Product Development Return on Investment (ROI) Template
You have a great product idea, but is it an excellent investment? Use this spreadsheet to find out.
Understanding the ROI of your product development project is just as important, if not more so than understanding the technology or market. Without a positive ROI, the product may be successful, but the business will fail.
Product development is an investment. You are going to spend money today, and hope to receive a series of payments in the future. If the sum of all the payments is higher than the initial investment, then the investment has a positive ROI. Since the payments will be received in the future, we must take into account the time value of money or the cost of capital.
If all this sounds a little complicated, rest easy, we have done all the hard work for you. Using this spreadsheet, you need to fill in the information you already know – project cost, sales price, sales volume, etc. The spreadsheet then calculates all the key metrics – making you look like a real pro.
Here are some tips for when completing the template:
- The information you are entering is, by nature, an assumption. Update these assumptions regularly – at least at each stage gate.
- The best practice is to get each department (marketing, sales, engineering, production, and finance) to provide “their number” that goes into the SpreadSheet. This involvement creates a dialog that encourages collaboration and commitment – two keys to successful teams.
- Play with the numbers. What happens if product development costs twice what we think? What if sales do not ramp as quickly as we think? These types of scenario analysis are sometimes called sensitivity analysis.
- Do not get fixated by the absolute accuracy of the results. Your team will improve with time, and the real value is in comparing one project to another.
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