Accurately forecasting sales for a new product is difficult. However, if you do the right market research to forecast sales prior to launch you can greatly reduce your risk.
- Make smart production decisions
- Don’t be caught off guard by unanticipated demand
- Prevent paying for excessive warehousing fees
- Forecast revenue to help guide your business model
Perform Market Research
It is difficult to accurately predict sales volume prior to launching a new product. However, by performing market research you can make
Potential Customer Interviews
While you are performing your customer interviews during the market research phase you should be collecting information on what percentage of potential customers plan on buying your product and how many units they plan on purchasing. Once you visit enough potential customers to obtain statistical significance (at least 30, preferably over 100) you will gain an understanding of what your conversion rate will be and how many units will be sold on average.
To gain a stronger understanding of how many potential customers to interview read the section on “Determining How Many Responses You Need” below.
Context Affects Information
Keep in mind the context that you’re obtaining the information. A customer who is converted through an in-person sales meeting may not be converted by other marketing. Similarly, a customer may feel inclined to claim that they will purchase your product prior to launch but may get cold feet once it comes time to make the purchase.
Asking The Right Questions
How you collect information is just as important as the information itself. Instead of relying on a simple question such as “Would you buy this product if it was available for purchase today?” you should try to collect more information on why they are interested in purchasing your new product. Potential customers that have a serious ongoing problem that only your product will solve are far more likely to purchase than those who only believe that your product is interesting but don’t have an immediate need for it.
Continue or Pivot
While interviewing customers you should be trying to feel the pulse of how big of a problem the one you’re trying to solve is. Do the customers have another solution to the problem already? Are you able to deliver on the price that the customers feel is appropriate and are willing to purchase? Are there enough people struggling with this same problem to make it worthwhile or are the customers willing to pay a steep price to have the problem solved? By answering all of these questions during customers interviews you will be able to decide whether you should go after bringing a solution to the market.
Surveys
Surveys are a great way to gain feedback from a large number of potential customers in a short amount of time. A well-crafted survey can provide crucial information that guides your product launch.
- Learn who your target customers are
- Determine the value of your product
- Make a sales forecast
- Discover problems that potential customers have
- Gain insight on how to market your product
Gaining Survey Responses
In order to gain a statistically significant number of responses to a survey you typically need to offer an incentive. The incentive you select should be relevant to your product so that you target the correct audience. Ideally, the incentive can be raffling off the new product. Having a large audience built up through email lists, social media, and networking helps significantly when performing market research.
Paying For Responses
Survey platforms such as SurveyMonkey® also allow you to pay for responses which can cost anywhere between $1.25 to $35.00 per response depending upon your demographic requirements. You can also hire a market research firm that will run your survey and present their findings for a fee.
Determining How Many Responses You Need
In order to gain confidence with your survey results, you need a sample size that is large enough to have statistical significance. The number of survey respondents you need, otherwise known as your sample size depends on what level of confidence you desire and how large your market or population is.
Sample Size
The calculated sample size is how many people you need to respond in order to reflect the population. A larger sample size delivers greater confidence in your results. However, there is no need to survey thousands of people, instead, use the above equation and determine how many responses you need!
Confidence Level
This measures how likely the actual mean falls within your confidence interval. Increasing this greatly affects the sample size you need. A 95% confidence level is the industry standard.
Percentage Value
This is the measure of how many respondents select a specific answer. Unless you have data showing otherwise, you must use the worst case percentage of 50%. An example of a percentage of 50% would be if half of your sample responded “yes” and the other half responded “no”. As a sample leans heavier in one direction the chances of error become more remote.
Margin of Error
The margin or error measures your confidence interval. For instance, if you use a 5% margin of error and 60% of your sample picks an answer then you can be confident that if you asked the entire population between 55% and 65% would have selected the same answer. The confidence level measures how confident you are that the entire population’s result would be within the confidence interval of the sample size. For instance, if you used a 95% confidence level in the previous example then you would be 95% confident that the entire population if you asked the entire population between 55% and 65% would have selected the same answer as the sample.
Population Size
The population size determines how many there are in the group your sample is representing. While trying to determine potential revenue this would be represented by how many people you would expect to reach during your marketing campaign. For large
Sample Size Example:
Determine the sample size needed if you have a market size of 1,000,000 potential customers, want a confidence level of 95%, a margin of error or confidence interval of 5%, and don’t have any data to predict percentage bias.
Using the above calculation, you need 384 responses.
Determine How Many People You Need To Reach
Once you determine what your sample size is, you may want to know how many individuals you will need to reach out in order to obtain that sample size. This is dependent upon your conversion rate. Using past information or a smaller test survey you can determine an anticipated conversion rate.
For example, if you have a conversion rate of 25% and you need 384 responses then you will need to reach out to 1,536 people (384/0.25).
Continue or Pivot
Once you gather your survey data you should start gain a stronger understanding of your potential market. Be sure to assume that not 100% of those who claim to have be likely or very likely to purchase, at least not initially. The goal of the survey will be to determine if you are solving a big problem for a large enough market at an affordable cost, not to determine that everyone in the world would like to buy your product.
Pre-launch Campaign
In the 4-8 weeks leading up to your product launch, you should be optimizing sales funnels, and looking to take early commitments or pre-orders from potential customers.
- Build a landing page
- Run a pre-launch marketing campaign
- A/B test and optimize your site for conversions
- Determine an anticipated conversion rate and marketing ROI.
- Earn early commitments or pre-orders to determine interest
Make A Landing Page
Set up a landing page on a platform such as Shopify®, Squarespace®, WordPress or any other website platform that can process transactions. The landing page should be a simple single page focused on converting potential customers. Provide a brief and easy to understand summary of your product’s benefits along with a signup form. The singular goal of the landing page is to convert the potential customer with the signup form.
Run a Pre-launch Marketing Campaign
The goal of the pre-launch campaign is to
- Learn who your target customers are and build an initial audience
- Drive traffic to your website to earn pre-orders or early commitments
- Allow for website optimization
Build An initial Audience
Building an initial audience of target customers allows you to run lookalike marketing campaigns once you launch to market. Running lookalike campaigns optimizes who your ads are targeting while using a greater ad spend.
Drive Traffic
In order to test your website, determine what audience converts, and earn pre-orders or early commitments you need to drive traffic to your website. This is typically done through cost per click (CPC) ads on social media. Take this opportunity to test your marketing material as well to discover what converts at the highest rate. By gaining insight into your marketing materials, website, and audiences prior to launch with a smaller marketing campaign you can eliminate wasting marketing budget during your hard launch.
Optimize Sales Funnels
Using the traffic you’re pushing through your website you should testing different sales funnels in A/B testing. Having a similar e-commerce experience to the one that will exist once you launch will provide an excellent opportunity for website optimization to get the most out of your marketing budget. You should be looking to optimize graphic design, layout, copy (writing), images, and anything else you can.
Calculate Anticipated Sales
Now that you have all the data collected during your pre-launch campaign you can anticipate how many sales to anticipate. Requiring early commitment customers to place a small payment ($1.00 or so) in exchange for a special offering you can better determine what your conversion rate will be at launch. Anticipate about 70% of early commitment customers will be converted once you launch. Now calculate your cost per conversion during the pre-launch campaign. Take your marketing spend and divide it by your total early commitments times 70%. Now take your cost per conversion and multiply it by your launch marketing budget and you will have a strong way of forecasting your sales.
If you have a stronger understanding of what rate your early
ASR is a mechanical engineering firm that specializes in design and analysis for anything ranging from consumer products to rocket valves and more. If you’re looking for a team of experienced engineers to help make your project succeed then contact us today for a free quote!
