In a previous post I spent some time on New Product Development and strategy. Lets now assume that you are pleased with the new product or service that you wish to bring to the marketplace, it has gone through all the screening and it is ready for launch. Now is the time to crunch the numbers.
The Business Case
Its time to accurately forecast the profitability of the product in relation to the direct costs (labour/direct materials) and associated costs say, any non-direct labour such as product testing/quality control apportionment. In addition you may well apportion certain overheads to the product such as heat, light etc.
Other costs may also include licences, duties and taxes if you wish to export the product.
Selling Price
Taking into account your previous market analysis, decide upon your selling price and the actual margin you are going to make. Will you have to discount the price initially to create market penetration? What level of sales will be through distributors or to wholesale outlets where margins will be lower? Taking into account the above factors and other costs that may apply to your particular product or market, define your break-even. How many units will you have to sell before you break even on the variable and fixed costs and, the overall cost of the product development.
The Longer Term
Forecasting the life cycle of the product may not be easy, however projecting how long the product will be relevant to your marketplace is essential in order to estimate how many units will be sold. In terms of time how long will it be before you see the Return On Investment that you need. How does this compare with other products in your range, or other investments you could make instead, Does it make sense?
Is your ROI in line with your expectations?
The Business Case
Its time to accurately forecast the profitability of the product in relation to the direct costs (labour/direct materials) and associated costs say, any non-direct labour such as product testing/quality control apportionment. In addition you may well apportion certain overheads to the product such as heat, light etc.
Other costs may also include licences, duties and taxes if you wish to export the product.
Selling Price
Taking into account your previous market analysis, decide upon your selling price and the actual margin you are going to make. Will you have to discount the price initially to create market penetration? What level of sales will be through distributors or to wholesale outlets where margins will be lower? Taking into account the above factors and other costs that may apply to your particular product or market, define your break-even. How many units will you have to sell before you break even on the variable and fixed costs and, the overall cost of the product development.
The Longer Term
Forecasting the life cycle of the product may not be easy, however projecting how long the product will be relevant to your marketplace is essential in order to estimate how many units will be sold. In terms of time how long will it be before you see the Return On Investment that you need. How does this compare with other products in your range, or other investments you could make instead, Does it make sense?
Is your ROI in line with your expectations?
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