Then you'll have to subtract roughly 15% for what it will cost you to sell it to the store, another 15% for advertising, 10% for warehousing and transportation, 5% for administration, and 5% for miscellaneous things like interest and your salary. Again, all these percentages will vary by product category, so find the most accurate numbers you can. One way is to ask people who are in the widget business to give you a breakdown of their costs. They may tell you to drop dead or hang up on you, but it's worth a try.
After you subtract all these numbers, you'll have the amount left for manufacturing and profit, if any. When you compare the number with what you think it will cost to manufacture your widget, you either have a "go" or a "no go."
If the signs are go, the next thing you need to know is what percentage of the people who buy any kind of widget will buy yours. So go back to your would-you-buy question, and take 100% of the "for sures" and 50% of the "maybes." Let's call this answer the intent to purchase. If that total is over 50% of all the answers, you have a small fighting chance; 65% is OK; 85% or over, great. If it's under 50%, forget the whole thing. You are no go. Up to now, your only cost has been shoe power and guts, so it costs very little to quit.
If your numbers look good and you are still determined to go ahead, take a deep breath, because it's now going to start costing money, and you are still a long, long way from any income. Regardless of your results, don't be misled into believing that the research you have done is going to ensure the success of your widget. It most definitely will not. What it should have told you is whether or not your widget belongs in a kennel. If your answers and numbers are really good, however, it is just possible you are on the right track, so you can be cautiously optimistic.
I call the next step the "Rube Goldberg test." It's a bit makeshift, but it does the job. To get it started, you must have a small quantity of your widgets. It's not time yet to worry about building a factory or buying thousands of units, but it is time to get someone to make some widgets for you. If you can make your own, so much the better. Because of the low quantity, be prepared for the cost per unit to be high, maybe outrageous, but that's not so important at this point. You must, of course, develop packaging for your widget, which means that you need an advertising agency's services, if you can afford them. If you can't, go to a company that sells packaging. Most of them have a design department they make available to their customers. Show them your widget and ask for their creative help in exchange for future business. To do the Rube Goldberg test, you must have enough finished and packaged products to put up a small (or large) display in five or more retail outlets.
Now it's time to put on your selling shoes. Go to independently owned stores in your neighborhood and tell the owners you have developed the world's greatest widget, and ask them if you can put up a display in their store. And don't charge them anything for the product, which should be an incentive for them to cooperate. The price will be the perceived value you came up with earlier. The purpose of all this is to find out how many customers, for every 100 who buy any product like your widget, will buy yours. In other words, you are looking for your percentage share of the total widget market.
This test won't be easy to arrange. First of all, most store owners will think you are nuts. Remember, though, they own their own businesses, which means they may be entrepreneurs, and entrepreneurs have great difficulty refusing one of their own kind. Of course, you are going to get a lot of nos, but keep trying -- sooner or later you're bound to find five people who will cooperate.
When your Rube Goldberg test is over, you will have a general idea of your market share. Of course, you didn't have any TV or radio or newspaper ads, but your widget was on display, which is almost as good. Anyway, old Rube never claimed this was a Procter & Gamble market test. It also didn't cost $2 million. Now, just before you leave, ask your friendly store owner to compare your sales with the slowest-selling competitor. If your sales were lower, you are probably out of business. Common sense says that no merchant will buy anything that sells slower than their slowestmoving product. On the other hand, if your widget sells more than their fastest-selling widget, you've probably got a winner. In either case, the moment of truth has arrived. Ask the store owner if, based on your sales, he or she would consider leaving the item in the store. If three out of five say yes, call me and let's celebrate. If all five say no, don't call.
The test is over, and you now have enough information to play a what-if game. Before you go back and find the 15-year-old kid with the computer, you must know the total dollar sales for widgets nationally. You can get that information by calling the appropriate national association of widget producers, or, if you have an advertising agency, ask it to find out. If all else fails, call some local widget salespeople. They know everything.
Now you can play with the numbers. If, during your test period, there were 100 widgets of all kinds sold in your five outlets, and you sold 10 of them, then you have some reason to believe that if you were national you could sell 10% of the total widget market. Of course, if you sold only one, then you would have 1%, and so on. By taking the total national sales of all widgets and applying your test percentage, you can determine what your dollar sales could be if your widget were available nationally. The percentages will work for any size market, including your own hometown. To figure potential sales there, all you have to know is its share of the national market, and your local newspaper will gladly tell you that. You can have a lot of fun with the numbers, and you can also get some idea about whether or not your widget can make it in the market.
