Most people know that shipping your product late costs you money but few know how to calculate how much money is really lost. A live calculator is available at http://www.initialstate.com/latecalc
3. ?
Few know how to
calculate how
much money is
actually lost
4. y-axis is your cash flow
coming in or going out
x-axis is
Cash Flow Over Time
$
time
5. During development, you
spend money
R&D Spend
$
time
Total development spend = the # of months until
your launch date * dev costs per month
6. 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)
7. At some point, your
product matures to
max revenue
Market Maturity
$
time
At maturity, your market share and
revenue are maxed out
8. 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
9. This chunk of $
minus
this expense
minus
other overhead
Profit =
$
time
10. 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.
11. 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
12. 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.
13. 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.
14. 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).
16. 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
17. 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
18. 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?