What I have experienced is that unless cost of goods is 25% of MRP, it is difficult to build a decent profitable business by selling cleantech products to rural customers. Since 50% of MRP will go in channel and distribution costs which leaves rest 50% for the gross margin and cost of goods. Hence on a Rs. 1000 product in market, you can expect to have a gross margin of Rs. 250 if the cost of product is Rs. 250. If the cost of product goes up, the margin will squeeze accordingly (if Rs. 400 is the cost, Rs. 100 will be margin). Here are top 5 cost items:
1. New category of products : technology and marketing cost - Solar for example have a large technology cost which makes it tougher to build a cheaper product.
2. Ability to pay : cost of financing - MFI will usually charge the company some money to support the product. Also the customer is paying interest on the loan
3. Geographic diversity : Increases logistics and channel cost which becomes a large portion of the cost of the company
4. Cultural diversity : Business development cost increases since it becomes harder to build relationship
5. Product positioning : It is hard for companies to know which price will work for customers and which products will fly. This increases the marketing, R&D and product development costs.
It is important to be aware of magnitude of all these costs and make sure you know these costs before you enter this market.
Manoj
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