You’re likely to be enthusiastic and confident about the prospects for successfully launching a new product or service. But you’ll still need to test the feasibility of your new offering by treating its launch like that of a new business.
Estimating demand
It’s vitally important to test-run your new good or service in a sample market so you can get a clearer idea of whether it’s worth investing more time and money into it.
Of course, there’s no way to absolutely guarantee your idea will be a winner. Help yourself determine if you’re likely to make a reasonable return on your investment by finding out:
- How many customers are interested in your product or service?
- What products or services are likely to be competing against it?
- Do you intend to sell your new offering over the Internet?
If you sell online, research online
These days, many businesses sell their goods through their own website or via a third party. If you plan on selling your new service or product on the internet, it’s crucial to conduct some online research.
For example, if you’ve been working on a tea tree oil hair product to introduce to your range of home grooming goods, and you plan to sell it online, it’s smart to use a keyword planner. This tool can help you find out how many searches are being made for tea tree oil (as a hair product) per month. You’ll also discover what kind of tea tree oil terms are being searched for and find out if ‘tea tree oil for hair’ is trending online.
Get in touch with your industry association
If your business has a physical location and you’re planning to introduce a new product onto its shelves, get some insights from your trade association. Most sectors have an industry association that produces research about the field or can offer you some other valuable information.
Check any available statistics
Find out if there are any existing statistics on the type of product or service you plan to introduce to the market. A site like Statista may help you gather more information on your target market or type of product.
Determining price
Your research will help you ascertain what price customers might be prepared to pay for your new product or service. But you’ll need to calculate the cost per unit of making your new product (or cost per hour of providing your new service).
From this point, you’ll be able to come up with a couple of price scenarios such as:
- Pricing high – above competitors’ offerings due to what you think customers will perceive as better quality or value.
- Pricing low – to beat your competitors or attract more buyers to your new offering.
Survey customers on price and demand
It’s important that you survey your existing and new customers in your target market. You’ll want to know whether or not they'll actually purchase your newest addition, how often they’ll buy it and at what price.
You could get this information by conducting a:
- Focus group – about 8-10 participants for an in-person study.
- Survey – a few quick questions when potential customers visit your store or website.
- Informal chat – simply learning your customers’ opinions by asking casual questions as they go through the checkout process.
Examining potential profitability
How long will it be until you expect to break even with this new good or service? Create a cash flow forecast of the upcoming year to develop a realistic idea.
Work out your anticipated costs, selling price and quantities you need to sell by:
- Calculating research and development costs.
- Adding variable costs – for example, the cost of operating machinery in the production process.
How long will it take to build up the sales of your new item to a point where it pays for itself and begins to turn a profit?
Next steps
- Take a look at our article on market research.
- Download our cash flow forecast template.
- Get in contact with us at Comerica if you need financial assistance with your new product or service.
