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How To Forecast a Product’s Success

By August 14, 2022November 10th, 2022No Comments

Creating a new product is a game that involves a lot of risk.

However, remaining innovative and paying attention to current market trends means keeping customers happy by releasing new products. There will always be risk involved in business, and it’s possible you can spend all this time working on a new product only for it to fail.

You may think it’s safest to just stick with the products that you know work, but not taking this chance is still a risk in itself. Consumers have a short attention span, they crave novelty, and if your business can’t satisfy them then they may turn to your competitors. So what’s the solution to this problem?

While not a surefire solution, the most common resource businesses turn to in order to minimize risk of failure when creating a new product is to forecast that product. Forecasting is when a business attempts to predict the amount of success that a new product will have within a specific period of time once it’s put on the market.

There are numerous factors that go into conducting a successful forecast for your product, including product awareness, price, distribution, and competition. In this article we will break forecasting down into digestible pieces so that you can determine if it’s best for your business and, if so, how to do it.

Why Forecast For a Product?

Obviously, mitigating risk and therefore limiting potential loss is a great reason to consider forecasting your product, but this isn’t the only reason to invest in forecasting. There are arguably two main reasons to forecast.

The first is that it gives you the ability to identify whether or not you’re going to achieve your predetermined sales target. The second, and potentially most important, reason is that a successful forecast allows you to determine if your product won’t perform as anticipated. This gives you the opportunity to do a bit of damage control and begin troubleshooting so that you can fix these issues, or in the worst cases just ditch the product before more damage is done.

Essentially, taking the time to forecast a new product gives your organization a window into the future. Having this perspective means that you can predict potential issues, thus allowing you to make better decisions to avoid these issues, and then judge the impact of these decisions.

The Four Types of Forecasting

Forecasting is a multifaceted approach, so there is no one way to do it. In actuality there are four main ways to forecast, all of which are used by financial analysts in order to predict revenue and expenses.

Straight-Line Method

The straight-line method of forecasting is perhaps the most straightforward method. Using this method, an analyst will study pre-existing data in order to predict future revenue.

01

Moving Average

With moving average forecasting, an analyst studies the underlying pattern in a set of data with the aim of estimating future values. This method is most often used for predicting long-term trends.

02

Simple Linear Regression

With simple linear regression analysts study the relationship between variables in order to make predictions. This method utilizes past values to help determine future values, and it’s most commonly used to discover any underlying trends.

03

Multiple Linear Regression

Multiple linear regression is a technique that utilizes at least two independent variables in order to predict the future of a dependent variable. Organizations tend to use this method when they must consider multiple independent variables.

04

Each forecasting method serves a different purpose, so understanding these methods will allow you to best apply them to your situation.

Things to Consider When Forecasting

There are many variables at play when forecasting a product, which is why careful research about your organization and your product should be done before beginning. That being said, we’ve already covered exactly why engaging in product forecasting can prove beneficial for your company.

So despite the potential headache, taking the time to forecast a new product is always the best move. In the list below you’ll see a few helpful tips to consider when you begin forecasting. Use them along your journey to make sure you stay on track when preparing for a new product.

1

Consult Your Sales Team

The sales team of any organization exists with the express purpose of understanding your market and the customers that inhabit it. Your sales representatives understand the market on an intimate level, and on top of that they understand what your competition is up to. Go to your sales team with your timeline and ask for their input.

By using the sales team as a resource you’ll be able to get an estimate of how approximately how many units you can realistically move. Additionally, boosting team morale is always beneficial to an organization, and by involving the sales team in your forecast you’re likely to make them feel invested and engaged in the product’s launch.

2

Begin a Pilot Project

Pilot projects are small-scale applications of your product that are used in order to test the viability of a product before it launches on a wider scale. Much like with forecasting, the reason a company chooses to implement a pilot project is so that they can risk failing on a smaller scale.

Try your product out amongst a small group of your sales representatives. Again, your sales representatives know your market, so choosing a few of them to test your product can be a great way to gauge how your audience might respond. Based on the feedback of your sales team, you can go back to the drawing board or prepare for a full launch.

3

Use Sales of Other Products

While there are different ways to perform a successful forecast, the most common way is to study the sales of existing products that relate to your product, and then use those sales to predict the demand for your product. This is most useful when your product is an improvement or slight alteration of an earlier product.

Depending on how these earlier products performed, and depending on how different the new one is, your launch will likely follow previous trends. Remember that forecasting becomes more complicated when your product is entirely new, so this method should not be used in every situation.

4

Reforecast

Creating one forecast doesn’t necessarily mean the end of forecasting. Oftentimes a forecast doesn’t account for a variable, or perhaps a variable isn’t being so heavily considered in the forecast but is more relevant in reality.

This is why constantly referring back to the forecast, updating it, or outright creating a new one is essential. Forecasts can be adjusted over time once the product has launched, so taking customer feedback and product reviews into account can be a great asset for future forecasts.

5

Create Multiple Forecasts

Before sticking to one forecast or even one type of forecast, go through your options and run every possibility. Changing variables and considering numerous assumptions and probabilities allows you to account for every circumstance so that whatever happens once the product is launched is less likely to catch you by surprise. The easiest way to do this is to create forecasts that can be updated or recalculated immediately so that your analysts can make changes in real-time.
6

Granular Models

Granular models are effective because they simplify the forecast to account for different sections of the market. Within the market there are different demographics, which means that they may behave slightly differently from other consumers in the same market.

Granular models understand that not every consumer purchases new products at the same rate. There will always be consumers who line up around the lock, waiting all night to purchase a new product. However, others will wait to read customer reviews, get discounts, or until the company fixes certain bugs with the product. There is a wide gap between these consumers, so understanding the difference and accounting for it will strengthen your forecast.

Creating the proper forecast while accounting for as many variables as your analysts can think of can be tricky. However with the proper guidance, and the aid of these tips above, you’ll be able to create a forecast that works for you.

Forecast Your Product For Future Success

There are many great reasons to create a proper forecast or series of forecasts for your new product. While taking the time to create a forecast is valuable, you cannot forget that as a business you should be willing to cut your losses even after all the research and preparation that a forecast requires. The fact of the matter is that most new products fail, even after careful planning. This is just the name of the game.

However, to prevent losing more money than the product is worth and risking greater damage to your organization, you have to be ready to leave and start over on a new product if the situation requires it. With this in mind, do the research, plan, communicate across the organization, and prepare for a successful product launch. There’s no reason your organization can’t beat the odds.

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