How to Calculate the Cost of Being Late toMarket

$ Most people realize it costs money when your new product ships late

? Few know how to calculate how much money is actually lost

y-axis is your cash flow coming in or going out

x-axis is

Cash Flow Over Time $

time

During development, you spend money

R&D Spend $

time

Total development spend = the # of months until your launch date * dev costs per month

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)

At some point, your product matures to

max revenue

Market Maturity $

time

At maturity, your market share and revenue are maxed out

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

This chunk of $ minus

this expense minus

other overhead

Profit = $

time

What Happens When You Are Late-To-Market?

You can’t fix all of the bugs in time. You can’t get all of the features built in time.

You need to add a feature. You have a supplier problem.

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

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.

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.

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).

Total revenue decreases

Compacted Profits $

time

Total expense increases

Example – 3 Month Delay

26.9% Decrease in Profit! $1.29M Lost

18 Months – Target Launch Date 3 Months – Ramp to Capture Max Revenue 24 Months – Revenue Life Cycle $10M – Max Revenue Per Year $2M – Development Costs Per Year 33% – Operating Margins 2% – Revenue Penalty for Being Late 3 Month Launch Delay

Example – 6 Month Delay

51.7% Decrease in Profit! $2.48M Lost

18 Months – Target Launch Date 3 Months – Ramp to Capture Max Revenue 24 Months – Revenue Life Cycle $10M – Max Revenue Per Year $2M – Development Costs Per Year 33% – Operating Margins 2% – Revenue Penalty for Being Late 6 Month Launch Delay

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?