Evaluating a Product’s Effectiveness
The success of any company depends on the effectiveness of its products or services and their contribution to meeting customer needs, as per Dr. Jordan Sudberg. An organization earns revenue through the sale of goods, services or both; therefore, it must assess the economic value of these products in order to determine whether they meet customers’ needs at an acceptable price. An effective product evaluation process helps organizations gain insights into the most appropriate ways to create and utilize products that will provide the greatest return for investment.
How To Measure Effectiveness of a Product
There are multiple ways companies can measure how well their product is performing. They include:
1. Customer satisfaction
This refers to customer responses such as complaints, compliments, and comments on the quality of service provided by one’s business. It also includes the actual sales figures from potential customers who have either bought the product or expressed willingness to buy it. A good indicator of customer satisfaction is the number of complaints received each month regarding the product. An effective product naturally has few if any complaints because it meets customers’ expectations.
2. Sales performance
An effective product should generate high sales volumes in comparison with other similar products. Some companies use monthly production statistics (e.g., hours per shift) to monitor sales volume. Another way is to calculate the average selling period (ASP), which measures the length of time between when a customer buys a product and when he returns it to a store for warranty replacement. This enables companies to compare their product against others.
3. Market Share
A higher market share is a good indication that one’s product provides better value than its competitors. In addition, a higher market share indicates that more consumers are willing to pay for a company’s product over those of its rivals. Market shares may be determined via surveys or questionnaires sent out to customers. For example, survey participants may indicate what makes them purchase a particular brand.
4. Cost-of-goods sold (COGS) ratio
Companies must keep track of costs associated with raw materials and manufacturing processes needed to produce their products. Total COGS represent all expenses directly related to producing the finished product. As such, this figure is often used as an indicator of product profitability. Companies must examine total COGS ratios before launching new products as these ratios help determine whether a product provides sufficient profit margins.
5. Return on Investment
A product is effective when its net financial benefits exceed overall costs. Therefore, measuring ROI enables organizations to know whether the expense incurred in making and marketing a product was justified by the monetary benefits derived from the product’s sales revenues. This information allows management to make informed decisions about the future direction of the product.
These are some of the top ways companies can measure the effectiveness of a product, according to pain management specialist Dr. Jordan Sudberg. Any entrepreneur should strive to create products that perform effectively, so they satisfy customers while generating significant profits.