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How to Calculate the Cost of Being Late to Market

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Most people know that shipping your product late costs you money but few know how to calculate how much money is really lost. A live calculator is available at http://www.initialstate.com/LateCalc

Most people know that shipping your product late costs you money but few know how to calculate how much money is really lost. A live calculator is available at http://www.initialstate.com/LateCalc

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• 1. How to Calculate the Cost of Being Late to Market
• 2. \$ Most people realize it costs money when your new product ships late
• 3. ? Few know how to calculate how much money is actually lost
• 4. y-axis is your cash flow coming in or going out x-axis is Cash Flow Over Time \$ time
• 5. During development, you spend money R&amp;D Spend \$ time Total development spend = the # of months until your launch date * dev costs per month
• 6. Once you launch your product, revenue starts to ramp up and you start making \$\$ Market Intro \$ time The slope of this curve is dictated by the time it takes to ramp up to max revenue (supply chain, marketing, sales)
• 7. At some point, your product matures to max revenue Market Maturity \$ time At maturity, your market share and revenue are maxed out
• 8. Revenue ramps down as the product lifecycle nears its end Market Exit \$ time The revenue lifecycle starts at launch date and ends at market exit
• 9. This chunk of \$ minus this expense minus other overhead Profit = \$ time
• 10. What Happens When You Are Late-To-Market? You can&#x2019;t fix all of the bugs in time. You can&#x2019;t get all of the features built in time. You need to add a feature. You have a supplier problem.
• 11. The time and money spent on development increases You Are Late \$ time You delay the point when you start making money and extend the spend on dev
• 12. Your max revenue per month is 2% to 6% less for each month you are late!! Uh-oh \$ time You get a max revenue penalty for being late. You lost market share, customers lost interest, customers went to your competitors, etc.
• 13. This penalty % is industry and timing dependent Uh-oh \$ time An optimistic approximation is a 2% penalty per month late. If you miss a key date (like Nintendo missing Xmas), the penalty can be much higher.
• 14. The market exit date does not change much or at all Compacted Lifecycle \$ time Your competition and market conditions force the end of life date for your product to remain virtually unchanged (you have to refresh your product line).
• 15. Total revenue decreases Compacted Profits \$ time Total expense increases
• 16. Example &#x2013; 3 Month Delay 26.9% Decrease in Profit! \$1.29M Lost 18 Months &#x2013; Target Launch Date 3 Months &#x2013; Ramp to Capture Max Revenue 24 Months &#x2013; Revenue Life Cycle \$10M &#x2013; Max Revenue Per Year \$2M &#x2013; Development Costs Per Year 33% &#x2013; Operating Margins 2% &#x2013; Revenue Penalty for Being Late 3 Month Launch Delay
• 17. Example &#x2013; 6 Month Delay 51.7% Decrease in Profit! \$2.48M Lost 18 Months &#x2013; Target Launch Date 3 Months &#x2013; Ramp to Capture Max Revenue 24 Months &#x2013; Revenue Life Cycle \$10M &#x2013; Max Revenue Per Year \$2M &#x2013; Development Costs Per Year 33% &#x2013; Operating Margins 2% &#x2013; Revenue Penalty for Being Late 6 Month Launch Delay
• 18. Put Your Numbers In, Create a Slide Like This https://www.initialstate.com/LateCalc Show the true cost of a layoff Justify a new hire Calculate the cost of a schedule slip Is that new feature worth a delay?