Product development is complex. Before you jump into the product development process, make sure you have a clear understanding of the following numbers.
COGS
COGS refers to Cost of Goods Sold. Remember, you need to make more than the COGS per a product in order to achieve a positive ROI. Keep in mind that COGS can be calculated in a number of different ways.
P&L
P&L refers to profit and loss. It is essentially a basic money in / money out calculation. It allows you to see how much money your product costs to manufacture, versus how much it will bring in in sales.
ROI
ROI refers to Return on Investment. It is calculated by subtracting product production costs from anticipated product revenue. Obviously, anticipated product revenue will depend on sales numbers. Therefore, it is advisable to calculate various ROIs — one of the best case, worst case, and average case scenarios.
SVA
SVA refers to Shareholder Value Added. It essentially measures the value a new product adds to your business for your business’s shareholders. The more SVA a new product will add to your company, the more worthwhile it is to develop that product.
Cannibalization
When a new product eats up the sales of your pre-existing products, it is called “cannibalization.” While it is difficult to ascertain a precise number for this specific phenomenon, it is something that every product developer needs to consider. Keep in mind there are several things you can do in order to mitigate the risk of cannibalization, including properly planning release and launch cycles, as well as properly planning marketing and advertising campaigns.
Cycle Time
Cycle Time refers to the length of time it takes to deliver a new product, from idea inception to commercialization. Understanding and appropriately managing the cycle time is key, in part because it allows you to appropriately plan a launch date and tailor marketing and advertising strategies around that launch date.
Pivot International is a product design, development, and manufacturing firm with extensive experience in the medtech industry. If you are interested in engineering a new product or updating an existing product, contact us at 1-877-206-5001 or request your free consultation today.
