By: Michael Brown<\/p>\n
\u201cHow do I know if my idea will make money?<\/span><\/em><\/p>\n Is my idea profitable?<\/em><\/p>\n How much is my idea worth?<\/em><\/p>\n What are the pitfalls to avoid before commercializing an idea?<\/em><\/p>\n How do I estimate my ideas value?\u201d<\/em><\/p>\n In the blog post Is Your Idea Good? <\/a>my colleague James Bryant helps you ask the right questions to determine the quality of your idea to others (a key component of value). In this post I want to help you put actual numbers on that idea and consider what first-year sales could look like.<\/p>\n What I am about to show you is a simplified version of the Fourt-Woodlock equation, but first we need to understand some definitions.<\/p>\n 1. Final Decision Makers (FDM)<\/strong> – These are all the people that could possibly benefit from your innovation. If your idea is for a new kind of piano, then you FDM could be piano players or piano stores depending on if you want to sell directly or through a distributor.<\/p>\n 2. Trial Rate (TR)<\/strong> – This is a percentage that tells you who will be trying your product. Common trial rates for general population (all households in the USA) FDM\u2019s range from .004% – 10.58% based on disruptiveness of the innovation and the marketing capacity.<\/p>\n \u00a03. Repeat Rate (RR)<\/strong> – This is the percentage of first time buyers that will buy again in the first year.<\/p>\n 4. First Purchase Revenue (FPR)<\/strong> – \u00a0This is the unit price multiplied by the number of units bought the first time.<\/p>\n 5. Repeat Purchase Revenue (RPR)<\/strong> – The amount spent per unit for a repeat purchase i.e. if the price has dropped this is where you consider that.<\/p>\n 6. Number of Repeat Purchases (NRP)<\/strong> – Simple enough this is how many times someone will buy again in the first year.<\/p>\n 7. Trial Sales (TS)<\/strong> – TS is the amount of revenue from first purchase first time buyers.<\/p>\n \u00a08. Repeat Sales (RS)<\/strong> – RS is the amount of money made from all of the repeat sales in the first year.<\/p>\n 9. First Year Sales (FYS)<\/strong> – Finally! What we have been working towards. FYS is TS+RS i.e. all of your sales for the first year.<\/p>\n Phew!<\/strong> Now that we have all of the messy details let\u2019s do the fun part. Here is the equation you will want to use to calculate you FYS.<\/p>\n (If you hate equations it\u2019s ok! Just download my spreadsheet here: Custom Fourt Woodlock Calculator<\/a>\u00a0and enter in your numbers to find out your FYS).<\/p>\nSo you want to know if your idea is profitable or not? <\/strong>The fact that you are asking this question right now puts you ahead of the game in comparison with many people. In this article, I give you some tools and resources to start defining the numbers associated with your idea.<\/h4>\n
Let\u2019s Get Started!<\/h1>\n
TS = (FDM x TR x FPR)<\/strong><\/h3>\n
RS = (FDM x TR x RR x NRP x RPR)<\/strong><\/h3>\n
FYS = TS+RS<\/strong><\/h3>\n