Estimating

When you have an idea for something its difficult to get it moving until you manage to put some shape and a ‘number’ to it. In all of my professional life I’ve found this to be true, to get people to take action you need to put a hard number to it that they can understand and get behind.

How to put a number to my offering

For projects I’ve used a countdown of days to the ‘go-live’ date (25 days to Boom!)
For businesses I’ve used a profit per product that they graft hard to produce (That’s cost you the profit on Fifty widgets!!)

But putting a number to something can be very difficult and its not always easy to know where to start.

Estimating for me is about the 3-point method:

• Pick the Worst case
• Pick the Best case
• Pick the Likely case

Now this can be for the cost of beads for your creation if you’re into Etsy, or Number of customers for your Book if you’re an author, or the profit you get for your new offering to the market.

Worked example of estimating a price

Let’s say I want to put together a fantastic Training Course to help people with designing their new offering. Things I would need to estimate are:

• Cost to Produce – it’s going to be a series of videos
• Cost to Deliver – it will be sold on an on-line distributor of digital products
• Cost to Market – I will advertise on Google

Putting numbers to these factors is:

• Costs me 1,500 to create the video using a freelancer
• Costs me 80 (20 bucks a month for 4 months) I use eJunkie or similar to host and provide the eCommerce
• Costs me 200 bucks on Google Adwords

So the Total cost is:

• Produce = 1,500
• Deliver = 80
• Market = 200

• Totaling = 1,780

So I now know the COST to create my offering and get it to market and advertise it is 1,780.

So how do I estimate my price?

There is a difference between the COST for the offering and how you then get to a PRICE that people can buy it at. There are a couple of high level approaches that will help your estimating:

• How much will the market bear
• How much are competitors selling for
• Take your costs and add a bit on top for your profit

All of which are perfectly acceptable ways to assess what the estimate boundaries should be.

Taking the numbers approach that we’ve already embarked on:

I estimate the total number of Sales Units (Videos) I’m going to sell
I set a Target amount of money I want to make from this offering

• Sales Units = 125
• Target I want to make = 10,000 bucks

So I now make my formula read:

Costs

• Produce it = 1,500
• Deliver it = 80
• Market it = 200

Sales

• Units I will sell = 125
• Target profit I want to make = 10,000

(Produce + Deliver + Market) + Target profit) / Units sold = Sale Price

(1,500 + 80 + 200) + 10,000) / 125 = 92.96 Sale Price per unit to make my 10,000 Target

So now you know how to get to the ‘price’ where does the estimating come into play?

Estimating the Best, Worst and Likely Price

Estimating for me is about the three-point method:

• Pick the Worst case
• Pick the Best case
• Pick the most Likely case

So using the example above I’ll change it to run an estimate of the ‘sales units’:

• Best case = 150
• Worst case = 25
• Likely case = 90

Just to be clear here the Likely Case is what feels like the most likely. Some people use research of the markets, benchmarks, competitor info, formulas / ratios and others just go with their gut feel or judgement. Also, please note I haven’t said the ‘middle case’ – this could mislead people into thinking that the Likely should be an avrage in the middle, it’s not and should be your judgement of where you are expecting to be please.

Best case

(Produce + Deliver + Market) + Target profit) / Units sold = Sale Price

(1,500 + 80 + 200) + 10,000) / 125 = 77.46 Sale Price per unit to make my 10,000 Target

Worst case

(Produce + Deliver + Market) + Target profit) / Units sold = Sale Price

(1,500 + 80 + 200) + 10,000) / 125 = 464.80 Sale Price per unit to make my 10,000 Target

Likely case

(Produce + Deliver + Market) + Target profit) / Units sold = Sale Price

(1,500 + 80 + 200) + 10,000) / 125 = 129.11 Sale Price per unit to make my 10,000 Target

 

I have used the ‘sales units’ as the factor to be estimated in the example but if you changed it to estimate the ‘Produce’ factor to have a Best, Likely and Worst you could get a feel for what ‘Sale Price’ you would need to have to get the Target that you want.

Now armed with that information you can go and put a number to your offering and get that idea off the ground and into business faster.