How to Develop a New Product ? (A real-world example)

In this article you will learn the following stuff

1.      What is a new product ?
2.      Why you should go for “me-too” product instead of absolutely new product ?
3.      How to develop a new  (me-too) product from concept to real thing ?
4.      How to earn over $150k-200k net profit from that new product ?

If you carefully and thoroughly read this article you will know absolutely from where to start when it comes to manufacturing your own new product.

This article is a must read for those who really want to start a business, have investment, relationships and are serious about starting a successful business.

The article provides a real life example of a new product development, production and selling that results in $90,000-$120,000 in net profit in 2-4 months.

This is no joke, if you read this article completely you will see for yourself that even more than that is possible!

Okay now let’s start with the first point

What is a new Product ?

A new product can be divided into two types

Two Types of New Product

1.      Absolutely new thing!
2.      Old, currently available product with new brand name, packaging, design, pricing, augmented features etc in other words a “me-too product”.

Talking about the first type, it is good to have an absolutely new thing to offer but it is almost impossible to offer something that is not only absolutely new but at the same time successful with your target market.

Research shows that nearly 50 percent of new products introduced in the market are complete failures and more than 70 percent do not reach their sales goals [1].

So being a small business owner, instead of taking the high risk of having an absolutely new product why not go for the second type aka the “me-too” and still make some really good fortune in couple of months (winks!).

This brings us to the second point of this article.

Why you should go for “me-too” product instead of absolutely new product ?

The answer to this question can be summed up in following bullet points.

• You can know how successful such a product is by researching the market. Such products have quite visible market demand.
• You can make the same product by easily arranging all the needed materials as you can again research.
• You can have sales team that is capable of achieving the sales targets because they already have worked with similar products.

·         In a nutshell you can be absolutely sure that you will make really good fortune by going with a "me-too product" (and I will show you how with a practical example down below).

Okay now that brings us to our third step of the article.

How to develop a new product (me-too product) from concept to real thing?

Answer is fairly simple and I will explain it with a practical example, where we will make a me-too product from scratch and will show you guys how that will result in big money in matter of months.

I am taking “Now Healthy Foods Whole Psyllium Husk” product as an example.

The retail price of this product according to amazon.com is $7.49.

Net weight of psyllium husk in a single pouch is 16 oz or 453 grams.

The most super quality psyllium husk comes from India for $9.5-$13.5 per kg (including import costs).

That means it costs around $0.0095-0.013 per gram which means a 453 gram of psyllium husk above will cost around $4.3 - $6.1.

If I want to use similar packaging as Now Healthy Foods for our brand too, then such a packaging machine (Automatic Form Fill Seal Machine (AFFSM)) costs around $1500-$2000.

Following is a picture of AFFSM that has been used by Now Healthy Foods in making their product.

Here is the total, a2z cost for making an exactly similar product (150,000 pieces) from scratch.

Remember these costs are based on real-world example, I have been working with production Manager of Human Care Laboratories where such products are produced, these costs may vary from place to place but I don’t think the difference would be considerable.

Particulars	Cost
453 gram psyllium	$5.2 average of the two prices (4.3+6.1)
Packaging design	$300 to design and produce packaging for 150,000 pieces
Packaging design per piece	$0.02 (take $0.04 cost in U.S.)
Packaging Machine price	$1500-$2000 (I will take $1700 for this calculation)
Packaging machine cost ( for 150,000 items)	$0.011 approximately
Labor Cost	$0.01 (take $0.20 labor cost per piece in U.S.)
Fixed Cost	$0.03 (take 0.08 for U.S.)
Other Variable Cost	$0.01 (take $0.06 variable cost/piece in U.S.)
Total cost on one item or piece	$5.2 approximately ($5.5 in U.S. approx)

So it costs around $5.2-$5.5 to produce one such item and if you add $0.10 marketing, promotion cost and $.25 as sales team or sales cost, $0.12 market supplying cost then the overall cost from production to selling will be as follow:

Particulars	Cost
Marketing cost	$0.04 per item (take $0.10 in U.S.)
Sales team cost	$0.05 per item (take $0.25 in U.S.)
Supplying cost	$0.03 per item (take $0.12 in U.S.)
Overall cost from production to selling	$5.3 ($5.9 per item in U.S.)

Now if you offer single piece at $6.5 to wholesalers and at $6.9 to retailers with $7.25 consumer price.

You will earn a net profit of $1.2 (from wholesalers)-$1.63(from retailers) per item. While $0.60 (from wholesalers) to $1.00 (retailers) in U.S.

That means you will make following total net profit from sale of 150,000 pieces.

Net profit from sale of 150,000 items
Location	Net profit from wholesaler	Net profit from retailers
Pakistan	$180,000	$244,500
U.S.	$90,000	$150,000

Remember: The costs I have taken above are maximum approximates I could think of based on my experience and discussion with production Manager; it is very likely that overall cost of single piece may be around $4-$5 per item, even in U.S., Yes! Even in United States!

In next part of this article I will be discussing how to produce similar item in about similar cost or even lower cost in different or better packaging (using jar packaging instead of pouch), I will start with designing jar packaging and then I will show you guys the end product pictures.

Hope this little article series will help you guys in starting your own few products and earning huge amounts in matter of months!

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And if you want to invest in this product, here is a useful link for getting Automatic Form Fill Seal Machines check this link.

For psyllium husk kindly utilize google search and find dealers who export high quality stuff and can give you wholesale price.

For packaging design, logo etc find a local designer around you!

Lastly if you can setup this machine in your home, if it is legally allowed then you won’t have much of fixed costs like paying rent, warehouse etc but will have only variable costs like power, electricity cost, labor cost, sales team cost, product registration and renewal (its a kind of fixed cost tho) , all of which are mentioned in above tables.

Make sure you hire experienced salesperson to market your product, $0.25 sales team or sales cost per item will result in $37,500 total cost for 150,000 items or pieces.

Paying $3-$5 thousand a month to salesman would not only motivate them to work hard but will also deliver results, you can hire 3 to 6 salesmen to get the job done. And if you want to sell even more, more than what is being given as an example in this article (more than 150,000 pieces) then plan accordingly.

Make sure you have identified the major wholesalers markets for your item prior to investing, that means conducting a proper thorough survey or research about wholesalers, target market and the would be product.

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References:

1.      Delre, S.A., Jager, W., Bijmolt, T.H.A. and Janssen, M.A. (2007), “Targeting and timing promotional activities: an agent-based model for the takeoff of new products”, Journal of Business Research, Vol. 60 No. 8, pp. 826-835.