Turning an idea for a new product or service into a reality can be an exceedingly daunting task. If it’s got a particularly narrow niche, you may not even be sure of how receptive the target market is going to be. One of the most high-pressure stages of planning for a new product is going to be budgeting for it. Still, no matter what it is you’re building, the steps for success are the same:
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You shouldn’t even begin to think about budgeting for a new product until you know exactly what it is you’re setting out to create. Your company’s engineers and programmers, or whoever you outsource the job to, are going to be instrumental in determining how much your product is going to cost to create.
If you can’t give them specific and accurate details about what you’re tasking them with, they’re going to shoot too high or too low with their estimate, opening you up to a massive waste of time and money. Great product specification is the secret to a great budget, so don’t brush over it, whatever you do!
Based on the specification that you provide your R&D team, they’ll be able to give you clear estimates as to how long and how much money it’s going to take for them to develop the product. Odds are, you’re going to need to outsource a few different bespoke services – circuitry, plastic injection moulding, graphic design and so on.
To make sure you’re keeping costs as low and standards as high as possible, I recommend you spend a long time shopping around for these services. Get separate estimates from a wide range of reputable suppliers so that you know the kind of price tag you’re going to be looking at, and take your time settling. This will minimize the amount of cycles you have to go through in the budgeting process.
Produce the Product
The next step in the process is working with your production and development team to determine the cost of actually producing the product. Have them come up with a number of different plans, toying with the cost of different materials and processes. You can then use these to determine a sales margin based on the average production price and the sales forecasts you have access to. Then you can stack these up against the business’s gross margin requirements, and determine whether or not you can practically proceed.
Provide the Product
To round it all off, budget what it’s going to cost the company in labour and money to actually bring the product to the customer. If you’re reading this because you’re developing software, rather than a physical product, then things are going to be a lot easier for you!
The bulk of the cost here is going to be in simply providing the service you’re selling, and fixing any technical errors. With physical products, on the other hand, you’re going to have to worry about shipping, installation, maintenance, and possibly things like warranty costs.