Three colleagues discussing how to forecast demand and revenue for a new product
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How To Forecast Demand and Revenue for a New Product

October 17, 2022 Vibhu Sridhar  
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Launching a new product is an exciting time for any company. Launching an updated staple or entirely new offering can also be hectic.

Whether you want to increase revenue, remain competitive with other producers or gain a greater market share, you’ll need to forecast demand and revenue for the new product. With the right techniques, forecasting can be more of a science than an art.

The more accurate your demand forecasting, the more likely you can appropriately meet your staffing and stocking requirements—and cut expenses at the same time.

💡Key Takeaways:

  • Selling a new product can be risky and rewarding—estimating the expected demand over time is difficult. If you overestimate, you risk warehousing excess inventory. If you underestimate, customers lose access.
  • The ultimate demand and revenue forecasting tool may very well be a crystal ball. Until that’s a viable option, the next best thing is the historical performance of your business’s other products. You can use historical performance data to estimate the future demand and revenue of your new product.
  • Another potential indicator of future performance is managers’ experience and market research. However, don’t depend on managerial experience alone as that data source isn’t necessarily data driven.

Demand Forecasting for New Products

Demand forecasting for new products requires what looks like a bit of guesswork.

Any forecasting must somehow account for multiple variables and unknown factors. You may not have data from past performance to compare the new product against, which compounds the issue.

Infographic explaining that forecasting involves demand, operational and financial components.

Source : Ideas

You must nevertheless forecast demand to ensure the proper resources, such as inventory, staff and cash flow, are available at the right time. Similarly, you’ll want to forecast revenue to determine the point at which this new product becomes profitable. If a product costs x dollars to launch, when will you hit the break-even point?

The Benefits of Getting It Right

One recent study found that new products account for over 20% of sales among all industries.

That’s why it’s imperative to forecast demand and revenue as accurately as possible. Inaccurate forecasting risks losing profits and increasing expenses for a product class that makes up potentially one-third of all sales.

When launching a new product, it’s common for companies to rely on qualitative market research. However, this same study found that using historic product sales data (to the extent possible) may provide a better indication.

The usefulness of historical data depends on the type of new product.

For example, if your new offerings add a new feature or stylistic preference to an already successful product, the sales data gleaned from the earlier product would prove useful. But when it’s an entirely new or unique product, the same type of historical data may be less helpful.

Whether historical data may be helpful—or the extent to which it’s useful—also depends on the information your company maintains.

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How To Forecast Demand and Revenue for a New Product

In addition to using historical data of existing products, the following market research methods may also help you forecast demand and revenue for your new products.

 

Collaborate With Your Sales Team

Your sales and marketing teams know your products the best. Sales representatives have direct knowledge of your market and competitors, while your customer experience team can provide insight into your customers’ expectations. 

By discussing potential new products with these stakeholders, you can get an idea of the potential number of moveable units in the early months. Using this estimate, you’ll know when to ramp up production. 

Including your sales, marketing and customer experience teams can also garner their buy-in.

Get Data From Other Sources

Like your employees, you can also get valuable information from your customers. This is especially true of any longstanding or particularly trustworthy clients. Trusted customers, suppliers and sales partners can all provide detailed information about different stages of product sales.

Conduct Primary Research

Another method is to conduct your own primary market research. Through surveys, focus groups and customer observations, you can learn what your customers expect in a new product and how interested they would be in purchasing it.

While this research will cost time and money, it’s better to allocate resources to forecasting efforts than to incorrectly anticipate demand or revenue.

Create a Pilot Project

Creating a pilot project could be valuable when you have little historical information. A pilot would also conserve resources—it’s better to test something new before committing to wholesale.

Work with a few high-performing sales reps in key markets. Then, you can extrapolate the results out to other market areas. Depending on customer feedback, you have time to then adjust the new product as necessary.

Adjust Accordingly

The initial demand and revenue forecast may be a product of educated guesswork. You have the opportunity to gather information from your employees, key customers and market research. This data is useless, though, if you don’t adjust your forecast in the future.

Once you begin producing and selling the new product, you’ll gain greater insights into product pricing, production and distribution, and customer satisfaction. In these early months, plan to diligently assess this data and adjust accordingly.

Forecast Demand and Revenue With Vena

Introducing a new product is simultaneously an exciting and nerve-wracking experience for any company. Whether the product is unique or an updated take on an old classic, you’ll need to forecast demand and revenue to hit your production and sales targets. Forecasting helps you anticipate the point at which the product becomes profitable.

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Forecast for a New Product
Vena’s suite of technological solutions, such as Financial Planning & Analysis, help research and development teams forecast demand and revenue for new products.
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