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In any business journey, leaders must make tough calls about which products to continue offering and which to discontinue to facilitate long-term profitability and growth.
When Steve Jobs returned to Apple as CEO in 1997, he found a bloated and underperforming company. It decided to eliminate more than 70% of its existing product line, which included more than a dozen versions of the MacIntosh computer and focused on four main products: two desktop computers and two “portable” laptops.
Jobs designed sleek, eye-catching products at the company that performed as well or better than their competitors. “Deciding what not to do is as important as deciding what to do,” he defended the decision to eliminate dozens of existing proposals. It’s hard to imagine that Apple could have ever become the largest company in the world without Jobs’ bold decision to simplify Apple’s bloated product line and start from scratch.
Related: Advice From Adults: Deciding When to Retire a Product
Jobs’ scorched-earth approach worked for Apple, but your own product evaluation shouldn’t be so drastic. Here are the main considerations:
Is the product profitable?
The profitability of a given product is the simplest way to determine its continued viability. If you keep investing in a product that people don’t want to buy, sometimes you have to put your ego aside and declare defeat. However, it is not always as simple as the result of sales and profit.
Costco has kept the price of the hotdog/soda combo at $1.50 since 1985, and it has become part of the company’s brand heritage. Adjusted for inflation, the combo would cost about $4.50, but the company knows the loss leader is a draw for its customers and a good way to build brand loyalty. Combos are as much a part of Costco’s identity as giant shopping carts and bulk offers.
But when evaluating any product—even a potential loss leader that helps you in a big way—you need to know the product’s profit margin and understand how it performs over time.
There are many ways to track product profitability, including calculating operating margin, net profit margin, or gross profit margin, which subtracts cost of goods sold (COGS) from gross profit. If the product’s gross revenue in a given period is $100,000 and the COGS is $30,000, the product’s gross profit margin is $70,000, or 70%.
The calculation method is not as important as consistently tracking data with the same metric over a long enough period to account for short-term changes such as winter holiday sales spikes and seasonal dips. I recommend tracking at least two years of data before making any decisions. This will give you a clear picture of how your product is performing in terms of profitability and overall sales trends.
Given that profit margins can vary significantly from one sector to another, and that every business has its own profit goals, there is no right answer as to what level of profit is acceptable. However, if your product is consistently losing money and generating no other benefits (such as the Costco hot dog combo that generates repeat customers), it’s time to move on.
Related: Is it time to exit your business? How to adapt when your product stagnates
Does the product continue to meet a market need?
Technological advances can make once profitable products obsolete. It is important to regularly assess whether your product currently meets market demand and will continue to do so in the near future.
The automotive industry is undergoing a serious transition to electric vehicles. Sales of electric vehicles rose to almost 9% of total US vehicle sales in Q3 2024, up from 5.3% in Q1 2022. Does this mean car companies should ditch their non-EV products? Of course not.
The gas-powered Ford F-15 continues to be the best-selling vehicle in the country, selling more than 750,000 units. The best-selling EV was the Tesla-Y with 403,000 units. So while there’s clear demand for electric cars, that doesn’t mean Ford has to abandon its best-selling product anytime soon.
Thus, you should regularly conduct a proper assessment of your product’s viability in current and future markets.
Larger businesses may hire market research firms to thoroughly analyze where your product stands against competitors and assess its future viability against projected market trends.
For small businesses, Google Trends is a free tool that allows them to conduct their own market research by assessing customer behavior, even on a regional basis, general industry trends and product demand. There are dozens of excellent tutorials online.
Regularly researching market and sales trends will give you an idea of the market, where it’s going and where your product fits. Just as you want to sell your home, you need to familiarize yourself with the housing market in your area. That way, you can adjust to its trends, prices and demand levels, so you can price your home for optimal returns.
How do your customers feel about your product?
Before making any changes to your product line, it’s important to consider how your customers feel. Consider the example of Canadian company Research In Motion (RIM), which offers mobile devices with physical keyboards with its BlackBerry line. RIM dominated the market from the late 2000s to 2011 with a loyal customer base that loved the company’s physical keyboards.
As RIM began to lose ground after the introduction of Apple’s iPhone and Android platforms with increasingly popular touchscreens, RIM tried to step in by developing both a touchscreen and a physical keyboard version of the product. To compensate for the increased production costs, they outsourced production from Canada to Taiwan, and the quality of the devices dropped dramatically.
Ultimately, the poor quality of the new products failed to attract new customers and turned away those previously loyal to Blackberry. The bottom line is that it’s important to follow consumer trends, but it may be even more important to consider your own customer’s preferences before making drastic changes.
Post-purchase online surveys allow customers to provide direct, immediate product feedback, with Survey Monkey and Typeform offering cost-effective solutions. Social media searches are less representative of the wider market, as people typically only post about products they love or hate, but measure how customers feel at a given moment. Hootsuite and Brandwatch are great tools to help with your analysis. Focus groups with customers are another way to find out how customers view your product, whether they will buy it again or how it can be refined for wider appeal.
Conducting a Net Promoter Score (NPS) survey is another useful way to gauge how customers perceive your product and whether they are promoters or detractors when discussing your offering with others. A high NPS indicates a strong product perception, while a low score means there’s an issue you need to investigate.
Ultimately, evaluating a product’s contributions to your company’s bottom line and whether it will provide significant strategic value in the future can be more of an art than a science. However, the above tools should provide a solid foundation for understanding what works and what doesn’t in order to sustain and grow a successful business.