If you’re developing a new product, one of the biggest surprises is how expensive everything feels in the early stages. What seems simple on paper can become costly very quickly.
The core reason comes down to one thing: low volume production.
Until you reach higher production volumes, your costs per unit will almost always be higher. Understanding why this happens can help you plan better, price smarter, and scale more effectively.
The Challenge of Low Volume Production
Low volume production refers to manufacturing a small number of units – often in early-stage product development or initial market testing.
While it’s necessary for validating your idea, it comes with a major downside:
The cost per unit is significantly higher than in large-scale production.
This isn’t because suppliers are overcharging – it’s because the entire system of manufacturing is built around scale.
1. Fixed Costs Are Spread Over Fewer Units
Every product requires upfront investment, including:
- Design and engineering
- Prototyping
- Tooling and moulds
- Compliance and testing
These are fixed costs, meaning they don’t change with quantity.
In low volume production:
- These costs are divided across fewer units
- Each unit carries a much higher share of the cost
At higher volumes, those same costs become almost negligible per unit.
2. Manufacturing Is Less Efficient at Low Volumes
Factories are designed for efficiency at scale. When you’re running low volumes, manufacturers still need to:
- Set up machines
- Calibrate equipment
- Allocate labour
These setup efforts are nearly the same whether you produce 100 units or 100,000.
So in low volume production:
- Setup costs are high per unit
- Production efficiency is lower
This is why manufacturers often offer steep discounts as your order size increases.
3. Material Costs Are Higher
Another key issue with low volumes is material pricing.
When ordering small quantities:
- You don’t qualify for bulk discounts
- Suppliers charge higher rates
- Minimum order quantities (MOQs) may apply
As a result, your bill of materials (BOM) is inflated.
At scale:
- Material costs drop significantly
- Supplier pricing becomes more competitive
4. Limited Supplier Negotiation Power
In low volume production, your position as a buyer is weaker:
- You’re a small customer
- Orders are less predictable
- Suppliers take on more risk
This leads to:
- Higher pricing
- Stricter payment terms
- Less flexibility
As your volume grows, your negotiating power improves – and costs come down.
5. Inefficiencies and Learning Curve Costs
Early production runs are rarely optimised.
With low volume production:
- Assembly processes are still being refined
- Error rates are higher
- More labour time is required per unit
These inefficiencies increase costs.
Over time, as volume increases:
- Processes become streamlined
- Workers gain experience
- Automation becomes viable
6. Tooling Costs Hit Hard Early
Tooling is one of the biggest cost drivers in physical products.
For example:
- Injection molds can cost thousands or more
- Custom fixtures and tooling are required
In low volume production:
- Tooling costs dominate the unit price
In high volume production:
- Tooling costs are spread thinly across many units
7. Logistics Are Less Efficient
Shipping and logistics also suffer in low volume production:
- Higher freight cost per unit
- Inefficient packaging and transport
- Limited ability to optimise distribution
At higher volumes:
- You can use full container shipping
- Freight costs drop dramatically per unit
8. Risk Drives Up Prices
Suppliers factor risk into their pricing – especially in low volume production.
Risks include:
- Uncertain demand
- Product changes
- Lack of repeat orders
To compensate, suppliers charge more.
Once demand is proven:
- Risk decreases
- Pricing improves
The Key Insight: Scale Changes Everything
All of these factors explain why low volume production is inherently expensive.
But as you scale:
- Fixed costs shrink per unit
- Efficiency improves
- Material costs drop
- Supplier relationships strengthen
This is the point where true cost advantages emerge.
The Startup Reality
Most product businesses face the same journey:
- Start with low volume production (high costs)
- Validate demand
- Increase production volume
- Reduce per-unit costs
- Compete on price
Trying to be low-cost from day one is extremely difficult – and often unrealistic.
Final Thoughts
Low volume production isn’t a flaw – it’s a necessary stage in building a successful product. But it does come with unavoidable cost challenges.
The key is to recognise that:
High costs at low volumes are normal – and temporary.
Focus on proving demand first. Once you achieve scale, cost efficiency will follow naturally.