Why check commercial viability?

Have you ever had an idea for a product but not sure if it would fly? And then thought it was too hard to even try? Well, it is easier than you think. In this post, we’ll go through the steps to do a quick “back of the envelope” calculation to evaluate the viability of the commercialisation of a product.

As an example, we’ll use a “indoor temperature/humidity sensor” as the product idea – obviously something that is already out there! Note: we’ll be making some wild guestimations at this stage.

The first and main areas we want to target are the Market (sales) and the Technical (costs) parts


Main questions

  • Market/market share: how many can you sell?
  • Price point: for how much?


Assuming our target market is only Australia (not good, but a start), how many households are there? 10M? What percentage would want to know the indoor temperature/humidity? Think about your friends… 5%?

Note: your friends group is usually not a great representation of the general population, but will do for this exercise!

So, 5% of 10M = 500K which is your total addressable market (TAM).

Let’s assume that in the first three years, your sales will be 1% of the TAM for each year. i.e. 3% share after 3 years. That would be 5K units each year for 3 years.

How much could you charge? Are there any competing solutions? or comparable products? Let’s assume $25


Main questions

  • How much are the fixed costs (R&D + tooling)?
  • How much will it each unit cost (variable)?

Split into logical/manageable parts

  • Electronics
  • Software
  • Enclosure


Electronics – R&D ~ $10K, $7 per unit

Software – R&D ~$5K

Enclosure – R&D ~ $10K, $25K tooling and $1 per unit

Assembly – $2 per unit

Fixed costs: $50K, variable costs: $10 per unit.


Breakeven point: 50K + 10x = 25x => x = 50k/(15) = 3.3Kunits

Cost over 3 years: 15K units => 50K + 10x15K = $200K

Sales over 3 years: 15K units => 25x15K = $375K

Commercial viability calculations

These are the basics, but if it is starting to make commercial sense, you can gradually add more detail. See below!


Marketing/sales costs

  • Marketing budget might be around 20% of COGs
  • Sales/distributions costs would need to be added (or subtracted from your price point).


  • Admin
  • Marketing/sales/support


  • Office space/storage
  • Website development and maintenance
  • Software/licenses
  • Insurance


  • Company & business set-up
  • Trademarks, patents and other IP related expenses
  • Regulatory costs (if applicable)
  • Various agreements

As you go through each layer of costs, and the venture still makes sense, you keep on going, adding more detail and refining the calculations. These can form the start of your business plan!

If you need any assistance with assessing the commercial viability of your product idea, feel free to reach out to us!