The start of new product development can be an exciting and very busy time. Prior to beginning, you may have your doubts—a lot of thought, worry and wondering. Should I do this? Do I have time for this? You’ve made the commitment. Now what? Here are a few things to do very early on in the product development process that will make the months to come much more successful.
Get your business plan in order
You may have run some numbers to help you decide this product development makes sense. If so, great! You’re on the right track. If not, now is the time to bring together whatever information you have into a single document. Include a general description of your product, what problem it solves and who your primary target customer is.
Gather reviews of all competitor products, or products that are in any way similar to yours. Summarize this section with your intended selling price and your best estimate of how many you expect to sell in the first month, in six months and in 12 months.
Now that you have a good idea of what you are going to create, it’s time to think about how you are going to get it into the hands of your customers. If your product is an app, start talking to app developers and get a quote from them so you know how much money it will cost to complete the development process.
If your product is something physical, talk to a product design firm and get them to give you a quote. Even if you are comfortable doing a large portion of the design work yourself, or you plan on doing this internally using your own company resources, it is still worth getting a product development quote from an outside group. This can help you get a better understanding of the money required to complete development, or may even expose some problems or opportunities you have not previously considered.
An additional benefit of obtaining outside quotes is that you are also likely to get a preliminary schedule for how long the product development may take, and when you will be expected to make payments along the way. If your product requires tooling or compliance testing, you will be able to get rough estimates of the magnitude of these costs, as well as when they are likely to be due.
This information can be then summarized and added to your product development business plan. Create a timeline for your project, and add key milestones and expected payment due dates.
At this point, you should have costs for the design and tooling (if required), which is a major component of the costs. But it’s not everything.
Do you have a good idea of your production costs? For physical products, it may be worth engaging a design firm to complete a small preliminary project to give you an accurate estimate of production-per-unit cost. This can often be extended to include estimates for shipping, import duties and warehousing.
Consider what risks are relevant to your product development. Talk to an Intellectual Property attorney to find out if you should patent your idea. If so, add in costs required for this to your budget and key filing dates to your timeline. Think about what insurance you might need and make allowances for that also.
With your product defined and a plan to get it made, think through the basics of what it will take to drive sales and marketing. Do you have a clear idea for how your product will be sold? Will you be using existing sales channels or relationships (if you have an existing product) or, if this is new for you, are you going to sell via your website or maybe Amazon?
If you are going to create a website and sell directly to your customers, build in costs and time for your sales platform to be developed. You’ll also need to consider how you will drive traffic to your website.
Spend a few hours getting familiar with how Facebook ads, Google Adwords, Instagram ads, etc., work, and figure out how much money you will need to spend to attract one customer to your site who then proceeds to make a purchase.
This important piece of information is your Customer Acquisition Cost. That will form a key element of your budget. These tools also give you an idea of the approximate amount of traffic you can expect to generate, which is useful for understanding the size of the potential audience.
Also, think through the other costs associated with selling, such as your sales platform fees, credit card merchant charges, postage and even returns into the cost of each sale.
Now you should have a pretty complete picture regarding how long it will take to go from product development to product launch and how much money will be required.
You’ll know how much it will cost to make and what you plan to sell it for. You can summarize these numbers into a basic spreadsheet and calculate the total revenue you expect to make each month, as well as the profit you can expect to make.
Make sure you’re making enough profit. If not, go back now and figure out what needs to change to get this right. Maybe your manufactured cost of goods (MCOGS) or your Customer Acquisition Cost (CAC) is too high, and you can figure out how to reduce them. Maybe the planned sales volumes are too low and the product development is not worthwhile in the first place.
Now is the time to identify these things and develop a plan to either address them, or maybe shelve the idea and move on to something else. Spending a little bit of time creating a plan for your new product development is of immense value and will put you on the right path to make the most out of your potential opportunity.