How do you project revenue for a product that hasn’t been shipped yet? Our leadership team wants to understand how fast it will grow.

So, in my experience of building 0-to-1, I've never had to do this before exploring a potential new product 😅 and candidly, I really don't like doing it because any projections are in my experience educated guesses based on inherently flawed source data - historical data that may not apply anymore, all sorts of biases, differences between other products and your new product, etc. What I try to do instead of offering revenue projections is work with my leadership/stakeholders/et al to understand that the primary initial goal of shipping the MVP is to learn and validate. We can use other metrics to understand whether the product is viable (eg. repeat usage, engagement, etc. depending on the product's value proposition) and, in parallel, start to gauge what potential users are willing to pay for said product. Those two things together will help inform possible revenue projections.

Start with a Total addressable market (TAM) * share of TAM you can get in next 3-5 years *confidence level *Revenue per user per year * 3-5 years.

In the RICE framework, you would divide TAM * Share of TAM (influence) * Confience/ Effort to then help prioritize. (Desc)

Calculating Share of TAM you can get in next 3-5 years is a art more than science. Do a SWOT analysis for yourself, incumbents in the market, if any and emerging players. Also keep in mind that market/users may not always be ready to adopt. So factor in the barrier to adoption/switching costs.

Confidence level is based on your ablity to execute and deliver results- ship great products, great customer support, sales channels, marketing (even if lo-budget). Do you have the right team to get this done? Is the technology there yet? Are there high risk dependencies?

When setting up any new line of business, revenue projection is an important step to understand the expected outcomes and viability of the business. For new a new product, you should have:

• The basic market analysis including market sizing and TAM (total addressable market)
• Competitor growth rates and revenue acquisition at comparable stages of growth
• The market segment you are positioning the product in, and its current and projected growth rate
• Revenue and monetization strategy for your new product, including pricing, expected paid user acquisition and retention rates (based on initial product/market testing)

You can use these inputs to create an initial revenue projection model. You can do a best-guess estimate for rates where there is little data available. You can always tweak these models as data starts coming in post-launch.

I recommend creating three projections – expected or target growth, above target growth, and below target. This will help you get a basic floor and ceiling or bounding box of your revenue in the first year.

Projecting revenue for a product that hasn't shipped yet can be challenging, but there are some steps you can take to estimate potential revenue:

• Define your target market: Start by defining your target market and estimating the size of the market. This will give you an idea of the potential customer base for your product.

• Estimate market penetration: Estimate the percentage of the target market that you can realistically capture with your product. This will depend on factors such as competition, pricing, and the uniqueness of your product.

• Determine pricing strategy: Decide on a pricing strategy for your product. This could include a subscription model, one-time purchase, or freemium model. Your pricing strategy will impact the revenue potential of your product.

• Estimate customer lifetime value (CLV): Estimate the customer lifetime value for your product. This is the amount of revenue you can expect to generate from each customer over their lifetime. This will depend on factors such as the length of the customer relationship and the average purchase frequency.

• Estimate customer acquisition cost (CAC): Estimate the customer acquisition cost for your product. This is the cost of acquiring each customer through marketing and sales efforts. This will depend on factors such as the marketing channels you use and the level of competition in the market.

• Calculate revenue potential: Use the estimates for market size, market penetration, pricing, CLV, and CAC to calculate the revenue potential for your product. This will give you an idea of the total revenue you can expect to generate over a certain period of time.

• Conduct sensitivity analysis: Conduct sensitivity analysis to understand the impact of different variables on your revenue projections. This can help you identify areas of risk and uncertainty in your revenue projections.

It's important to remember that revenue projections for a product that hasn't been shipped yet are just estimates and are subject to a high degree of uncertainty. However, by following these steps and conducting thorough research and analysis, you can provide your leadership team with a realistic estimate of the potential revenue for your product.

There are a couple of different things you have to do and validate that can help demonstrate the revenue potential. 

• You have to do is TAM (Total Addressable Market) analysis. For this, you are looking for industry reports - how an industry has grown, how spending has grown, back of the envelope calculation in how big the market size is
• From this, you get into the SAM (Serviceable Available Market), what portion of the TAM you will serve based on your product. You can extrapolate that if you already have a product and are expanding into adjacent verticals and the core problems you are trying to address
• With this, you start with some basic assumptions and build a model of potential revenue you can realistically capture every year. As your product matures you will be able to capture more so there is a baked-in growth rate. 

Projecting revenue for a product that hasn't been shipped yet can be challenging since it involves forecasting future outcomes based on limited information. However, you can utilize several approaches to estimate revenue growth, listing a few of them below:

1. Conduct market research to understand market size, growth rates, and revenue potential.

2. Determine the total addressable market (TAM) and assess revenue potential within each market segment.

3. Define pricing strategy and business model, considering product differentiation and competitive pricing.

4. Estimate customer acquisition and conversion rates to determine the number of customers and revenue generation.

5. Develop financial projections based on revenue drivers, growth assumptions, and customer acquisition rates.

6. Seek insights from industry experts and consider industry benchmarks for revenue growth patterns.

7. Communicate the inherent uncertainty of revenue projections and regularly update them as more data becomes available.

Any revenue projections for a product that hasn't been shipped yet inherently carry a higher level of uncertainty. Make sure to communicate the associated risks and assumptions to the leadership team. Regularly review and update revenue projections as more data becomes available and the product gains traction in the market.

If this is a brand new product (i.e no existing product in market) you can go the TAM route:

• Do a total addressable market (TAM) analysis - you can either use public sources or pay for private sources to understand the market size. Make sure you understand the specific segments in your TAM.

• Determine what market share you already have from that TAM.

• Determine how much additional market share you expect to have and in how much time.

• Based on your average sales price (ASP) you can then determine what revenue you plan to make.

If you have an existing product in the market and you are about to launch a new product that is an attach to that existing product then you can build an attach forecast model based on early learnings and talking to customers.

There will be a lot of assumptions baked in in these forecasts. That's ok. Base your assumptions on data you have access to - for e.g. you may find a few blogs/articles online that say that in your domain customer sign-up > activation rate is 10-15%. Create a conservative model with 10% and an optimistic model with 15%. Then you can use this to align with your leadership. You can also be super conservative by saying your conversion will be 5% since you are early and haven't optimized the conversion funnel.

Lastly, align with your leadership on what does ideal look like to them - for e.g. if they want to raise Series A in 18 months then they may need to get to $xM in revenue in that time period. Or if you are an established company then every new product is an opportunity cost - your leadership may say that you need to get to xM customers in 3 years or $xM in 3 years and you need to work backwards on can you get there.

Projecting revenue for a product that hasn't been shipped is a tough but essential exercise for any organization.

Some key inputs are:

• Market size and potential addressable market: important to clearly understand and define the target users/customers and overall market size you are going after.

• Competitor size and metrics: how large are the competitors? What core metrics are they going after?

• Product pricing model: What is the pricing strategy your product would go after? Freemium, subscription, ads etc.? How does this align with the business model of the product?

• Sales strategy: Plan for customer acquisition and costs involved

• Engineering and other cost (Support etc.): estimate the cost of building a MVP product that you can iterate quickly on

• Core Metrics: measuring the success of the product via a set of core metrics

Based on the above points, consider building our various scenarios while considering the headwinds your product might face. Think many spreadsheets to navigate this challenging problem!

Start by mapping your leading and lagging metrics 

• Leading metrics examples include sales and customer engagement, customer usage 

• Lagging metrics examples include bookings, revenue, retention rate, upsell 

It is critical to plan your leading engagement KPIs, especially in new product launches. Think of these as your early indicators of success. For eg: 

• Sales metrics like number of outreach efforts, response rates, opportunities created, conversion rates

• Customer engagement metrics like daily or weekly active users, number of sessions per user, session duration

• Customer intent metrics like support ticket rate, time-to-value, customer sentiment feedback 

These leading indicators can predict future performance. As part of the product business case, create different scenarios like best-case, worst-case, and most likely case that connects these leading indicators to potential lagging outcomes like revenue.

By articulating your leading-to-lagging revenue assumptions, you can help your leadership team visualize potential growth trajectories. After launch, continuously measure and optimize these leading indicators to proactively drive successful revenue growth.

I don't really have a "scientific" answer to this - I've always done this in 2 ways: creating a bottom-up model, and trying to find data from other companies/competitors to benchmark against.

Bottom-up model

I've usually done this in a giant spreadsheet, trying to build a model with a lot of documented assumptions. Here's how we did it for Jira Product Discovery:

• First, decide on how we would package and price the product, which we did via conversations with our early lighthouse customers, a survey, etc. We landed on: per user pricing, some users pay, some users don't, at a price of $10/user to promote collaboration use cases (we didn't want the price per user to be a blocking point to invite more people to collaborate). I'm not an expert at this but I highly recommend this conversation between Lenny and Madhavan Ramanujam on "the art and science of pricing"

• Then, estimate how much revenue, based on that, we could get from the current customer base in the beta. We ran a beta for about 18 months and had > 1000 companies using the product for free. We made assumptions about how many of them would buy the product based on their usage of the product and what we knew about them from our other products (e.g. if they're already paying for Jira, if they're paying for more than one product, etc.). We already knew how many users they had on Jira Product Discovery, so with a price of $10/user we were able to estimate initial revenue in the months following general availability

• After that we estimated sign-ups and conversions.

  • For that we used the data we had from sign-ups and conversions from the beta, we adjusted it (because beta was free), and we compared with sign-up and conversion rates from other products at Atlassian - some were a good benchmark (early products), some were not (more mature products).

  • We also estimated the impact of experiments we would run to try and recommend the product to existing users of Jira. We knew this was going to be our main distribution strategy, which we had validated via a few experiments already, so we had some data to work with.

  • Based on this we came up with a guesstimation of signups / month, conversion rates from trial to free/paid (which would go down in time as we reach more customers who are not early adopters), we took into account an element of churn, we estimated the number of users per customer (based on beta users, and also assuming we'd progressively reach bigger companies), etc.

• We added to the model future initiatives that could impact revenue - for example the launch of a Premium plan at a higher price point.

• Etc. - basically we built a bottom-up estimation based on everything we knew (data) but also bets into the future (new features that make the product appealing to more customers, new plans)

The model is usually wrong at the beginning, but it does get better over time as real data comes in.

Benchmark with competitors

At the very beginning of the product, before we even wrote a single line of code, we tried to assess the TAM/SAM/SOM. There's a lot of literature online about how you do that.

What I found works best for me is to assess this by proxy, by looking at other players in the market/competitors. You can find a great deal about a company by crawling its blog, finding out who is in charge, look for talks they gave, opinions they give online, etc. There is so much information online. For example: a competitor might claim they have X users, and you can match that to their pricing structure (public information) and estimate their ARR (Annual Recurring Revenue). They might boast on a podcast that they have 80% growth in the past year - that gives you an idea of their momentum. Do that for a few companies and it gives you an idea of the current size of the pie and how big the pie is growing. And you can decide how big of a slice of that pie you want/need in 1-3-5 years for this to be worth it.

Careful though: another company making $100M ARR is not a guarantee it will be the same for you: it also depends on your business model, pricing and packaging.

By using a combination of these 2 approaches (bottom-up, top-down) you can usually get to a decent answer. But remember all this is bullshit up until the moment where customers take out their credit card! So make sure to find ways to keep testing your prospects' willingness to pay from very early days.