One area of business building and product development is predicting the success of the product, before launch. This is one area everyone tries to get as accurate as possible, in search of the one unifying metric to unite all and predict accurate success trends. Methodologies such as the lean startup approach aim to ensure as accurate a product success rating as possible, by approaching the project from a customer-centric point of view (if you build what they want, they will come). Now that we’ve discussed how to get customer feedback, lets discuss how we make use of this feedback in our approach to product planning.
The Aim
Based on the feedback we’ve gathered, we should have a number which reflects how many customers are willing to actually purchase our product, as well as how many are interested. For the purposes of this exercise, we’ll use the number of customers willing to actually purchase the product (the rest can be up-sold to at a later stage, after further discussion with them).
The aim of this exercise is to produce an estimate of the product’s success, using the most accurate data we have available, especially the number of customers willing to part with their hard-earned cash, in exchange for our product.
For the purposes of this exercise, lets assume there are 50 customers willing to purchase the product.
Other costs involved here are production costs, planning and on-going maintenance… all estimates as best we can get them.
The Formula
This is where the maths comes into play. The rough formula is as follows:
(Potential Sales x Unit Price Per Sale) - Product Costs - (Monthly Maintenance Cost x 12)
The production cost is calculated based on hourly salary of team members involved, multiplied by hours spent on their part of the project. Maintenance costs are worked out at the hourly salary of the team member, multiplied by estimated hours spent on maintenance.
This equation yields some interesting projections. It’s now possible to see how many units we’d need to sell in order to cover initial costs, as well as an on-going sales-per-month requirement in order to maintain profit.
What to do with this data
This is where the rest is up to you. Personally, I use this data to weigh up opportunities for our team at WooThemes, and how we can ensure our products are as successful as possible right out of the gate, while also maintaining their success over the long tail.
What is your method of determining product success?
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