| Developing accurate forecasts is important to medical | | | | is important that capital equipment that is not |
| technology companies for both the financial and | | | | captured in a revenue model is accounted for when a |
| operational aspects of the business. Forecasts assist | | | | build forecast is developed to insure adequate supply |
| the finance group as they develop revenue plans, | | | | to meet customer's demands. Forecasts for |
| determine appropriate expense levels, and forecast | | | | disposable devices which require a capital equipment |
| the profitability of the company. The operations | | | | component should also include assumptions for the |
| group uses forecasts to develop a production | | | | number of disposables which will be utilized over a |
| schedule, to make component buying decisions, and | | | | given time period for each unit of capital equipment |
| to plan for any required capacity changes needed to | | | | available in the field. Assessing the productivity of |
| meet demand. | | | | capital units for generating disposables sales revenue |
| Developing a sales forecast for existing products can | | | | is an excellent method for arriving at metrics which |
| easily be arrived at by conducting a statistical analysis | | | | can be used in the future to adjust a forecasting |
| of historical sales data and then combining this | | | | model. |
| information with anticipated changes in market | | | | For implants which require specialized instrumentation |
| dynamics, sales organization structure and pricing. | | | | sets, forecasts should take into account the number |
| Forecasting sales revenue and product utilization for | | | | of sets which will be available in the field when |
| novel medical technologies becomes much more | | | | projecting sales. If a limited number of instrument |
| difficult due in part to the lack of historical sales data | | | | sets are available at launch due to production |
| and the unknowns associated with a new product in | | | | capacity of budgetary constraints, assumptions for |
| the marketplace. | | | | the revenue model should be adjusted accordingly. |
| Developing an accurate forecast for new medical | | | | The product adoption curve can be accelerated as |
| technologies is both an art and a science. Using input | | | | the number of instrument sets available increases |
| from market based assumptions and company | | | | over time. Similar to a capital equipment/ disposable |
| related parameters, a spreadsheet-based model can | | | | device model, assumptions for the likely number of |
| be built which allows the user to more accurately | | | | implant procedures per available instrument set over |
| forecast sales revenue and product demand. With | | | | a given time period is an excellent metric to develop |
| these models, users can determine the effect that | | | | and track following product launch. Since instrument |
| changes to baseline assumptions can have on the | | | | sets are often loaned to customers on a |
| forecast. | | | | consignment basis and may not be associated with |
| Market Factors | | | | direct sales revenue, there is a need to account for |
| While spreadsheet-based forecasting models can be | | | | these sets separately as a part of the build forecast. |
| used to predict sales revenue and product demand, | | | | The structure and makeup of the sales organization |
| numerous market related factors can substantially | | | | is another important company-related factor which |
| influence the accuracy of forecasting models for new | | | | can significantly affect the sales ramp for a new |
| medical technologies. Potential market factors include | | | | medical technology. The use of a direct vs. distributor |
| the competitive environment for the product, pricing | | | | sales force, the number of products the sales force |
| sensitivity within the target market, and the ease of | | | | is promoting, and previous experience the sales |
| gaining hospital committee or buying group approval. | | | | representatives have with the introduction of new |
| Broader market factors include the economic | | | | products are all important elements to consider when |
| conditions within the marketplace, patient-related | | | | developing sales projections. The impact of |
| factors which affect their access to the product, and | | | | differential financial incentives to sales representatives |
| seasonality of the business. Understanding the | | | | associated with selling the newer technology |
| influence market-related factors may have on the | | | | compared to other products should also be |
| adoption curve for a new technology and factoring | | | | considered. |
| these into the assumptions for the forecasting model | | | | Forecasting for new medical technologies can be |
| is imperative. | | | | further complicated if the strategic plan includes the |
| Company-related Factors | | | | launch of the product in differing geographic markets. |
| There are also a variety of company-related factors | | | | Differences in the timing of introduction into these |
| which can affect forecasting for new medical | | | | markets, the use of alternative sales channels, and |
| technologies. The timing of product availability and the | | | | differences in both market dynamics and pricing |
| ability to build sufficient inventory to meet product | | | | structures create the need for more complex models |
| demand are critical factors towards determining the | | | | and the ability to create multiple assumptions and |
| timing of a proper product launch. If the new | | | | modeling scenarios. |
| technology is a product line extension, there is the | | | | A company's long-term pricing strategy should also be |
| potential for the new product to cannibalize current | | | | considered when developing revenue forecasts |
| business. If the product is a planned add-on to the | | | | especially if the forecasts will be utilized as a part of |
| product line which is anticipated to expand | | | | a 3 to 5 year strategic planning process. Anticipated |
| applications and use for the technology, the ability to | | | | future incremental or year over year pricing increases |
| leverage existing business is a key factor to consider | | | | should be included in the model to insure any |
| when building a forecasting model. Sales history | | | | increased sales revenue resulting from increased |
| associated with the company's introduction of | | | | pricing is accounted for. |
| previous new products can also be used as a guide | | | | Conclusion |
| to developing assumptions. | | | | Developing an accurate sales forecast for a new |
| The type of product the new technology represents | | | | technology requires a thorough understanding of both |
| can also influence the assumptions used when | | | | market and company-related factors which can |
| forecasting since differing product types have their | | | | influence the adoption curve for the product. The |
| own unique market dynamics. If the technology is | | | | development of a forecasting model which has |
| stand alone capital equipment, the customer access | | | | variable inputs that can be modified in order to |
| to working capital and the timing of start of a new | | | | assess the impact of changes to the basic |
| fiscal year are important considerations. The | | | | assumptions used for the model can be useful. |
| availability of alternative capital placement programs | | | | Validating the results of the forecasting by |
| can also influence forecasting since these may | | | | conducting a reality check of the modeled |
| expand the ability for hospitals to access the | | | | productivity metrics can help to insure the accuracy |
| technology. If the technology requires capital | | | | of the model. Revenue forecasting and product build |
| equipment and a disposable component, the hospital | | | | models should be assessed periodically and adjusted |
| might also have the ability to bundle disposable | | | | to reflect additional insights and changes to market |
| purchases in order to obtain the capital equipment. It | | | | dynamics which have occurred since product launch. |