Estimating Sales for an innovation using A.T.A.R. financial forecasting model

How do you estimate sales for your product during the fuzzy front end of innovation (stages from ideation to prototype development)? Here’s how we have done for one of our products that we conceived and field tested functional prototypes:

The product is a surgical blade developed using high grade alloy steel with precision machining.

Note: AP and TS is our target market (geographic).

Profits are calculated using A.T.A.R. sales forecasting model using the formula:

Market Potential * Market Share * (Revenue per unit – Cost per unit)

First, we calculated Market Potential. We gathered the following data from secondary research (online publications and marketing survey reports)

  • Total # of TKRs and THRs done in AP and TS per MONTH = X1
  • Percentage of TKRs and THRs done using saw machine that uses re-usable blades per MONTH = X2
  • Total # of surgeries that can be performed by 1 blade using saw machine that uses re-usable blades = k

Using the above data, we calculated Market Potential as follows:

  • Total # of blades that can be used in saw machine that uses re-usable blades for doing TKRs and THRs per YEAR = [(X1 * X2)/k] * 12

Next, we calculated Market Share. We estimated the following data from an expert in similar field (ideally, primary research using a field survey would have given us more accurate data):

  • Percentage of hospitals that can be visited by us to create Awareness for our blade in AP and TS = a
  • Percentage of hospitals that are aware of our blade who can do a Trial of our blade in AP and TS = b
  • Percentage of distributors who can make our blades Available for hospitals to buy = c
  • Percentage of hospitals that are interested in Repeat purchase of our blade = d

Using the above data, we calculated Market Share % as = a * b * c * d

Next, we calculated Revenue per unit and Cost per unit using data from our IM solution that includes CAD model of our blade, BoM and other Costing calculations.

Finally, Estimated Profits per YEAR = Market Potential * Market Share * (Revenue per unit – Cost per unit).