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What's for Launch?

Figuring out whether to go ahead with that new product

When evaluating potential product or service innovations, there is only one number a business person wants to know: How much am I going to sell? Development costs are always clear, but the gap between known costs and unknown revenue makes deciding how much to invest in new or improved products and services so difficult.

Given the importance of sales forecasting, it's amazing how little research exists to provide practical advice for business owners. An informal survey of small and large companies that work with my Eureka! Ranch found average error on current forecasts runs from 50% to 150%. I searched academic articles and found one—by W.B. Bartner and R.J. Thomas in the January, 1993, issue of Journal of Product Innovation Management—that offers some guidance. The authors studied the forecasting accuracy of 103 computer software firms, finding accuracy improved when more customers gave their opinions on the new product. That was a simple and important finding, but one that apparently is often overlooked. Other dimensions thought to impact forecasting accuracy didn't seem to help, including the judgment of the founder and industry experts, and competitive analysis.