Product development is an investment
If it is just a cost to you, something is wrong.
Why product development is an investment
Each new product has a big goal in mind
- Is your product designed to be the next big craze?
- Created to send your organisation’s market share sky high?
- Make your development team the golden goose of success within your business?
- The next product to change the world?
Your product will have one thing in common:
You need generate sufficient ROI (Return On Investment) so that you can keep going from strength to strength in the future.
Your end goal is NOT to simply launch the product
You’ll want to have a next step planned post launch. This could be to:
- Invest in R&D from the proceedings of your sales to create the next big electronics product.
- Watch your sales closely and develop a premium version of your product later. Or learn other lessons from your sales to generate extra revenue.
- Ensure high profit margins to provide security for your organisation and allow the next stages of development to take place.
- “But I want to change the world, I’m not money orientated.” People may be your focus. However, If your product fails the people you can help is limited at best. Your product will be fleeting or ineffective. Get this right and you could help so many more people.
Richard Fletcher Ignys MD “If you aren’t getting ROI on your product development why are you doing it?”
Treating product development as a cost means choosing not to consider your outcomes and future profits post launch.
For example, why are you paying an electronics design company to spend time completing a design review? The answer is that, in doing so, you minimise costly problems cropping up later.
Here are some other examples which can be seen as a cost when you don’t look closely.
- Environmental testing – You are 90% sure your product works fine, why spend 5 days putting your PCB in a testing chamber? Because if you fail compliance or launch a faulty product your costs to fix this will be far greater.
- Feasibility studies – You know your idea is great can’t you just get on with it? Your organisation needs to know that there won’t be a show stopping issue that could have been picked up early on. These studies also predict problems later in the development cycle so you can plan for them and design around them. For instance, do you need to bring on extra engineering resources at a crucial stage of the project which has a higher level of complexity? Can you achieve the same end results a different way and avoid or minimise the risks.
Do product development right or it will still be a disaster
Make sure that you partner with the right engineering team to progress you through your product development process. Picking a team that leaves your project in development hell with slow replies and not communicating problems will leave you feeling regret later.
Getting it right can mean you make significant returns on your development investment
How Ignys help turn your product development into a money tree
We solve meaningful problems commercially and technically. We use our feasibility studies to help you get your business case right. Our services are designed to bring your great ideas to life and ‘get stuff done’ from a tech and product point of view.
Communication is at the core of our projects. At Ignys we have several ways of keeping in touch with customers from Teams meetings, dedicated slack channels and a project manager overseeing our projects.
And then we help you create your money tree.
Is your product a long term success or a fad?
Is your product something which will be used in the long term or is it a fad? For example, consider the development of cell phones or the Tamagotchi? One has evolved into a lucrative market with 313 million devices shipped in the last quarter alone. Whilst Tamagotchi has mostly faded into obscurity. That being said over over 82 million units were sold worldwide and is seeing a comeback this year!
Some trends create short sales cycles. Historically this happens at high speed in the toy market. Another recent example is products designed to tackle the effects of the pandemic. Whilst some products have post-pandemic potential, hygiene products for example, in other cases they will phase out or have already passed their sell by date.
What is the realistic life span of your product?
For example, if you expect your product to take a year to make but the trend it is capitalising on will only last a year this won’t work.
Equally if in the same scenario development takes 6 month this only gives you 6 months’ worth of sales, are you going to make enough money in this time?
Is the development time set in stone or could there be hold ups? This will eat into your sales. Risk management is key.
A case study in success
It is estimated that Apple spent around $150 million in development costs to develop the Iphone. Yet in August 2018 Apple Inc became the world’s first company to hit £1 trillion in market capitalization. As of March 2021 this market cap increased to £2.08 trillion. Think about that next time you worry about investing a few extra thousands into your product development.
The Ingredients of product development success
1) Product market fit
Consider your audience closely. Ensure that your product is designed for its target market. Are you overengineering a product where simplicity is the selling point? Is your product cutting edge enough for your young tech audience?
2) The product actually does what it says it does.
Be careful with your marketing message. Honesty is key.
You can oversell your product and this could work. For a few sales.
But then you’ll be met with disappointment as people get wise and the bad reviews start appearing. This will tarnish your business reputation not just your product.
In addition, ensure that there are no edge cases or glitches. In your software code or during production. Which can make your product faulty.
3) Make a case for each feature
Make a case for every feature going onto your product. What does each feature do? Most importantly how much does that feature appeal to your target audience. Does the feature make the product attractive to enough additional users?
Each feature adds complexity and cost
Don’t overcomplicate your product.
Every feature adds costs to each product unit. They add complexity.
Added design complexity means you will be spending more on product testing too.
Removing redundant features can improve the usability of the product. The primary appeal of the product will then be easier to grasp.
How important is your product feature to core sales?
On the flip side each feature removed provides your user with less features and reduces your selling power.
Let’s say there are two features you are looking to eliminate to save on costs per unit and reduce complexity.
- Feature one is used by 3 million users
- Feature two is crucial to 3 people in Dorset
In this case losing feature two will mean only 3 people chose not to buy whereas feature one could alienate your entire target audience.
Make your product as simple as possible, but no simpler (thanks for the quote Mr Einstein)
Develop a sufficient market size and opportunity to go after it.
4) Get use cases right, feature set and pricing right
Just because some people will buy your product for £150 each doesn’t mean you should charge £150. If 90% of your market audience won’t buy it at that price you may want to aim lower. To generate more sales as part of a longer-term strategy.
Equally if your product costs £140 to produce then what about overheads? For example, sales and marketing to promote the product. Factoring in these extra costs, it may not be viable to create that version at all.
You may want to start with a simpler product and then create a premium version for your interested tech users.
What you are saying when you set a rigid budget
Everyone has a budget. You don’t want costs to spiral exponentially. However, consider this. If you approach an electronics design company or software development consultancy and say “I need you to deliver this for this amount of money” you are doing something unintended.
What are you saying is, subconsciously, you believe your product only has finite opportunity in the market place.
“My product is only worth £X of development.”
You are implying that your idea is not good enough to launch it in the thousands, or hundreds of thousands, to make it the success it deserves to be.
Consider instead if you can flex the budget to pay for areas of development such as value engineering. This will produce far more lucrative results in the long term. As part of your product roadmap plan.
Break even sales is not your product development goal
Always look at the bigger picture. What are your plans for your development team in the next 2-3 years or longer?
Getting the cost right for the market is important. And product cost is tied to volume.
For example, if it costs you £100K to develop and manufacture a product, you need the profit from the product sales to be £100K just to break even.
If you want 20% profit margin on a product, then you need £500K worth of product to achieve this.
In other words, to make it worthwhile, you need ten times worth of sales vs development cost in your product.
So, you need confidence in your selling process and predictions. Perhaps you need to hit £1 million in sales to pay for your next R&D project?
Why am I not making enough profit?
Problems with sales for electronic products usually stem from three areas.
1) You are not solving the problem for enough people – You haven’t conducted your feasibility study correctly, or at all. Perhaps you aren’t getting your message out there with effective sales and marketing.
2) Your product is too complex – You are confusing your audience; product testing is a nightmare and features creep is your enemy.
3) Development costs are too high – You have run into too many technical difficulties along the way. Causing everything from redesign interactions, unexpected coding reviews and compliance failures.
All of these will eat away at your Return on Investment (ROI) potential. Using effective feasibility studies, design reviews and the right product testing can all help reduce these overall costs.
When you get product development right
But get it right, sell plenty of units and you’ll get a massive ROI.
Do it well it’s a golden goose, do it badly, it will cost you a fortune.
Quick fire product development top tips
- ROI – look at pay back and margins
- Set Realistic Expectations for development costs and sales
- Trends – Look at market aka chip shortages, what’s hot, to review expected lifespan of your product
- Pricing strategy – Your product price needs to be attractive (not too low or high) and take development costs into account.
- Always test your product – To avoid product recalls or a very high failure or return rate
How you can plant a money tree with Ignys
Set up a discovery call to see how you can plant a money tree with Ignys.
Don’t get caught out by these product development nightmares
This article was written by the knowledge of Richard Fletcher, MD (left) and leader of the software development team and electronics design consultancy Ignys Ltd. Alongside our team of talented electronics engineers and software developers Richard has been helping bring great ideas to life through our 16 electronic product development services.
Content was co-written by Hannah Ingram marketing manager at Ignys (right) who has been working alongside our creative engineers sharing top tips on everything from chip shortages to the best electronics design companies in the UK.