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Friday, January 30, 2009

The five minute market analysis

Can your invention be viable in the marketplace? Consider the payback costs and the practicalities of marketing -- many good ideas simply don't work in the real world.

This blog invites calls and emails requesting solutions to construction industry marketing challenges. Today, I returned a call from someone in Ohio wishing advice on how to find sales representation for his invention/product, which he thought contractors across the U.S. could use. (As this story is not positive news for the individual involved, I won't describe the details or name him.)

After hearing him briefly describe his product, I asked a few questions.
  1. How much would it sell for?
  2. How many purchases would the typical contractor make?
  3. What would be the payback time? In other words, how long would it take the purchaser to recuperate the cost of the product with a return on the investment?
Here are his answers:
  1. $300.00
  2. Maybe one, some would purchase up to 10 or 15
  3. Payback would be in nine months to one year.
I sighed. He volunteered that he did not want to distribute through big box retailers and the like, (and the product would not sell well that way). As it serves a specific function to ease installation of another product, possibly the second product's manufacturers could include it in their service package.

"But this won't work for individual sales reps, and it will be a tough thing to market," I said.

"The payback is far too long for it to appeal to the majority of contractors, especially in the current environment, and the unit cost is too low to be practical to assign to commissioned sales representatives -- to make a decent living, you would either have to really raise your price, or they would need to sell much larger quantities than your average client would need."

He then volunteered that state agencies have offered assistance and funding for marketing. "Go for it, if the services are free," I responded.

I imagine someone who spent years on an invention, (he says he patented it about nine years ago), with dreams of making improvements and a fortune through his creation, would be disenchanted in a five-minute conversation to hear a disembodied voice on the phone tell him his idea won't sell. He might even be right to say: "How could you say that, knowing nothing about me or my invention?"

He may be right (we'll let the government-funded experts review the idea at taxpayer's expense.)

However, the facts of business life is that most grand ideas don't work in the marketplace, and most ideas worthy of success have some fundamental parameters, which my three questions brought to the surface.

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