I nominate Achievement of Projected Sales Ramp Rate (Time to Ramp – “TTR”) as the single most important metric for your business.
To get resounding support for this, I’d better explain a few things.
First: What is the Sales Ramp?
It is the projected pace and level of orders projected in the first year after a product is made available. (The number of years may differ depending on the level of innovation or industry.)
Why is it important?
There are both Financial and Effectiveness reasons. I got a big lesson in these in the PC business, where we had no more than 3 months after product introduction to make money on products that had taken 12-18 months to develop. After three months, deep discounting would begin and you could abandon hope of making up the lost profits missed in those critical first months. The PC case may be an extreme case, but many people seem to think they have all the time in the world to make money on a new product. They don’t. I love a good delusion as much as the next guy, but the cost of this one is way too high.
From a financial standpoint, if you miss that ramp timing, your competitive position, lifetime revenue, and return on investment are all severely damaged. If you expect to sell fifty units of a product in the first year and, instead, it takes two years to do it, the return on that R&D investment will be much lower than planned. This is because of three unsympathetic and inescapable forces:
- the time-value of money,
- the impact of investing more money to get the same revenue, and
- the fact that technology itself diminishes in competitiveness over time.
From an execution effectiveness standpoint, focusing on Time to Ramp ensures that you
- Prepare the commercialization before introduction and
- Identify and solve start-up problems early.
More on these topics below.
How is it Time to Ramp (TTR) different from Time to Market (TTM)?
Time to Market refers to time span from the start of development until the product will be introduced. The articulation is simple: “We will introduce [the product] by [month] of [year].”
This metric became very popular as the value of being first to market and then the importance of fast product iteration became clear. Those are still very valid concepts, but a narrow focus on time to market has a dark side.
Time to Ramp measures the span from start of development to the time at which the initial targeted order rate is reached.
At the outset of a project this metric would read as follows:
“By [target date] we will have developed and introduced [the product] and will have achieved the following level of order dollars: [$______]. Projected ROI of the project: [____]”
On the designated target date, the metric report would state one of these:
- “All Metrics achieved”, or
- “TTR goal not met, new estimate for TTR is [ _____] Revised ROI: [____]”,
- Or, in your case, “Metric exceeded by $_____, ROI exceeded by _____”
Figure 2 summarizes the benefits of this approach.
So you see, this isn’t really about the metric; it is about the behaviors that that metric brings to light and the positive behavior and process changes that it drives. Some of those changes:
- New introduction requirements that include more of what is actually necessary for the product to meet its early milestones
- Ensuring that marketing and sales are aligned and investing in full commercialization rather than just introduction of the product
- Elevating everyone’s position and engaging more of their talents by making them aware of and accountable for the project’s return on investment
So far I’ve highlighted the business benefits of adopting this metric, but among the most important benefits is that employees will be happier, broader and more confident in their future with the company. I am sure that either as an employee or as a manager you have seen how much employees worry when they see important things that are not getting done. They know or fear that those omissions will diminish the impact of their own hard work. Adopting TTR metric not only shows that management “gets it”, it prompts employees to raise and address many common gaps. Sure, that means more action items, but employees would rather have to prioritize from a full list of the actions that spell success than execute on a perilously incomplete list. The more holistic view of project execution also requires functions to work together. That kind of collaboration fuels employee development, flexibility and innovation.
Ok, I have to stop now before I find myself swearing that this metric can make your dog immortal or do away with world hunger. Before I sign off: Why the waterfall? A great metric is like the land formation under a waterfall. Both naturally lead diverse sources of energy into a flow that has extraordinary power, reach and impact.
- How to assess your Time to Ramp performance and solve key causes of underperformance.
- How to modify Product Introduction requirements to promote great TTR results.
[Waterfall photo by Kevin Connors ]
Tagged: commercialization, early sales, marketing metrics, product introductions, sales, time to market, time to ramp
Here’s a topic close to my heart! (logical, as I’m a “Commercialization person”) I agree with all you say, and you simply can’t start enough the process to include the “field” as well as customers. Only then you can define the real added value of planned differentiators in your product. Otherwise you might be just be doing something different that doesn’t really matter to your customer and wasting a lot of money. The basis of Value Based Pricing.. Taia, maybe another topic for your blog?
A good executed commercialization plan allows TTR targets to be met, customers and sales people to be motivated. And if the communication has been taken care of in a compelling and persuasive way the discounting might be within the set limits as well. Oh, and don’t forget the (sales) trainings. Plus a few more issues which I’m sure will be handled in future blogs.