practical tips of reducing your startup expense and budget accordingly.

1. Start Small

The easiest way to bring down the costs, right? Start small.

Take a small place, start with small-scale manufacturing, get limited machines, hire fewer people, and the costs will remain low. Always expand and grow when your means to grow increases.

2. Choose a rural or suburban location

Whether you decide to lease or purchase a property, suburban rural locations are going to offer the best rates. Lease rates at these places are comparatively lower helping you save thousands of dollars annually.

3. Lease the Equipment

Buying a new machinery is pretty expensive. Instead, enquire about leasing or go with the option of buying used machineries. This will help you save a significant chunk.

Leasing is not only cost-effective but is also a suitable option when technologies around are changing so rapidly. Leasing allows you to change your machineries frequently without bearing huge investment costs.

4. Regulate inventory

Use just in time (JIT) inventory system for managing inventory, at least initially. With no large inventory sitting idle, your money will remain free for other purposes. Besides, you will save on your storage expenses having no inventory to store.

Conclusion

And that’s it. By now you must have a rough understanding of how much does it cost to start a manufacturing company. What next?

Let’s now calculate the actual costs for your manufacturing company using our startup cost worksheet and make provisions accordingly.

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