How to forecast demand and revenue for new products

Forecasting for existing services is difficult enough. Forecasting for entirely new ones – especially as part of emerging business models is even harder. After all, there are no prior trends to guide the way.

In most people-centric sectors, new product forecasting may still be a concept many will struggle with. Most people-centric companies are service-based rather than product-based.

But the principles of new product creation and forecasting can and should be applied to the creation of radically innovative new services, and indeed, “productizing” the services you sell to your customers and clients can go a long way to ensuring their success. It certainly makes for easier forecasting, as it allows you to measure the revenue of a new service as a discreet entity, separate from any existing elements of your offering.

With that in mind, let’s explore how some new product forecasting techniques can be adapted to people- and service-centric businesses.

1. Put together a team

Create a core team from across the organization that will develop and manage the forecasting process through the new service’s development period and initial launch – until it becomes easier to handle as a regular part of demand planning.

2. Agree your assumptions from the get-go

Review all available qualitative and quantitative data that you can access. This data will allow you to identify a set of assumptions that can then form the basis of your new product demand forecasting models.

In an ideal world, this will include assumptions such as the size of the market, a rough estimate of the portion that will buy from you, some ideas of when they’ll buy (according to seasonal demands, their own business cycles, and the like), and any anticipated patterns of repeat purchase.

You will likely need to consider commissioning external research and advisory services from market research firms and other experts to fill in any gaps in your data.

3. Use more granular models and flexible timescales

Not all consumers will buy from you at exactly the same time, so new product sales forecasting has to account for this by reflecting how different segments of your market in different phases of maturity, different geographies, and the like will approach buying differently.

Moreover, because performance at launch is such a good indicator of future performance, any new product or service must be closely monitored in its first few days or weeks of sale – rather than the traditional monthly or quarterly measurements favored by finance and sales teams.

4. Combine different forecasting and modelling techniques

Assessing demands, likely sales cycles, and potential shifts to the market are all vital and mean you should explore multiple different approaches to modelling. This is especially true in the currently tumultuous world of professional services, where disruptions to business models mean that new services are constantly emerging.

5. Ensure that your teams are ready and able to deliver your new service

This is one area in which service-centric and people-centric organizations will need to depart substantially from traditional demand forecasting methods for new products.

Most product launches require careful planning across different elements of a supply chain from manufacture through to retail. But the most essential element in service delivery is ensuring your teams are equipped with the right skill mix, resources, and capacity to start servicing a new area on top of their already existing commitments. Be sure to integrate these considerations into your forecasting model alongside more conventional metrics.

6. Generate multiple forecasts

Demand forecasting for new products is even less of an exact science than for established products. For this reason, multiple iterations are a necessity. Ensure that you run through a variety of possible scenarios of varying levels of probability. This is of course much easier to do if your model allows you to create iterative forecasts by updating individual variables.

7. Update your forecast as often as new data becomes available

Always check your forecast against the performance of comparable services when such data exists. You should adopt a similar approach as your competitors develop similar services, adjusting your forecasts in terms of total market size, growth, and maturity trajectories.

8. Once your new service is live, don’t stop forecasting

Diligently monitor your sales and qualitative feedback from clients and customers and use this to adjust your initial assumptions in the model. In the early stages after launch, it might even be worth creating new forecasts on a daily basis.

9. Have a clear worst-case scenario, and don’t be afraid to call it quits

A high proportion of new product and service launches fail within their first year (it’s hard to say how many, but the best odds put it at around 50/50.) It’s therefore important that your forecasting efforts include clearly stated “failure standards” for your new launch.

Doing this will allow you to cut your losses quickly and efficiently without chasing after sunk costs if things don’t go quite as well as you’d hoped.

How can Unit4 help you?

Unit4’s Financial Planning and Analysis solution is specifically designed for the needs of people-centric businesses; with integrated data visibility across finance, HR, and operations and powerful AI-supported forecasting capability that allows you to create predictive models that help you plan for any scenario you can envision.

To learn more about how it can help your organization plan for the release of new services – and even whole new business models – check out our dedicated product pages.