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Revenue Evaluation 101

Evaluation 101

Synopsis:

Exploring the elements and components involved in arriving at a reliable and reasonably accurate evaluation of a product, concept or idea.  This is inclusive of practicably any item of intellectual property irrespective of the manner of product disposition, ranging from use in a closed research environment to outright sale.

Purpose:

The first and most vital question that must be answered: Is this a viable concept or product to accomplish and fulfill the intended goal or function? Most pursuits are intended for market exploitation, which necessarily brings the entire spectrum of evaluation into play. The most common mistake made by inventors and novices is the failure to thoroughly assess the barriers to entry, feasibility for success and likelihood of market acceptance (among numerous other important considerations). Absent this, one might as well be shooting in the dark and throwing their money in a wishing well. There is no reasonable justification to proceed or have any expectations of success until this question is thoroughly answered.

A good idea is often nothing more than a good idea. We have seen good ideas that have little if any chance of success for a variety of reasons. The two most common reasons are cost prohibitions and market placement, or insufficient room in the market due to saturation or competition from large corporations and/or entities with heavy duty resources. Of course neither of these factors automatically result in a decision not to proceed, but simply accentuate the importance of familiarizing oneself with the terrain before moving forward.  This is where responsible innovation begins.

Notwithstanding, you must take up the leadership standard for your idea. You can access to all of the resources in the world, but the success or failure of your idea will be directly relevant to your ability to lead and make wise choices and decisions. Initially, you need to stay on the simplest development path. Do not spend a penny or one second of time on rabbit trails or sidebars.

Always remember to look for value where it is not readily apparent. Where one or more ideas or bits of intellectual property seem to be of little or no value on the surface, will typically be worth a second look, simply to avoid “leaving money on the table.”

Some refer to this practice as mind mapping. We call it IP bundling. It is also wise to build a system to log and outline these “bits” for future reference. We will provide examples and recommendations on how to accomplish this throughout this course. If you plant this seed in your consciousness now, it will eventually saturate into your subconscious and train your brain to be vigilantly aware at all times.  Billions of dollars have been “created” by using this simple but highly effective practice.

Evaluation

    This one is relatively straight forward and, thanks to the eRIM ™ analytics tool, fairly simple. For this reason, there is no need to spend much time reviewing all of the evaluation and assessment categories. Similar to an old popular soup commercial: “it’s in there.” One could literally create volumes of material and information to outline all of the salient concerns and aspects.  Fortunately for you, we have already done that, and encapsulated all of it in the eRIM.

    Consequently, the only remaining relevance to evaluation, is for you to become intimately familiar with all of these categories and ensuing information to prepare and equip yourself, for the best opportunities to succeed.

Costs

    Costs for all endeavors fall into several categories along the development chain: tangible and intangible, mandatory or elective; embedded or adjustable, and there are other potential cost categories depending on the project.

    There are a variety of methods and models used for cost estimating. Some use parametric equations, others prefer cost accounting allocations to identify and adjust cost drivers. Numerous cost models, books and software exist to identify cost factors and distinguish/categorize expenses, hard costs, tangible, intangible etc. but they are all typically designed to eventuate into a cost benefit analysis.

    You will need to experiment with the various models to determine which work best for your project(s). Be mindful of intangibles, unknown and future and/or variant costs  and understand the potential pitfalls of relying to heavily on any one method. In any case, you will want to avoid making decisions based on expectations that may not manifest. It is always best practice to do your homework and invest the requisite time to pinpoint every cost and expense prior to creating a development budget, pro formas and business plan(s).

    To accurately evaluate costs and prepare a dependable project budget, it is first necessary to identify all costs in every category in as much as practicality will allow. Whether or not you personally have the resources to cover these costs and where the funding will originate is a separate consideration covered in a future evaluation and development categories, and also addressed through our Centrifund, Centrifuge and ISN components.  

    Typical accounting statements categorize all expenses in three categories: Operating, financing & capital. Capital expenses will be the closest category for creating reliable cost estimates for product development and throughout the entire ideation cycle. Capital expenses are also inherently designed to generate [a variety] of benefits over time.

Typical hard costs (Mandatory)

    Examples of typical hard costs are: drawings (for both development and patent filings), prototyping, patent work (research, provisional and utility filings) trade marking, logo and image development/branding, marketing efforts and travel expenses. Some concepts may require various engineering work and evaluation, especially if there is environmental/social impact.  

    You will also need competent and experienced legal representation. While patent law is a specialty to itself, as are patent lawyers, the need for trade marking, contract creation and review, licensing documentation and a variety of other legal needs subsequent to every facet of protection.

    Obviously there are a plethora of potential costs depending on the project, which is why it is so important to develop good and efficient management skills. Remember, you are the leader of your organization. Never rely on others to make the best judgment calls for your project. Even if you license your idea, it will still be necessary to remain plugged in and attentive to details.

Tangible

    Tangible costs are obviously those that occupy space in the material realm. Those that can be measured with standard and acceptable accounting practices and economic models. Tangible is the place to start because it makes it much easier to identify potential intangible costs and influences, and prepares you for budgeting requirements and any would be cost restraints.  

    Be aware that tangible costs can and often do come in tiers and/or categories, each with a different purpose and dollar amount. By example, shipping/freight costs and distribution costs have numerous categories. Because of the nature of variant shipping and distribution methodologies, these types of costs can actually cross into the intangible, at least until the entire system has been identified and designed. Additionally, this is only one example of how tangible or hard costs can and may need to be categorized as intangible, at least temporialy.

    In keeping with the above example, consider the following cost classifications for shipping and distribution:

Shipping/Freight
    • Prepay and Add

    The shipper pays for freight and then charges the customer. This is a good option when the shipper and carrier have a relationship and therefore good rates.

    • FOB Destination

    The title for goods passes at the consignee's dock and the shipper pays all freight charges. The freight is shipped prepaid.

     

    • FOB Origin, Freight

    Prepaid Freight becomes the responsibility of the consignees at the shippers dock. The shipper pays all freight charges.

    • Third Party

    A third party pays all freight charges rather than the shipper or consignee.

    • Cash on Delivery

    (COD)Carrier collects payment at the time of delivery and then forwards to shipper. The carrier charges for this service.

    • FOB Origin, Freight Prepaid and Charged Back

    The freight becomes the responsibility of the consignee at the shippers dock. The shipper pays all freight charges and then invoices the consignee for the freight charges.

Distribution

    Distribution costs are expenses relevant to the transportation of goods from the point of origination or manufacture to whatever destination they are needed.   As outlined above, shipping and freight expenses can and do vary.

    Distribution costs vary as well.  Will the transportation be more cost effective by rail or by road? Will there be warehousing expenses and/or secondary or local delivery required?  Are there local, regional or state regulations mandating additional costs or expenses. Are the territorial or geographic concerns involved such as weather, terrain, political, etc? Any of these may result in higher shipping and transportation costs, especially when delivery needs to occur for a date certain.

    Again, there are numerous cost models and software available that include all or most of the typical variables you may encounter along the path of development and market delivery. Your finished product may be in a digital format, such as software. But there will be other costs associated with any type or category of product you are offering. Do your homework!

Intangible

    As stated above, intangible costs can become tangible at any point along the development chain. Intangible costs inherently have an adverse affect because they cannot be readily indentified or applied to a known line item.  Some examples of intangible costs include:

    • Employee production. Two employees performing the same task for the same wage are likely to have two different levels of productivity.

    • Inclement weather delays shipping and results in lost sales or relationships.

    • Insurance claims that increase premiums

    • Employee benefits change

    • Government regulations

    There are far too many possibilities to list and rather pointless considering the nature of intangible costs.  The intent is to be aware of the possibility and build in a pad for unexpected expenses.

Estimated Unit Cost

    Unit costs are a primary element in determining if the product even has a market. Beyond that, this information is foundational for establishing margins, department budgets, identifying customers, developing funding and market strategies

    Reliable chain of custody for all IP.

    • Capabilities (user expertise: identify the need for outside resources and what type; i.e. prototyping, capital, graphics, manufacturing, marketing, etc.)
    • Market universe (competition, market placement/room for the product)
    • Uniqueness (or not)
    • Risk-reward
    • Cost benefit analysis

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