tooling costs
Definition
Tooling costs are the expenses a manufacturer charges to create the specialized molds, dies, jigs, or equipment needed to produce your custom product. Think of it as the setup fee a factory charges before it can even begin making your specific item. You typically pay these costs upfront, and they cover the physical tools that will be used exclusively to manufacture your product.
Example
If you hire a factory to make a custom plastic water bottle with your unique shape, they might charge you $5,000 in tooling costs to build the mold before producing a single bottle. After that, you pay a separate per-unit price for each bottle they actually manufacture.
Watch Out
Always clarify in your contract who owns the physical tools after you pay for them, because some manufacturers will claim ownership and hold your tooling hostage if you try to switch to a different factory.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.