Figure Out How Much Your Product Is Worth
“Inventing is 1% inspiration and 99% perspiration.”
If there’s anything these words from Thomas Edison should teach you is that making money from inventions is like punching the moon. For most of the 99%, that is. Hard work matters. The hard reality of innovation that bears repeating is that ideas are worthless, only inventions are monetizable, and only 1 in 100 ever makes it to market. So how do you separate the wheat from the chaff?
The reality is that it could be just a case of understanding how much an invention is worth and working to ensure it is worth something. An important skill for any inventor is being able to determine whether an invention idea has any market value and to abandon any that do not in order to focus on ones that do.
This can be a hard thing to do. Abandoning your invention ideas is like drowning puppies. But the key to succeeding as an inventor is to put your energy and resources into inventions that have a chance at making it.
How to Identify a Product’s Worth
Market Research
What’s the point of producing something that no one wants? This is not an artistic endeavor: the purpose here is to introduce a new product that will improve people’s lives in real, tangible ways. With very few peculiar exceptions, people support products that they perceive as being somehow beneficial. That means that they have to view the product as useful, and that usefulness as being more valuable than the cost of acquiring the product.
This means you have to know two things: the potential market size for your product, and the price the market would be willing to bear for it. One of the most common mistakes that enthusiastic innovators and product designers can make is to make assumptions about either of these fundamental figures.
When you pour yourself into developing an idea, it’s completely normal to view it through rose-colored glasses. You need to be brutally honest with yourself. That means rejecting all of your own assumptions and relying instead on reliable, testable, scalable, and repeatable market research.
This is the best way to get measurable and realistic data that you can use for statistical analysis, product improvement and the like. It can also serve as the bucket of water to douse your fire of unrealistic expectations. Better to wake up now than later.
Market research is a topic vast and deep. We’ve written about it before. A useful tool for getting started is to perform a consumer survey. Surveys are inexpensive, relatively easy to organize, and can provide a great deal of information to help direct your product development strategy.
A survey’s success hinges on asking the right questions. How else can you get the right answers?
Some of the questions to ask are:
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Will you buy this product?
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Will you buy this product when an alternative is available or will be available in the future?
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How much will you pay for it?
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Will you recommend this product to other people?
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What improvements do you want to see on this product, if any?
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How often do you think you’ll use this product?
To get realistic and factual replies, provide survey participants with visual tools they can use as a basis. A working prototype is best, but a realistic 3D rendering with clear descriptions work too. High-quality 3D models can actually be advantageous in that they are easier to produce early on, allowing you to engage consumers early in the development cycle. A visually striking 3D model combined with a rudimentary functional prototype is the best combination, if possible.
It would also help if you carry out a third-party evaluation. Experts in identifying which ideas are worth pursuing can provide you with professional insights and advice about your invention. The truth delivered to you with no bias or vested interest will help you put your idea in perspective, and see its value through someone else’s eyes.
You don’t want to go blindly at inventing something, as it can turn disastrous.
A thorough self-evaluation combined with third-party evaluations done by a reputable organization will give you a good idea if your product concept is worth pursuing further.
Get an estimated retail price with all vital factors accounted for
Remember the part where you ask a survey participant how much they will be willing to pay for your invention? You have the option to provide a range of prices or let a participant write down their own estimated rate. Whichever is the case, use the data to come up with an estimated price.
Make sure not to overlook overheads, the cost of R&D, and the money needed for labor, raw materials, manufacturing space, transportation and logistics, advertising, manufacturing space, etc. You’ll have to pay for taxes and legal fees as well. Understanding how profit margins work is important for setting a realistic price for your product. If the profitable price point for your product is higher than consumers are willing to pay, any further resources spent in development may be wasted.
It is quite common for 20% of an item’s retail cost to go to the manufacturer. This gives you a clear picture of the retail cost of a product, considering other fees involved. If your product would cost $30 to produce, but no one would be willing to pay more than $120 to purchase it, then you’re looking at a real profitability problem.
If you want your invention to turn a profit, the estimated retail price should be well-calculated.
Estimate the life cycle of your product
How long do you think your product will be a competitor on the market? Are you relying on current trends or fads? Will your manufacturing costs remain constant in the long-term? What kind of technology are you piggy-backing on, and how stable is it? How long before cheaper alternatives start popping up?
Even when alternatives turn out to be cheap knock-offs, there is still a possibility that they will affect your sales and the profit that manufacturers and retailers make. The extent to which you have to worry about these kinds of disruptions will depend largely on the nature of your product. Establishing a strong brand presence will help to insulate you from some of this.
A patent is one reliable way of extending the life of your product. Or, more accurately, a patent helps you maintain a product’s lifecycle, as patents have no effect on underlying market trends or changes in technology. Patents are not necessary, and they can be quite expensive to pursue. However, if you intend to commercialize your new invention, patent protection is usually a pretty good idea.
Never overlook existing and forthcoming alternatives
When surveying the market, it is important to ask if and when a consumer would still buy your product, even with existing and future alternatives. That’s because manufacturers and retailers will also take in consideration present and future alternatives into their calculation.
The general rule of thumb is that investments for commercializing a product are amortized over an item’s anticipated life cycle. So the longer the life cycle the more money earned from your invention. It also means lower investment risks.
If there is a possibility that sales won’t be sustained, your invention may not get the backing it needs for production and commercialization. It won’t fare well in a competitive environment either, which will make any retailer think twice before carrying your product in their store.
So, when calculating the worth of your product, consider the risk that competitors bring once they introduce alternatives on the market.
Work With Professionals to Create a Valuable Product
Apart from third-party evaluations, you also need to work with skilled and knowledgeable designers to develop your product. Experienced industrial designers can work with you to develop a product that is optimized for efficient manufacturing and maximized consumer experience. The added cost of hiring a professional designer means more investment early on, but it can also mean higher profit margins and a longer product lifespan.
Cad Crowd is ready to help you connect with the product design expertise you need to bring your invention to market. Get in touch today for a free quote.