Product Forecast
After developing your budget and determining the cost of designing and launching the new SBCC product, service or intervention, you will now need to calculate how much it will cost to actually deliver the new product, service or intervention. This will help estimate the potential income to be generated from the sale of the new product, service or intervention in the future. An organization’s success in launching new product lines or providing additional services is determined by their accuracy in predicting profitability. There are various ways to establish a “working price” for purposes of modeling income.
One option is to calculate all costs associated with the delivery of the new product, service or intervention and then add a percent margin to the unit cost to establish the price. A margin of 5 percent-10 percent is common.
Another option is to do Internet-based market research to see what other, similar organizations are charging for a like product, service or intervention.
Regardless of how you choose to define the unit price, the real income elasticity lies in the level of costs associated in operating the product, service or intervention on a day-to-day basis for the next three years. Any time an organization can reduce its costs to elevate sales, it translates into greater income.
Product costs can be defined in two ways:
Variable Costs
Expenses that change in proportion to the activity of the business.
Fixed Costs
Expenses that are not dependent on the levels of activity in the business.
It is important to define the costs in these two categories in order to define a product/service/intervention price that accurately depicts the Contribution Margin.
Contribution Margin = Revenue – Variable Cost
Video
A TED talk by Manu Prakash
Financial Modeling Tool (Product Forecast)
Instructions: Read and complete the following steps.
- Refer back to your Financial Modeling Tool.
- Go to tab labeled "Product Forecast."
- List all of the potential revenue and expenses for your product in the next three years. This will be separated into different categories based on variable costs versus fixed costs.
Financial Modeling Tool (Product Forecast)