What are the best methods to test a concept's financial viability?

1 Break-even analysis

One of the simplest ways to test a concept's financial viability is to perform a break-even analysis. This is a calculation that shows how many units you need to sell or how much revenue you need to generate to cover your fixed and variable costs. Fixed costs are the expenses that do not change with the level of output, such as rent, salaries, and equipment. Variable costs are the expenses that vary with the level of output, such as materials, packaging, and shipping. To perform a break-even analysis, you need to estimate your fixed costs, variable costs per unit, and selling price per unit. Then, you can use this formula: Break-even point (units) = Fixed costs / (Selling price - Variable costs). Alternatively, you can use this formula: Break-even point (revenue) = Fixed costs / (1 - Variable costs / Selling price). A break-even analysis can help you determine if your concept can generate enough sales to cover your costs and be profitable.

2 Customer validation

Another way to test a concept's financial viability is to validate it with your potential customers. This means asking them if they are willing to pay for your product or service, how much they are willing to pay, and what features or benefits they value the most. Customer validation can help you assess the demand for your concept, the optimal pricing strategy, and the unique selling proposition. There are different methods to conduct customer validation, such as surveys, interviews, focus groups, landing pages, pre-sales, and crowdfunding campaigns. The key is to ask specific and relevant questions, collect quantitative and qualitative data, and analyze the feedback objectively.

4 Lean canvas

A lean canvas is a tool that helps you summarize your concept's financial viability in one page. It is based on the lean startup methodology, which emphasizes testing and validating your assumptions before building your product or service. A lean canvas consists of nine blocks that cover the main aspects of your concept, such as problem, solution, unique value proposition, customer segments, revenue streams, cost structure, key metrics, unfair advantage, and channels. A lean canvas can help you communicate your concept's financial viability to yourself, your team, and your stakeholders. It can also help you identify and prioritize the most critical and risky assumptions that you need to test and validate.

5 MVP testing

A minimum viable product (MVP) is a version of your product or service that has the minimum features or functionality needed to satisfy your early adopters and generate feedback. MVP testing is a method of testing a concept's financial viability by launching your MVP to a small group of customers and measuring their behavior and response. MVP testing can help you validate your value proposition, pricing strategy, customer acquisition, retention, and satisfaction. It can also help you learn from your mistakes, iterate your concept, and improve your product or service. There are different ways to create and test an MVP, such as prototypes, mockups, wireframes, demos, beta versions, and concierge services.