How do you decide whether to invest in a new product or not?

Target-MarketA business adviser tells a story that a company was deciding whether or not to invest in a new product but had been mulling over the idea for some years. The business adviser used estimates for the best-case-scenario revenue impact. He found out the following information – the percentage of the existing customer base that would be prospective buyers of the new product, what percentage would realistically buy, and what would be the maximum price that could be realistically charged? He came up with a best-case-scenario estimate and when the business owner saw the figure decided it wasn’t worth the headache with such small revenue. “We killed the idea on the spot and ended a three-year debate in just 10 minutes.”

For any product or service that you intend introducing onto the market, you need to at least have a clear idea of its potential. It’s no use just venturing in blindly and expecting things to happen while you go along. Why throw good money after bad?

In making your decision whether to go ahead or not you could also look at what is happening in the market. Is there any basic market research data available? If you don’t have money for proper market research then you will need to find data on products similar to yours and how they are performing in the market. Another thing to consider is the product or services target market. What is the present purchasing trend and what is the future outlook? Can you find sales performance for similar products over the past year and find out if sales are static, increasing or decreasing.

For whatever product or service you plan to introduce, you need to know the size of the total market, the present market shares of the competitors and what market share you could hope for in your local marketplace. Yes, you could say that your product is new and a market doesn’t exist yet. But if that’s the case you need to seriously rethink what you doing because for a small business to develop a market from scratch may take years and take loads of money. Usually, anyway there would be substitutes for your new product or service that are already being used in the market.

Estimating a potential opportunity is critical because you’re basing a lot on this one decision. You need to do your homework. I’m not saying that you have to collect a mountain of data before you decide but I am saying that your decision should be fact-based and provide a pretty good estimate of the revenue and profit potential. This is so important that evaluation is part of “Breakthrough Ideas”, a resource to guide you in a practical way for starting any product or service. If you would like to get hold of a copy, here’s the link.

If you are going to seriously consider starting something of your own, you at least need to know how to estimate potential revenues and profits. Here’s that link again.

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