If I had the definitive answer to this, I would be a millionaire! For the sake of simplicity (and for most real situations) we will assume that this question is asked by a manager at a company that has been in business, understands the market, and this is a new product for this company.

The basic **product development metrics** we will use are:

- Sales rate one year after launch
- Gross margin of the product

Thresholds for these two metrics are defined in the business case used to justify the cost of product development.

**Once we establish the metrics, take the following steps:**

- Review prior launch success rate of similar products. Apply the probabilities of the prior launches to the new product.
- Modify the probability (reduce it) if this is a new product that the company has not made before.
- Further reduce the probability if this is a new to the world product.
- Reduce the probability if this is a new market for the company.
- Greatly reduce the probability if you are not certain of the ‘product-market fit.’
- Create a risk matrix and compare the score of this product with past projects. Is the new product more or less risky, considering the market, cost, new technology, regulatory, etc.?

**These steps refer to internal factors. Consider also these external factors:**

- How big is the market? If you were to capture 10% or 20%, would this exceed your sales threshold for the first year?
- How big is the largest player in the market? Do you think you have a substantial value proposition? If so, use the sales level of this competitive target as an estimate.
- How fast is the market growing? How mature is the market? How big is the sub-segment where this product will compete?

Let’s look at an example.

At some companies, the thresholds are $10M for sales after a full year (depends on company size), an IRR (Internal Rate of Return) of greater than 30%, and a Gross Margin greater than 50%.

If you have launched a large handful of products with risk vectors similar to the new product you are evaluating, you can apply the probabilities of up to seven similar launches to this product.

**Using the thresholds above, you find that the actual values for the seven are:**

- Sales = $8M
- IRR = 22%
- Gross Margin = 52%

Let’s say the risk matrix indicates that this is slightly lower market risk than the prior seven. And let’s say the overall market is large, with the number one seller moving $25M per year and you have a very good competitive position.

With all things factored in, your new product has a high probability of clearing the threshold values. However, if the business case relied on $50M in sales, then the probability that you will clear the thresholds is very high – but the probability of making the business case is low.

The best way to estimate the probability of success is a combination of internal factors combined with an understanding of the competitive structure of the market environment. Triangulation provides the most reliable guidance with the least effort.