Launching a new product is for some like birthing a baby. For others it’s more like cooking a bird you’ve never prepared before. Something can and probably will go wrong. The question is how easy will it be to fix it. But let’s suppose your new product turns out to be a real turkey, and you have a warehouse full of half-cooked birds that aren’t going to sell at anywhere near list price. What do you do? How do you maximize your profit or at least minimize your loss?
We discussed this topic today in a management seminar I was leading, and I’ll share with you the same ideas that I gave them: Today is a new beginning. Incremental profit from today on is the only meaningful measure of success going forward. Later on you can berate the poor soul who made the decision to take the product on, but today it’s about making a good decision to optimize profits from a bad situation.
So consider this: Everything you have spent through today is sunk cost. It’s gone. You can’t change your mind and unwind it, or return your new product and start over. But what you spend from today on, and what you sell from today on, and what you earn from today on, is all that matters. This is a useful application of the concept of Contribution Profit, which is Net Sales less all variable costs of getting and fulfilling the sale. From today on, every dollar you can produce in Contribution Profit from your turkey will add directly to your bottom line. It may not produce the profit you once envisioned, but it will reduce your loss or produce a bottom line that is improved over where you are today.
And that sounds like a good management decision to me.
As always, I welcome your comments.