5 Cost Considerations When Launching a New Product

Launching a new product is an incredibly exciting step in your business journey. Without a sound process for creating new products, a firm faces increased threats from new and existing competitors until the business is no longer viable. Innovation is something a firm must always have in its vision for the future because it may find it hard to play catchup once other firms have a significant head start on it.  However, innovation also comes with significant financial implications. Overlooking key cost factors can quickly derail your plans and jeopardize your product’s success, as well as business survival.

new product development process
Image courtesy of The AIM Institute

Innovation and new product development

Did you know that 52% of the businesses on the Fortune 500 in 2000 aren’t around today? By the same token, many of today’s most profitable businesses didn’t exist 10 years ago. Without constant innovation, your company might be the next one to disappear into history. Innovation is a driving force in the global economy that can lead to economic growth, job creation, and increased competition. It can also help businesses succeed by:

  • Problem-solving: Innovation can help people look at things from a different perspective, which can lead to creative solutions
  • Increased revenue: Improved products, services, or processes can attract more customers, encourage sales, and increase customer confidence
  • Increased productivity: Innovation can motivate professionals when their ideas are implemented
  • Increased efficiency: Innovation can help businesses reduce costs, shorten process times, and increase sustainability
  • Differentiation: Innovation can help businesses stand out from competitors
  • Reduced risk: Innovation can help businesses adapt to industry changes quickly
  • Innovation can strengthen a brand’s personality and attachment to its target market

Think of innovation as a freight train. Once other companies begin the development of new products, they may have months or years of effort expended before you even notice the threat. Catching up with those years of effort isn’t something you can compress into a few days or weeks, especially if the competitor has a patent or other forms of protection for their intellectual property. With the new product, your competitors might attract your customers away, leaving you in their dust.  Thus, opportunities for innovation should always be part of your long-term planning if you hope to stay in business.

The innovation process

The image above shows the various stages and processes involved in innovation. These processes require considerable time and money, as well as people with the right skills and mindset to think outside the box. This is especially true in the idea generation stage, where poor ideas or ones that fail to consider culture doom your innovation from the start.

Idea generation

Ideation involves a creative process to develop the beginnings of new products. Organizations with successful ideation programs encourage all employees to think about ideas unconstrained by practicality or fit between the idea and the firm. We call this the fuzzy front end of the innovation process. Below you can see some tools used early in the ideation process and the way ideas are filtered before moving on to the next stage in the process. Thus, ideation involves a relatively undisciplined stage involving generating ideas and idea screening, designed to filter ideas for organizational fit and potential. Testing the concept with prospective consumers might form part of this process, although you must consider that consumers aren’t in a great position to envision a radically new product that doesn’t exist so this part of ideation might require some advanced idea development.

Research and development (R&D)

Research and development is a critical phase that lays the groundwork for success. It involves the meticulous process of transforming ideas into functional prototypes.

This means your prototypes will be subjected to rigorous testing, iteratively refining the design until it meets the highest industry standards and customer expectations.

This part of the process requires a considerable allocation of resources, including specialized equipment and materials, subject matter experts, and dedicated facilities. Depending on the complexity of your product, research and development expenses can increase rapidly.

Marketing and promotion

No matter how innovative or well-designed a new product may be, without a robust marketing strategy behind it, the chances of success are slim to none. That process begins before or concurrent with R&D. The business must accurately assess the likely interest in their innovative idea before wasting money developing it further or building it, which are very costly compared with the processes that came before. You can’t afford to make a mistake.

I once worked for a marketing research firm. We were hired to explore market demand for a product ready for production before investing the millions of dollars it would take to begin manufacturing. Our research indicated a small demand for the product, citing reasons why consumers had little interest in its features and benefits. Despite our findings, the company felt their investment was too large to abandon the project. After investing heavily to retool their assembly line and produce the new product, the product failed miserably. You can’t afford to do that when innovating.

Of course, even a strong demand is useless unless you can convince your target market of the new product’s benefits. You also need effective marketing to promote your new product and to convince your target market of its benefits. That’s why simply releasing a new offering is not enough—you need to effectively promote and position it to capture your target audience’s attention.

This is why a comprehensive marketing budget is an essential investment when launching a new product. You should earmark funds for a multifaceted promotional approach spanning various channels and tactics.

This could include attention-grabbing advertising campaigns across traditional and digital media, strategic social media marketing efforts, exhibiting at relevant trade shows to directly engage with potential buyers, and even creating embossed promotional merchandise to reinforce brand recognition.

Manufacturing and production

Once your product design is finalized, you’ll need to factor in manufacturing and production costs. These expenses can also add up and they encompass raw materials, labor, equipment, and facilities required to produce your product at scale.

Additionally, you may need to explore outsourcing options or invest in specialized machinery, further impacting your budget.

Distribution and logistics

Even after you’ve developed and expertly marketed your new product, the journey is far from over. The next crucial step is getting that offering into the hands of eager customers, a process that inherently involves navigating a complex web of distribution and logistics costs.

For instance, you need secure warehousing facilities to maintain inventory levels and sophisticated management systems for tracking stock.

Moreover, delivering the product to end-users carries its own set of costs. Partnerships with brick-and-mortar retailers or online marketplaces often involve revenue-sharing agreements or listing fees.

For direct sales, you’ll want to invest in shipping materials, carriers, and last-mile delivery. Most importantly, thoroughly evaluate your chosen distribution channels, weighing factors like reach, speed, and reliability against the associated price tags.

Carefully vetting these options can help you ensure an efficient and cost-effective fulfillment process that keeps your customers happy while preserving your profit margins.

Ongoing support and maintenance

Your financial commitment doesn’t end with the product launch. You’ll also want to allocate resources for ongoing support, maintenance, and potential updates or upgrades.

This may include customer service personnel, technical support, warranty costs, and product enhancements based on customer feedback or evolving market demands. Having a solid plan in place for post-launch support will help ensure customer satisfaction and loyalty.

launch yourself to success

By thoroughly considering these five cost factors, you can develop a comprehensive budget and secure adequate funding for a successful product launch.


Remember, overlooking any of these considerations can lead to unexpected expenses, hindering your ability to achieve profitability and long-term sustainability.

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