Fees are the part of an advisory engagement that tends to stay vague. Buyers usually want one answer: what exactly is being charged. The value of technical work is hard to quantify, but the basis of the fee has to be checkable — otherwise the second and third shipments turn into a renegotiation about arithmetic.
This note sets out the standard model: what the technical start-up fee covers, what the per-batch fee is calculated on, when it offsets the start-up balance, when it is invoiced separately, and what happens if the project never reaches volume. No specific amount is quoted; the start-up fee is assessed per project.
1. Two models, two cost structures
| Item | Direct purchase of production | Advisory supply-chain service |
|---|---|---|
| Cost structure | Part price: material, processing, manufacturing margin | Technical start-up fee plus a per-batch advisory fee |
| Technical service fee | Not charged separately | Included, invoiced under the rules below |
| Manufacturing margin | Ours, as the manufacturer | Earned by the manufacturing party; we take no part |
| Precondition | We open the tooling and produce | The part is produced by a manufacturer the customer selects |
The table exists to kill a common misreading: the advisory model is neither a cheaper option that "gives up the manufacturing margin" nor a more expensive one with "an extra layer of fees". The two charge for different things — one for manufacturing, the other for technical judgement and process control. The real cost difference depends on the supplier prices and internal management cost of the specific project, and has to be calculated rather than assumed.
2. The start-up fee: what it covers, why it comes first
A technical start-up fee is charged at signing and covers three pieces of work:
- Drawing review: whether the structure can be moulded, whether the bond interface works, whether tolerance and assembly leave margin, issued as a written feasibility and risk note.
- Preliminary technical study: fixing the material direction against the duty condition (temperature, oil, flame retardance, food or medical contact) and checking whether candidate suppliers' equipment and process match.
- Supplier screening: background checks and capability verification against the project requirements, with a shortlist and the reasons for exclusions.
All three consume engineering time before any order exists, and once the conclusions are written the customer can take them to any supplier. So the fee is charged as preliminary technical input, and it is fully creditable against later advisory fees — if the project runs, it behaves like a prepayment; if it stops, it is a cost already incurred.
3. The per-batch fee: 10% of the accepted ex-tax value
The advisory fee is 10% of the ex-tax value of each batch accepted by the customer. Three qualifiers in that sentence each pre-empt a familiar argument:
- "Accepted": the customer's acceptance decision for that batch governs. A batch that fails and is re-delivered after rework is not charged twice, and a rejected batch is not charged at all.
- "Ex-tax value": the base is the value of the product itself; tax is not part of the base.
- "Product value": mould cost, freight, third-party testing fees and duties are excluded. None of these is product value, and most are paid by the customer directly to a third party.
Writing the exclusions into the contract is easier than explaining them later. Third-party testing matters most: on a medical or food-contact project the test bill can be a meaningful share of the total, and counting it in the base would feel wrong to both sides.
4. Settlement order: offset first, invoice later
Two rules, and the order cannot be reversed:
- When a batch is accepted, the advisory fee for that batch is calculated;
- that fee offsets the remaining start-up balance first; once the balance is used up, each batch is invoiced separately.
An example that does not disclose the start-up amount: a batch with an accepted ex-tax value of RMB 200,000 carries an advisory fee of RMB 20,000. If the start-up balance still stands at RMB 15,000, only RMB 5,000 is settled and the balance closes; from the next batch on, 10% is invoiced per batch.
The order favours the customer: early cash flow is absorbed by the start-up fee, and batch-by-batch invoicing starts only once volume is stable. It also keeps our side simple — the remaining balance is a concrete number that can be checked at any time, rather than something to renegotiate each shipment.
5. If the project never reaches volume
If the project does not go into volume production, the technical start-up fee is non-refundable and is treated as the cost of preliminary technical input.
The clause needs to be stated up front, because its logic comes from the nature of the work: drawing review, material direction and supplier checks have all been delivered, and the customer can take those conclusions elsewhere. It is not a penalty and not a deposit; it is payment for work already done.
If the project cannot proceed for reasons on our side — for instance every recommended supplier proves unable to take it on and no alternative exists — the contract terms govern instead.
6. Sample orders carry no advisory fee
Sample orders do not attract an advisory fee. A sample exists to verify structure and process, not to produce sellable value, and the sample-stage work is already inside the start-up fee. The advisory fee applies to accepted volume orders only.
If a project ends at the sample stage, clause 5 applies; if samples pass and move to volume, billing starts from the first volume order.
7. Sourcing traceability
A real risk in advisory work: the process route and supplier list are delivered, and the customer then places the order around the adviser. Hence the traceability clause:
- where we issue the process route and recommend a supplier for the project;
- orders placed directly or indirectly with that supplier within the agreed period (including through affiliates, traders or contract manufacturers);
- are subject to the advisory fee under the rules above.
The length of that period follows the project rhythm and is written into the contract. The clause is not aimed at the customer; it is what makes the technical investment recoverable. Without it the service is not commercially sustainable, and the buyers who need technical support are the ones who lose it.
8. Fees and responsibility are separate questions
One point to state plainly: paying an advisory fee does not transfer quality responsibility to the adviser. The advisory service covers the technical solution, supplier screening and coordination only; final product quality and delivery responsibility rest with the manufacturing party.
Keep the two in separate documents: the technical service agreement lists deliverables (route, supplier list, assessment notes, follow-up records), while the purchase contract carries quality and lead-time liability. Mixing them makes responsibility harder to establish when something goes wrong.
9. Four questions buyers ask
Can the start-up fee be invoiced, and under what heading?
It is invoiced as a technical service; the exact heading and tax rate follow mutual finance confirmation. Align invoicing details before signing so settlement does not loop back.
How is a "batch" defined for the per-batch fee?
A batch is the order batch the customer places and accepts. Where one order is delivered and accepted in parts, each accepted portion is charged on its own value.
Can we buy a single technical assessment without going to volume?
Yes. That is priced as a one-off assessment, a different route from the standard start-up-plus-batch model, and the conclusions are delivered as a written report.
Are the assessment criteria the same in both models?
Yes. Material selection and process assessment follow the same standards and logic; the differences are who produces, who carries quality and delivery responsibility, and how the cost is built.
Conclusion
The fee structure is not complicated. Three sentences cover it: a creditable start-up fee up front; 10% of the accepted ex-tax batch value per batch; a base that excludes moulds, freight, testing and duties. Put those three into the contract, then state samples, traceability, the non-refundable start-up fee and the boundary of responsibility as separate clauses, and the fee discussion usually ends there.
If you are evaluating this kind of engagement, or have a project that needs technical judgement across several suppliers, send the structure, the duty condition and the expected volume; we will issue a written assessment first and then agree on the route.